<PAGE>
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PROSPECTUS GOLDMAN SACHS FIXED INCOME FUNDS
CLASS A, B AND C SHARES
March 1, 1998
GOLDMAN SACHS ADJUSTABLE RATE GOLDMAN SACHS MUNICIPAL INCOME FUND
GOVERNMENT FUND Seeks a high level of current income
that is exempt from regular federal in-
come tax, consistent with preservation
Seeks a high level of current of capital. The Fund invests primarily
income, consistent with low in municipal securities.
volatility of principal. The
Fund invests primarily in GOLDMAN SACHS CORE FIXED INCOME FUND
adjustable rate mortgage
pass-through securities and Seeks a total return consisting of cap-
other mortgage securities ital appreciation and income that ex-
with periodic interest rate ceeds the total return of the Lehman
resets, which are issued or Brothers Aggregate Bond Index. The Fund
guaranteed by the U.S. invests primarily in fixed-income secu-
government, its agencies, rities, including securities issued or
instrumentalities or guaranteed by the U.S. government, its
sponsored enterprises. agencies, instrumentalities or spon-
sored enterprises, corporate securi-
GOLDMAN SACHS SHORT DURATION ties, mortgage-backed securities and
GOVERNMENT FUND asset-backed securities.
Seeks a high level of current
income and secondarily, in GOLDMAN SACHS GLOBAL INCOME FUND
seeking current income, may
also consider the potential
for capital appreciation. The
Fund invests primarily in
securities issued or
guaranteed by the U.S.
government, its agencies,
instrumentalities or
sponsored enterprises.
GOLDMAN SACHS SHORT DURATION Seeks a high total return, emphasizing
TAX-FREE FUND current income and, to a lesser extent,
providing opportunities for capital ap-
Seeks a high level of current preciation. The Fund invests primarily
income, consistent with in a portfolio of high quality fixed-
relatively low volatility of income securities of U.S. and foreign
principal, that is exempt issuers and foreign currencies.
from regular federal income
tax. The Fund invests GOLDMAN SACHS HIGH YIELD FUND
primarily in municipal
securities.
GOLDMAN SACHS GOVERNMENT
INCOME FUND
Seeks a high level of current income
and secondarily, may also consider the
Seeks a high level of current potential for capital appreciation. The
income, consistent with Fund invests primarily in fixed-income
safety of principal. The Fund securities rated below investment
invests primarily in grade.
securities, including
mortgage-backed securities,
issued or guaranteed by the
U.S. government, its
agencies, instrumentalities
or sponsored enterprises.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated March 1, 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED INCOME SECURITIES.
INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND/OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser
to the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights...................... 1
Fees and Expenses.................... 8
Financial Highlights................. 12
Investment Objectives and Policies... 17
Description of Securities............ 24
Risk Factors......................... 32
Investment Techniques................ 35
Investment Restrictions.............. 39
Portfolio Turnover................... 39
Management........................... 40
Reports to Shareholders.............. 43
How to Invest........................ 44
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Services Available to Shareholders. 51
Distribution and Authorized Dealer
Service Plans..................... 54
How to Sell Shares of the Funds.... 55
Dividends.......................... 56
Net Asset Value.................... 57
Performance Information............ 57
Shares of the Trust................ 58
Taxation........................... 59
Additional Information............. 61
Appendix........................... 62
Account Application
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is qualified
in its entirety by the more detailed information contained in this
Prospectus.
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 further
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
Adjustable Rate Government and Short Duration Government Funds. Goldman Sachs
Asset Management serves as Investment Adviser to the Short Duration Tax-Free,
Core Fixed Income, Government Income, Municipal Income and High Yield Funds.
Goldman Sachs Asset Management International serves as Investment Adviser to
the Global Income Fund. As of January 26, 1998, the Investment Advisers,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $140 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
1
<PAGE>
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INVESTMENT INTEREST RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
<S> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government
RATE current income, to 1-year total assets in Securities
GOVERNMENT consistent with U.S. Treasury securities issued or
FUND low volatility Security guaranteed by the
of principal. Maximum = 2 years U.S. government,
its agencies,
instrumentalities
or sponsored
enterprises
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government
GOVERNMENT current income, U.S. Treasury total assets in Securities
FUND and secondarily, Security plus U.S. Government
in seeking current or minus .5 years Securities
income, may Maximum = 3 years and repurchase
also consider the agreements
potential for collateralized
capital appreciation. by such securities.
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa
TAX-FREE current income, Brothers net assets in
FUND consistent with 3-year Municipal municipal securities.
low volatility Bond Index
of principal, plus or minus
that is exempt .5 years
from regular Maximum = 4 years
federal
income tax.
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of U.S. Government
INCOME current income, Brothers Mutual total assets in U.S. Securities; non-U.S.
FUND consistent with Fund Government/ Government Government
safety of Mortgage Index Securities, including Securities =
principal. plus or minus mortgage-backed AAA/Aaa
1 year U.S. Government
Maximum = Securities and
6 years repurchase
agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
<S> <C> <C>
ADJUSTABLE Fixed-rate 6-month and
RATE mortgage 1-year U.S.
GOVERNMENT pass-through Treasury Security
FUND securities
and repurchase
agreements
collateralized by
U.S. Government
Securities.
SHORT DURATION Mortgage pass- 2-year U.S.
GOVERNMENT through Treasury Security
FUND securities and
other securities
representing an
interest in or
collateralized
by mortgage loans.
SHORT DURATION U.S. Government Lehman Brothers
TAX-FREE Securities 3-Year Municipal
FUND and repurchase Bond Index
agreements
collateralized
by such securities.
GOVERNMENT Non-government Lehman Brothers
INCOME mortgage pass- Mutual Fund
FUND through securities, Government/
asset-backed Mortgage Index
securities and
corporate
fixed income
securities.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum = BBB/Baa U.S. Government
INCOME current income Brothers 15-year net assets in Average = AA/Aa Securities and
FUND that is exempt Municipal Bond municipal securities. repurchase
from regular Index plus agreements
federal income or minus 1 year collateralized by
tax, consistent Maximum = such securities.
with preservation 12 years
of capital.
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa Foreign fixed-
INCOME FUND consisting of Brothers assets in fixed- Minimum for income,
capital Aggregate Bond income securities, non-dollar municipal and
appreciation and Index plus or including securities = AA/Aa convertible
income that minus 1 year U.S. Government securities,
exceeds the total Maximum = 6 years Securities, foreign currencies
return of the corporate, and repurchase
Lehman Brothers mortgage-backed agreements
Aggregate Bond and asset-backed collateralized
Index. securities. by U.S.
Government
Securities.
GLOBAL A high total return, Target = J.P. 6-year bond Securities of U.S. Minimum = BBB/Baa Mortgage and asset
INCOME emphasizing Morgan Global and foreign At least 50% = backed securities,
FUND current Government governments and AAA/Aaa foreign currencies
income, and, to Bond Index corporations. and repurchase
a lesser extent, (hedged) plus agreements
providing or minus 2.5 years collateralized by
opportunities Maximum = U.S. Government
for capital 7.5 years Securities or
appreciation. certain foreign
government
securities.
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% = Mortgage-backed
FUND current income Brothers High assets in fixed- BB/Ba or below and asset-backed
and, secondarily, Yield Bond Index income securities securities, U.S.
capital appreciation. plus or minus rated below Government
2.5 years investment grade, Securities,
Maximum = including U.S. investment grade
7.5 years and non-U.S. dollar corporate fixed-
corporate debt, income securities,
foreign government structured
securities, securities,
convertible foreign currencies
securities and repurchase
and preferred stock. agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
<S> <C>
MUNICIPAL Lehman Brothers
INCOME 15-Year
FUND Municipal
Bond Index
CORE FIXED Lehman Brothers
INCOME FUND Aggregate Bond
Index
GLOBAL J.P. Morgan
INCOME Global
FUND Government Bond
Index (hedged)
HIGH YIELD Lehman Brothers
FUND High Yield
Bond Index
</TABLE>
3
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations, and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. Call risk
typically results when interest rates have declined. Under such
circumstances, a Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension risk (i.e., where the issuer exercises its right to pay principal
on an obligation later than scheduled) causes cash flows to be returned
later than expected. Extension risk typically results when interest rates
have increased. Under such circumstances a Fund will suffer from the
inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Because of their tax-exempt status, the
yields and market values of municipal securities may be more adversely
impacted by changes in tax rates and policies than taxable fixed-income
securities.
Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments
4
<PAGE>
and currencies include changes in relative currency exchange rates,
political and economic developments, the imposition of exchange controls,
confiscation and other governmental restrictions. In addition, the
securities markets of foreign countries are generally less liquid and
subject to greater price volatility. To the extent that the Core Fixed
Income, Global Income and High Yield Funds invest in emerging markets and
countries, these risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
Diversified and Non-Diversified Funds. Each Fund, other than the Global
Income Fund, is a "diversified open-end management company" as defined under
the Investment Company Act of 1940, as amended (the "Act"). The Global
Income Fund is a "non-diversified open-end management company" as defined
under the Act and is, therefore, subject only to certain federal tax
diversification requirements (to which the other Funds are also subject), in
addition to the policies adopted by the Investment Adviser. To the extent
that the Fund is not diversified under the Act, it will be more susceptible
to adverse developments affecting any single issuer of portfolio securities.
See "Investment Restrictions."
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 45.
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 44.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer three classes of shares through this Prospectus (other
than the Adjustable Rate Government Fund which does not currently, but may
in the future, offer Class B or Class C shares). These shares may be
purchased at the investor's choice, at a price equal to their next
determined net asset value ("NAV") (i) plus an initial sales charge imposed
at the time of purchase ("Class A shares"), (ii) with a contingent deferred
sales charge imposed on redemptions within six years of purchase ("Class B
shares") or (iii) without any initial or contingent deferred sales charge,
as long as shares are held for one year or more ("Class C shares"). Except
with respect to the Adjustable Rate Government Fund, direct purchases of $1
5
<PAGE>
million ($500,000 in the case of the Short Duration Government and Short
Duration Tax Free Funds) or more of Class A shares will be sold without
an initial sales charge and will be subject to a contingent deferred
sales charge at the time of certain redemptions.
<TABLE>
<CAPTION>
ADJUSTABLE RATE MAXIMUM INITIAL MAXIMUM CONTINGENT
GOVERNMENT FUND SALES CHARGE DEFERRED SALES CHARGE
--------------- --------------- ---------------------
<S> <C> <C>
Class
A.... 1.5% N/A
<CAPTION>
SHORT DURATION
GOVERNMENT FUND
SHORT DURATION
TAX-FREE FUND
-----------------
<S> <C> <C>
Class
A.... 2.0% (See above)
Class
B.... N/A 2% declining to 0% after three years
Class
C.... N/A 1% if shares are redeemed within 12 months of purchase
<CAPTION>
GOVERNMENT INCOME FUND
MUNICIPAL INCOME FUND
CORE FIXED INCOME FUND
GLOBAL INCOME FUND
HIGH YIELD FUND
----------------------
<S> <C> <C>
Class
A.... 4.5% (See above)
Class
B.... N/A 5% declining to 0% after six years
Class
C.... N/A 1% if shares are redeemed within 12 months of purchase
</TABLE>
Over time, the deferred sales charge and distribution fees attributable
to Class B or Class C shares will exceed the initial sales charge and
distribution fees attributable to Class A shares. Class B shares convert
to Class A shares, which are subject to lower distribution fees, eight
years after initial purchase. Class C shares, which are subject to the
same distribution fees as Class B shares, do not convert to Class A
shares and are subject to the higher distribution fees indefinitely. See
"How to Invest--Alternative Purchase Arrangements" on page 44.
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined
under "Additional Information," at the net asset value next determined
after receipt of such request in proper form, subject to any applicable
contingent deferred sales charge. See "How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government................... Daily Monthly Annually
Short Duration Government.................... Daily Monthly Annually
Short Duration Tax-Free...................... Daily Monthly Annually
Government Income............................ Daily Monthly Annually
Municipal Income............................. Daily Monthly Annually
Core Fixed Income............................ Daily Monthly Annually
Global Income................................ Monthly Monthly Annually
High Yield................................... Daily Monthly Annually
</TABLE>
6
<PAGE>
You may receive dividends in additional shares of the same class of the
Fund in which you have invested or you may elect to receive dividends in
cash, shares of the same class of other mutual funds sponsored by Goldman
Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime
Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if you hold
Class A shares of a Fund, or ILA Class B or Class C Units of the Prime
Obligations Portfolio, if you hold Class B or Class C shares of a Fund (the
"ILA Portfolios"). For further information concerning dividends, see
"Dividends."
7
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION SHORT DURATION GOVERNMENT
GOVERNMENT GOVERNMENT TAX-FREE INCOME
FUND/5/ FUND/5/ FUND FUND/5/
--------------- --------------------------- --------------------------- ---------------------------
CLASS A CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
--------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed on
Purchases......... 1.5%/1/ 2.0%/1/ none none 2.0%/1/ none none 4.5%/1/ none none
Maximum Sales
Charge Imposed on
Reinvested
Dividends......... none none none none none none none none none none
Maximum Deferred
Sales Charge...... none/1/ none/1/ 2.0%/2/ 1.0%/3/ none/1/ 2.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........... none none none none none none none none none none
Exchange Fees/4/.. none none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after applicable
limitations)/6/... 0.40% 0.50% 0.50% 0.50% 0.40% 0.40% 0.40% 0.65% 0.65% 0.65%
Distribution
(Rule 12b-1) Fees
(after applicable
limitations)/7/... 0.00% 0.00% 0.60% 0.75% 0.00% 0.60% 0.75% 0.00% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.13% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.00% 0.00% 0.00%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/... 0.78% 0.80% 1.40% 1.55% 0.70% 1.30% 1.45% 0.90% 1.65% 1.65%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
MUNICIPAL CORE FIXED GLOBAL
INCOME INCOME INCOME
FUND FUND FUND
----------------------------- ----------------------------- -----------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed on
Purchases......... 4.5%/1/ none none 4.5%/1/ none none 4.5%/1/ none none
Maximum Sales
Charge Imposed on
Reinvested
Dividends......... none none none none none none none none none
Maximum Deferred
Sales Charge...... none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/ none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........... none none none none none none none none none
Exchange Fees/4/.. none none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after applicable
limitations)/6/... 0.55% 0.55% 0.55% 0.40% 0.40% 0.40% 0.59% 0.59% 0.59%
Distribution
(Rule 12b-1) Fees
(after applicable
limitations)/7/... 0.00% 0.75% 0.75% 0.00% 0.75% 0.75% 0.21% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.12% 0.12% 0.12%
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/... 0.85% 1.60% 1.60% 0.70% 1.45% 1.45% 1.17% 1.71% 1.71%
========= ========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
HIGH
YIELD
FUND/5/
-----------------------------
CLASS A CLASS B CLASS C
--------- --------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales
Charge Imposed on
Purchases......... 4.5%/1/ none none
Maximum Sales
Charge Imposed on
Reinvested
Dividends......... none none none
Maximum Deferred
Sales Charge...... none/1/ 5.0%/2/ 1.0%/3/
Redemption
Fees/4/........... none none none
Exchange Fees/4/.. none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage
of average daily
net assets)
Management Fees
(after applicable
limitations)/6/... 0.65% 0.65% 0.65%
Distribution
(Rule 12b-1) Fees
(after applicable
limitations)/7/... 0.00% 0.75% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees............ 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)/8/. 0.20% 0.20% 0.20%
--------- --------- ---------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATIONS)/9/... 1.10% 1.85% 1.85%
========= ========= =========
</TABLE>
- ----
/1/ As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. Except with
respect to direct purchases of the Adjustable Rate Government Fund, a
contingent deferred sales charge of 1.00% is imposed on certain
redemptions (within 18 months of purchase) of Class A shares sold without
an initial sales charge as part of an investment of $1 million ($500,000
in the case of Short Duration Government and Short Duration Tax Free
Funds) or more. See "How to Invest--Offering Price."
/2/ With the exception of the Short Duration Government Fund and the Short
Duration Tax-Free Fund, a contingent deferred sales charge is imposed upon
shares redeemed within six years of purchase at a rate of 5% in the first
year, declining to 1% in the sixth year, and eliminated thereafter. With
respect to Short Duration Government Fund and Short Duration Tax-Free
Fund, a contingent deferred sales charge is imposed on shares redeemed
within three years of purchase at a rate of 2.0% in the first year,
declining to 1% in the third year, and eliminated thereafter. See "How to
Invest--Offering Price--Class B Shares."
/3/ A contingent deferred sales charge of 1.00% is imposed on shares redeemed
within 12 months of purchase. See "How to Invest--Offering Price--Class C
Shares."
/4/ A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How
to Invest--Exchange Privilege."
/5/ Based on estimated amounts for the current fiscal year.
/6/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Global Income and High Yield
Funds equal to .31% and .05%, respectively. Without such limitations,
management fees would be .90% and .70% of each Fund's average daily net
assets, respectively.
8
<PAGE>
/7/ Goldman Sachs voluntarily has agreed not to impose the entire distribution
fee attributable to Class A shares of each Fund, except Global Income Fund
where Goldman Sachs voluntarily has agreed not to impose .04% of the
distribution fee. Goldman Sachs has also voluntarily agreed not to impose
.15% of the distribution fee attributable to Class B shares of the Short
Duration Government and Short Duration Tax-Free Funds. Distribution fees
for Class A and Class B shares would otherwise be payable at the rate of
.25% and .75%, respectively, of average daily net assets.
/8/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management, distribution and authorized dealer
service fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses (and transfer agency fees
in the case of the Global Income and High Yield Funds)) to the extent such
expenses exceed .05%, .05%, .00%, .05%, .05%, .06% and .14% of the average
daily net assets of the Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds, respectively.
/9/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds would have been as set forth below. The
information is for the fiscal year ended October 31, 1997 with the
exception of the Adjustable Rate Government Fund, Short Duration
Government Fund, Government Income Fund and High Yield Fund which are
estimated for the current fiscal year:
<TABLE>
<CAPTION>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
<S> <C> <C>
Adjustable Rate Government
Class A................................................... .13% 1.03%
Short Duration Government
Class A................................................... .32% 1.32%
Class B................................................... .32% 1.82%
Class C................................................... .32% 1.82%
Short Duration Tax-Free
Class A................................................... .83% 1.73%
Class B................................................... .83% 2.23%
Class C................................................... .83% 2.23%
Government Income
Class A................................................... .67% 1.82%
Class B................................................... .67% 2.32%
Class C................................................... .67% 2.32%
Municipal Income
Class A................................................... .57% 1.62%
Class B................................................... .57% 2.12%
Class C................................................... .57% 2.12%
Core Fixed Income
Class A................................................... .43% 1.33%
Class B................................................... .43% 1.83%
Class C................................................... .43% 1.83%
Global Income
Class A................................................... .20% 1.60%
Class B................................................... .20% 2.10%
Class C................................................... .20% 2.10%
High Yield
Class A................................................... .39% 1.59%
Class B................................................... .39% 2.09%
Class C................................................... .39% 2.09%
</TABLE>
In addition, for the year ended October 31, 1997, the Investment Adviser
waived and reimbursed certain fees and expenses such that "Other Expenses" and
"Total Operating Expenses" actually incurred by the Adjustable Rate Government
Fund were 0.09% and 0.74%, respectively. Without such limitations, "Other
Expenses" and "Total Operating Expenses" of the Fund would have been 0.12% and
1.02%, respectively.
For the year ended October 31, 1997, the Investment Adviser voluntarily
agreed that a portion of the management fee would not be imposed on the Short
Duration Government and Government Income Funds equal to 0.10% and 0.40%,
respectively. Without such limitations, management fees would have been 0.50%
and 0.65% of each Fund's average daily net assets, respectively. In addition,
the Investment Adviser reimbursed certain expenses such that "Other Expenses"
actually incurred by the Short Duration Government and Government Income Funds
for Class A, B and C shares were 0.05% and 0.00%, respectively and "Total
Operating Expenses" were 0.70%, 1.30% and 1.45% and 0.80%, 1.25% and 1.25%,
respectively. Without such limitations, "Other Expenses" would have been 0.32%
and 0.67%, respectively, and "Total Operating Expenses" would have been 1.32%,
1.82% and 1.82% and 1.82%, 2.32% and 2.32%, respectively.
9
<PAGE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government Fund
Class A Shares.............................. $23 $40 $58 $110
Short Duration Government Fund
Class A Shares............................... 28 45 64 117
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 34 54 77 146
--Assuming no redemption.................... 14 44 77 146
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 26 49 84 185
--Assuming no redemption.................... 16 49 84 185
Short Duration Tax-Free Fund
Class A Shares............................... 27 42 58 105
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 33 51 71 136
--Assuming no redemption.................... 13 41 71 136
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 25 46 79 174
--Assuming no redemption.................... 15 46 79 174
Government Income Fund
Class A Shares............................... 54 72 93 151
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 67 82 110 170
--Assuming no redemption.................... 17 52 90 170
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 27 52 90 195
--Assuming no redemption.................... 17 52 90 195
Municipal Income Fund
Class A Shares............................... 53 71 90 145
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 66 80 107 165
--Assuming no redemption.................... 16 50 87 165
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 26 50 87 190
--Assuming no redemption.................... 16 50 87 190
Core Fixed Income Fund
Class A Shares............................... 52 66 82 128
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 65 76 99 149
--Assuming no redemption.................... 15 46 79 149
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 25 46 79 174
--Assuming no redemption.................... 15 46 79 174
Global Income Fund
Class A Shares............................... 56 80 106 181
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 67 84 113 180
--Assuming no redemption.................... 17 54 93 180
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 27 54 93 202
--Assuming no redemption.................... 17 54 93 202
High Yield Fund
Class A Shares............................... 56 78 N/A N/A
Class B Shares
--Assuming complete redemption at end of pe-
riod....................................... 69 88 N/A N/A
--Assuming no redemption.................... 19 58 N/A N/A
Class C Shares
--Assuming complete redemption at end of pe-
riod....................................... 29 58 N/A N/A
--Assuming no redemption.................... 19 58 N/A N/A
</TABLE>
10
<PAGE>
The hypothetical example assumes that a contingent deferred sales charge
will not apply to redemptions of Class A shares within the first 18 months.
Class B shares convert to Class A shares eight years after purchase;
therefore, Class A expenses are used in the hypothetical example after year
eight.
The Investment Advisers and Goldman Sachs have no current intention of
modifying or discontinuing any of the limitations set forth above but may do
so in the future at their discretion. The information with respect to the
Adjustable Rate Government Fund set forth in the foregoing table and
hypothetical example relates only to its Class A shares (the Fund does not
currently offer Class B or Class C shares); such information with respect to
the other Funds relates only to Class A, B and C shares. Each Fund also offers
Institutional and Service shares. The Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free and Core Fixed Income Funds, but
not the other Funds, also offer Administration Shares. Institutional,
Administration and Service Shares are subject to different fees and expenses
(which affect performance), have different minimum investment requirements and
are entitled to different services than Class A, Class B and Class C shares.
Information regarding Institutional, Administration and Service Shares may be
obtained from your sales representative or from Goldman Sachs by calling the
number on the back cover of this Prospectus. Because of the Distribution
Plans, long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted by the NASD's rules regarding
investment companies.
In addition to the compensation itemized above, certain institutions that
sell Fund shares and/or their salespersons may receive other compensation for
the sale and distribution of Class A, Class B and Class C shares of the Funds
or for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Management" and "Services
Available to Shareholders" in this Prospectus and "Other Information Regarding
Purchases, Redemptions, Exchanges and Dividends" in the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers."
11
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended October 31, 1997 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
------------------------------------------------ ----------------------------------------
NET
REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED
ON GAIN (LOSS) TOTAL
NET INVESTMENT, ON FOREIGN INCOME FROM
ASSET NET OPTION CURRENCY (LOSS) NET
VALUE AT INVEST- AND RELATED FROM INVEST-
BEGINNING MENT FUTURES TRANS- INVESTMENT MENT
OF PERIOD INCOME TRANSACTIONS ACTIONS OPERATIONS INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares... $9.83 $0.5914(a) $0.0494(a) -- $0.6408 $(0.5908)
1997-Administra-
tion Shares..... 9.83 0.5665(a) 0.0497(a) -- 0.6162 (0.5662)
1997-Service
Shares(m)....... 9.84 0.3298(a) 0.0400(a) -- 0.3698 (0.3298)
1997-Class A
Shares.......... 9.83 0.5662(a) 0.0500(a) -- 0.6162 (0.5662)
1996-Institu-
tional Shares... 9.77 0.5759(a) 0.0772(a) -- 0.6531 (0.5725)
1996-Administra-
tion Shares..... 9.77 0.5489(a) 0.0797(a) -- 0.6286 (0.5489)
1996-Class A
Shares.......... 9.77 0.5481(a) 0.0806(a) -- 0.6287 (0.5489)
1995-Institu-
tional Shares... 9.74 0.5630(a) 0.0717(a) -- 0.6347 (0.5759)
1995-Administra-
tion Shares..... 9.74 0.5366(a) 0.0737(a) -- 0.6103 (0.5528)
1995-Class A
Shares(c)....... 9.79 0.2721(a) (0.0090)(a) -- 0.2631 (0.2697)
1994-Institu-
tional Shares... 10.00 0.4341(a) (0.2455)(a) -- 0.1886 (0.4486)
1994-Administra-
tion Shares..... 10.00 0.4211(a) (0.2572)(a) -- 0.1639 (0.4239)
1993-Institu-
tional Shares... 10.04 0.4397 (0.0376)(d) -- 0.4021 (0.4397)
1993-Administra-
tion Shares(e).. 10.02 0.2146 (0.0173)(d) -- 0.1973 (0.2146)
1992-Institu-
tional Shares... 10.03 0.5599 (0.0029)(d) -- 0.5570 (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Institu-
tional Shares... 10.00 0.1531 0.0322(d) -- 0.1853 (0.1553)
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------------
IN EXCESS RATIO OF
FROM NET OF NET NET
REALIZED REALIZED INVEST-
GAIN ON IN GAIN ON NET MENT
INVESTMENT, EXCESS INVESTMENT, INCREASE NET RATIO OF INCOME
OPTION OF NET OPTION FROM TOTAL (DECREASE) ASSET NET TO
AND INVEST- AND PAID DISTRIBUTIONS IN NET VALUE AT EXPENSES AVERAGE
FUTURES MENT FUTURES IN TO ASSET END OF TOTAL TO AVERAGE NET
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) NET ASSETS ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares... -- -- -- -- $(0.5908) $0.0500 $9.88 6.70% 0.49% 5.99%
1997-Administra-
tion Shares..... -- -- -- -- (0.5662) 0.0500 9.88 6.43 0.74 5.73
1997-Service
Shares(m)....... -- -- -- -- (0.3298) 0.0400 9.88 3.81(f) 1.05(b) 5.64(b)
1997-Class A
Shares.......... -- -- -- -- (0.5662) 0.0500 9.88 6.43 0.74 5.60
1996-Institu-
tional Shares... -- (0.0206) -- -- (0.5931) 0.0600 9.83 6.86 0.45 5.85
1996-Administra-
tion Shares..... -- (0.0198) -- -- (0.5687) 0.0600 9.83 6.60 0.70 5.59
1996-Class A
Shares.......... -- (0.0198) -- -- (0.5687) 0.0600 9.83 6.60 0.70 5.59
1995-Institu-
tional Shares... -- (0.0287) -- -- (0.6046) 0.0301 9.77 6.75 0.46 5.77
1995-Administra-
tion Shares..... -- (0.0275) -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares(c)....... -- (0.0134) -- -- (0.2831) (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b)
1994-Institu-
tional Shares... -- -- -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-Administra-
tion Shares..... -- -- -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-Institu-
tional Shares... -- (0.0024) -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-Administra-
tion Shares(e).. -- (0.0027) -- -- (0.2173) (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b)
1992-Institu-
tional Shares... -- -- -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Institu-
tional Shares... -- -- -- -- (0.1553) 0.0300 10.03 2.14(f) 0.20(b) 7.31(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY
WAIVER OF FEES OR
EXPENSE
LIMITATIONS
---------------------
RATIO OF
NET
NET INVEST-
ASSETS MENT
AT END RATIO OF INCOME
PORTFOLIO OF EXPENSES TO
TURNOVER PERIOD TO AVERAGE AVERAGE
RATE(D) (IN 000S) NET ASSETS NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares... 46.58% $ 463,511 0.52% 5.96%
1997-Administra-
tion Shares..... 46.58 2,793 0.77 5.70
1997-Service
Shares(m)....... 46.58(f) 346 1.08(b) 5.61(b)
1997-Class A
Shares.......... 46.58 43,393 1.02 5.32
1996-Institu-
tional Shares... 52.36 613,149 0.51 5.79
1996-Administra-
tion Shares..... 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 52.36 10,728 1.01 5.28
1995-Institu-
tional Shares... 24.12 657,358 0.53 5.70
1995-Administra-
tion Shares..... 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... 24.12(f) 15,203 1.01(b) 5.55(b)
1994-Institu-
tional Shares... 37.81 942,523 0.49 4.35
1994-Administra-
tion Shares..... 37.81 6,960 0.74 4.24
1993-Institu-
tional Shares... 103.74 2,760,871 0.48 4.33
1993-Administra-
tion Shares(e).. 103.74(f) 5,326 0.73(b) 3.78(b)
1992-Institu-
tional Shares... 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1991-Institu-
tional Shares... 145.67(f) 239,642 1.02(b) 6.49(b)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
--------------------------------------------------- -----------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares.. $ 9.83 $0.6412(a) $0.0300(a) -- $0.6712 $(0.6412)
1997-Administra-
tion Shares.... 9.85 0.6183(a) 0.0400(a) -- 0.6583 (0.6183)
1997-Service
Shares......... 9.82 0.5904(a) 0.0401(a) -- 0.6305 (0.5904)
1997-Class A
Shares(o)...... 9.78 0.3121(a) 0.0883(a) -- 0.4004 (0.3004)
1997-Class B
Shares(o)...... 9.75 0.2787(a) 0.1011(a) -- 0.3798 (0.2698)
1997-Class C
Shares (p)..... 9.83 0.1185(a) 0.0225(a) -- 0.1410 (0.1110)
1996-Institutional
Shares ........ 9.82 0.6290(a) 0.0136 (a) -- 0.6426 (0.6326)
1996-Administra-
tion
Shares(h)...... 9.86 0.3837(a) 0.0003 (a) -- 0.3840 (0.3940)
1996-Service
Shares(i)...... 9.72 0.3134(a) 0.1018 (a) -- 0.4152 (0.3152)
1995-Institu-
tional Shares.. 9.64 0.6652(a) 0.1666 (a) -- 0.8318 (0.6518)
1995-Administra-
tion Shares.... 9.64 0.2384(a) (0.0433)(a) -- 0.1951 (0.2051)
1994-Institu-
tional Shares.. 10.14 0.5628(a) (0.4592)(a) -- 0.1036 (0.5598)
1994-Administra-
tion Shares.... 10.14 0.5329(a) (0.4539)(d) -- 0.0790 (0.5352)
1993-Institu-
tional Shares.. 10.16 0.5627 (0.0135)(d) -- 0.5492 (0.5627)
1993-Administra-
tion
Shares(e)...... 10.23 0.2725 (0.0900)(d) -- 0.1825 (0.2725)
1992-Institu-
tional Shares.. 10.22 0.6703 (0.0600)(d) -- 0.6103 (0.6703)
1991-Institu-
tional Shares.. 10.00 0.8020 0.2200 (d) -- 1.0220 (0.8020)
1990-Institu-
tional Shares.. 10.07 0.8300 (0.0700)(d) -- 0.7600 (0.8300)
1989-Institu-
tional Shares.. 10.10 0.8800 -- -- 0.8800 (0.8800)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institu-
tional Shares.. 10.00 0.1800 0.1000 (d) -- 0.2800 (0.1800)
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
-----------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED NET
GAIN ON GAIN ON INCREASE RATIO OF
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) NET ASSET NET
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET VALUE AT EXPENSES
FUTURES INVESTMENT FUTURES IN TO ASSET END OF TOTAL TO AVERAGE
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) NET ASSETS
------------ ---------- ------------ -------- ------------- ---------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares.. -- -- -- -- $(0.6412) $0.0300 $9.86 7.07% 0.45%
1997-Administra-
tion Shares.... -- -- -- -- (0.6183) 0.0400 9.89 6.91 0.70
1997-Service
Shares......... -- -- -- -- (0.5904) 0.0401 9.86 6.63 0.95
1997-Class A
Shares(o)...... -- -- -- -- (0.3004) 0.1000 9.88 4.14(f) 0.70(b)
1997-Class B
Shares(o)...... -- -- -- -- (0.2698) 0.1100 9.86 3.94(f) 1.30(b)
1997-Class C
Shares (p)..... -- -- -- -- (0.1110) 0.0300 9.86 1.44(f) 1.45(b)
1996-Institutional
Shares ........ -- -- -- -- (0.6326) 0.0100 9.83 6.75 0.45
1996-Administra-
tion
Shares(h)...... -- -- -- -- (0.3940) (0.0100) 9.85 4.00(f) 0.70(b)
1996-Service
Shares(i)...... -- -- -- -- (0.3152) 0.1000 9.82 4.35(f) 0.95(b)
1995-Institu-
tional Shares.. -- -- -- -- (0.6518) 0.1800 9.82 8.97 0.45
1995-Administra-
tion Shares.... -- -- -- -- (0.2051) (0.0100) 9.63(h) 2.10 0.70(b)
1994-Institu-
tional Shares.. (0.0438) -- -- -- (0.6036) (0.5000) 9.64 0.99 0.45
1994-Administra-
tion Shares.... (0.0438) -- -- -- (0.5790) (0.5000) 9.64 0.73 0.70
1993-Institu-
tional Shares.. -- (0.0065) -- -- (0.5692) (0.0200) 10.14 5.55 0.45
1993-Administra-
tion
Shares(e)...... -- -- -- -- (0.2725) (0.0900) 10.14 1.74(f) 0.70(b)
1992-Institu-
tional Shares.. -- -- -- -- (0.6703) (0.0600) 10.16 6.24 0.45
1991-Institu-
tional Shares.. -- -- -- -- (0.8020) 0.2200 10.22 10.93 0.45
1990-Institu-
tional Shares.. -- -- -- -- (0.8300) (0.0700) 10.00 8.23 0.45
1989-Institu-
tional Shares.. -- -- -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institu-
tional Shares.. -- -- -- -- (0.1800) 0.1000 10.10 3.30(f) 0.55(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
RATIO OF NET RATIO OF
NET ASSETS NET
INVESTMENT AT END RATIO OF INVESTMENT
INCOME PORTFOLIO OF EXPENSES INCOME
TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- ----------- ---------- ---------- ----------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares.. 6.43% 102.58% $103,729 0.82% 6.06%
1997-Administra-
tion Shares.... 6.19 102.58 1,060 1.07 5.82
1997-Service
Shares......... 5.92 102.58 3,337 1.32 5.55
1997-Class A
Shares(o)...... 6.05(b) 102.58(f) 9,491 1.32(b) 5.43(b)
1997-Class B
Shares(o)...... 5.52(b) 102.58(f) 747 1.82(b) 5.00(b)
1997-Class C
Shares (p)..... 5.52(b) 102.58(f) 190 1.82(b) 5.15(b)
1996-Institutional
Shares ........ 6.44 115.45 99,944 0.71 6.18
1996-Administra-
tion
Shares(h)...... 5.97(b) 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)...... 6.05(b) 115.45 1,822 1.21(b) 5.79(b)
1995-Institu-
tional Shares.. 6.87 292.56 103,760 0.72 6.60
1995-Administra-
tion Shares.... 7.91(b) 292.56 -- 0.90(b) 7.71(b)
1994-Institu-
tional Shares.. 5.69 289.79 193,095 0.59 5.55
1994-Administra-
tion Shares.... 5.38 289.79 730 0.84 5.24
1993-Institu-
tional Shares.. 5.46 411.66 359,708 0.64 5.31
1993-Administra-
tion
Shares(e)...... 4.84(b) 411.66 16,490 0.80(b) 4.74(b)
1992-Institu-
tional Shares.. 6.60 216.07 277,927 0.69 6.36
1991-Institu-
tional Shares.. 8.25 155.44 158,848 0.79 7.91
1990-Institu-
tional Shares.. 8.62 173.21 68,995 0.95 8.12
1989-Institu-
tional Shares.. 8.71 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1988-Institu-
tional Shares.. 8.55(b) 167.00(f) 39,052 1.42(b) 7.68(b)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares... $ 9.96 $0.4181(a) $ 0.1091(a) -- $ 0.5272
1997-Administra-
tion Shares..... 9.96 0.3924(a) 0.1100(a) -- 0.5024
1997-Service
Shares.......... 9.97 0.3675(a) 0.1000(a) -- 0.4675
1997-Class A
Shares(o)....... 9.94 0.1950(a) 0.1400(a) -- 0.3350
1997-Class B
Shares(o)....... 9.94 0.1663(a) 0.1368(a) -- 0.3031
1997-Class C
Shares(p)....... 10.04 0.0670(a) 0.0300(a) -- 0.0970
1996-Institu-
tional Shares... 9.94 0.4192(a) 0.0200(a) -- 0.4392
1996-Administra-
tion Shares..... 9.94 0.3944(a) 0.0200(a) -- 0.4144
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200(a) -- 0.3897
1995-Institu-
tional Shares... 9.79 0.4235(a) 0.1500(a) -- 0.5735
1995-Administra-
tion Shares..... 9.79 0.3989(a) 0.1500(a) -- 0.5489
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600(a) -- 0.5344
1994-Institu-
tional Shares... 10.23 0.3787(a) (0.3575)(a) -- 0.0212
1994-Administra-
tion Shares..... 10.23 0.3537(a) (0.3575)(a) -- (0.0038)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) -- (0.0225)
1993-Institu-
tional Shares... 9.93 0.3834 0.3000(d) -- 0.6834
1993-Administra-
tion Shares(j).. 10.16 0.1555 0.0720(d) -- 0.2275
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institu-
tional Shares... 10.00 0.0341 (0.0700)(d) -- (0.0359)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
Shares.......... $14.36 $ 0.91 $ 0.29 -- $ 1.20
1997-Class B
Shares.......... 14.37 0.80 0.30 -- 1.10
1997-Class C
Shares(p)....... 14.38 0.17 0.22 -- 0.39
1997-
Institutional
Shares(p)....... 14.37 0.20 0.22 -- 0.42
1997-Service
Shares(p)....... 14.37 0.20 0.21 -- 0.41
1996-Class A
shares.......... 14.47 0.92 (0.11) -- 0.81
1996-Class B
shares(q)....... 14.11 0.41 0.26 -- 0.67
1995-Class A
shares.......... 13.47 0.94 1.00 -- 1.94
1994-Class A
shares.......... 14.90 0.85 (1.28) -- (0.43)
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 14.32 0.56 0.58 -- 1.14
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
Shares.......... $14.37 $0.67 $0.62 -- $1.29
1997-Class B
Shares.......... 14.37 0.56 0.63 -- 1.19
1997-Class C
Shares(p)....... 14.85 0.12 0.14 -- 0.26
1997-
Institutional
Shares(p)....... 14.84 0.15 0.16 -- 0.31
1997-Service
Shares(p)....... 14.84 0.14 0.15 -- 0.29
1996-Class A
shares.......... 14.17 0.65 0.20 -- 0.85
1996-Class B
shares(q)....... 14.03 0.27 0.34 -- 0.61
1995-Class A
shares.......... 13.08 0.67 1.09 -- 1.76
1994-Class A
shares.......... 14.64 0.73 (1.51) -- (0.78)
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1993-Class A
shares.......... 14.32 0.22 0.32 -- 0.54
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED NET
GAIN ON GAIN ON INCREASE RATIO OF
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) NET ASSET NET
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET VALUE AT EXPENSES
INVESTMENT FUTURES INVESTMENT FUTURES IN TO ASSET END OF TOTAL TO AVERAGE
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) NET ASSETS
---------- ------------ ---------- ------------ ------- ------------- ---------- --------- ----------- ----------
SHORT DURATION TAX-FREE FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares... $(0.4172) -- -- -- -- $(0.4172) $ 0.1100 $10.07 5.40% 0.45%
1997-Administra-
tion Shares..... (0.3924) -- -- -- -- (0.3924) 0.1100 10.07 5.14 0.70
1997-Service
Shares.......... (0.3675) -- -- -- -- (0.3675) 0.1000 10.07 4.77 0.95
1997-Class A
Shares(o)....... (0.1950) -- -- -- -- (0.1950) 0.1400 10.08 3.39(f) 0.70(b)
1997-Class B
Shares(o)....... (0.1631) -- -- -- -- (0.1631) 0.1400 10.08 3.07(f) 1.30(b)
1997-Class C
Shares(p)....... (0.0670) -- -- -- -- (0.0670) 0.0300 10.07 0.97(f) 1.45(b)
1996-Institu-
tional Shares... (0.4192) -- -- -- -- (0.4192) 0.0300 9.96 4.50 0.45
1996-Administra-
tion Shares..... (0.3944) -- -- -- -- (0.3944) 0.0300 9.96 4.24 0.70
1996-Service
Shares.......... (0.3697) -- -- -- -- (0.3697) 0.0200 9.97 3.98 0.95
1995-Institu-
tional Shares... (0.4235) -- -- -- -- (0.4235) 0.1500 9.94 5.98 0.45
1995-Administra-
tion Shares..... (0.3989) -- -- -- -- (0.3989) 0.1500 9.94 5.76 0.70
1995-Service
Shares.......... (0.3744) -- -- -- -- (0.3744) 0.1600 9.95 5.59 0.95
1994-Institu-
tional Shares... (0.3787) (0.0825) -- -- -- (0.4612) (0.4400) 9.79 0.17 0.45
1994-Administra-
tion Shares..... (0.3537) (0.0825) -- -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70
1994-Service
Shares(j)....... (0.0475) -- -- -- -- (0.0475) (0.0700) 9.79 (0.32)(f) 0.95(b)
1993-Institu-
tional Shares... (0.3834) -- -- -- -- (0.3834) 0.3000 10.23 7.03 0.41
1993-Administra-
tion Shares(j).. (0.1555) -- -- -- -- (0.1555) 0.0720 10.23 2.28(f) 0.70(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institu-
tional Shares... (0.0341) -- -- -- -- (0.0341) (0.0700) 9.93 (0.34)(f) 0.05(b)
<CAPTION>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
Shares.......... $ (0.90) $ (0.07) -- -- -- $ (0.97) $ 0.23 $14.59 8.72% 0.50%
1997-Class B
Shares.......... (0.79) (0.07) -- -- -- (0.86) 0.24 14.61 7.96 1.25
1997-Class C
Shares(p)....... (0.17) -- -- -- -- (0.17) 0.22 14.60 2.72(f) 1.25(b)
1997-
Institutional
Shares(p)....... (0.20) -- -- -- -- (0.20) 0.22 14.59 2.94(f) 0.25(b)
1997-Service
Shares(p)....... (0.19) -- -- -- -- (0.19) 0.22 14.59 2.85(f) 0.75(b)
1996-Class A
shares.......... (0.92) -- -- -- -- (0.92) (0.11) 14.36 5.80 0.50
1996-Class B
shares(q)....... (0.41) -- -- -- -- (0.41) 0.26 14.37 4.85(f) 1.25(b)
1995-Class A
shares.......... (0.94) -- -- -- -- (0.94) 1.00 14.47 14.90 0.47
1994-Class A
shares.......... (0.85) (0.12) (0.02) (0.01) -- (1.00) (1.43) 13.47 (2.98) 0.11
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... (0.56) -- -- -- -- (0.56) 0.58 14.90 8.03(f) 0.00(b)
<CAPTION>
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
Shares.......... $ (0.67) -- -- -- -- $(0.67) $0.62 $14.99 9.23% 0.85%
1997-Class B
Shares.......... (0.56) -- -- -- -- (0.56) 0.63 15.00 8.48 1.60
1997-Class C
Shares(p)....... (0.12) -- -- -- -- (0.12) 0.14 14.99 1.75(f) 1.60(b)
1997-
Institutional
Shares(p)....... (0.15) -- -- -- -- (0.15) 0.16 15.00 2.10(f) 0.60(b)
1997-Service
Shares(p)....... (0.14) -- -- -- -- (0.14) 0.15 14.99 1.93(f) 1.10(b)
1996-Class A
shares.......... (0.65) -- -- -- -- (0.65) 0.20 14.37 6.13 0.85
1996-Class B
shares(q)....... (0.27) -- -- -- -- (0.27) 0.34 14.37 4.40(f) 1.60(b)
1995-Class A
shares.......... (0.67) -- -- -- -- (0.67) 1.09 14.17 13.79 0.76
1994-Class A
shares.......... (0.73) (0.05) -- -- -- (0.78) (1.56) 13.08 (5.51) 0.45
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1993-Class A
shares.......... (0.22) -- -- -- -- (0.22) 0.32 14.64 3.73(f) 0.00(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
RATIO OF NET RATIO OF
NET ASSETS NET
INVESTMENT AT END RATIO OF INVESTMENT
INCOME PORTFOLIO OF EXPENSES INCOME
TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
---------- ----------- ---------- ---------- ----------
SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Institu-
tional Shares... 4.18% 194.75% $ 28,821 1.23% 3.40%
1997-Administra-
tion Shares..... 3.91 194.75 77 1.48 3.13
1997-Service
Shares.......... 3.66 194.75 2,051 1.73 2.88
1997-Class A
Shares(o)....... 3.81(b) 194.75(f) 4,023 1.73(b) 2.78(b)
1997-Class B
Shares(o)....... 3.31(b) 194.75(f) 106 2.23(b) 2.38(b)
1997-Class C
Shares(p)....... 2.60(b) 194.75(f) 2 2.23(b) 1.82(b)
1996-Institu-
tional Shares... 4.21 231.65 34,814 1.01 3.65
1996-Administra-
tion Shares..... 3.96 231.65 48 1.26 3.40
1996-Service
Shares.......... 3.74 231.65 695 1.51 3.18
1995-Institu-
tional Shares... 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares..... 4.14 259.52 46 1.02 3.82
1995-Service
Shares.......... 3.87 259.52 454 1.27 3.55
1994-Institu-
tional Shares... 3.74 354.00 83,704 0.61 3.58
1994-Administra-
tion Shares..... 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)....... 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares... 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion Shares(j).. 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-Institu-
tional Shares... 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
<CAPTION>
GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
Shares.......... 6.38% 395.75% $ 68,859 1.82% 5.06%
1997-Class B
Shares.......... 5.59 395.75 8,041 2.32 4.52
1997-Class C
Shares(p)....... 5.45(b) 395.75(f) 1,196 2.32(b) 4.38(b)
1997-
Institutional
Shares(p)....... 7.03(b) 395.75(f) 1,894 1.32(b) 5.96(b)
1997-Service
Shares(p)....... 6.49(b) 395.75(f) 2 1.82(b) 5.42(b)
1996-Class A
shares.......... 6.42 485.09 30,603 1.89 5.03
1996-Class B
shares(q)....... 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A
shares.......... 6.67 449.53 29,503 2.34 4.80
1994-Class A
shares.......... 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- -------------------------------------------------------
1993-Class A
shares.......... 4.87(b) 725.41(f) 12,860 4.00(b) 0.87(b)
<CAPTION>
MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
Shares.......... 4.60% 153.12% $64,553 1.62% 3.83%
1997-Class B
Shares.......... 3.74 153.12 1,750 2.12 3.22
1997-Class C
Shares(p)....... 3.24(b) 153.12(f) 130 2.12(b) 2.72(b)
1997-
Institutional
Shares(p)....... 4.41(b) 153.12(f) 351 1.12(b) 3.89(b)
1997-Service
Shares(p)....... 4.24(b) 153.12(f) 2 1.62(b) 3.72(b)
1996-Class A
shares.......... 4.58 344.13 52,267 1.55 3.88
1996-Class B
shares(q)....... 3.55(b) 344.13(f) 255 2.05(b) 3.10(b)
1995-Class A
shares.......... 4.93 335.55 53,797 1.49 4.20
1994-Class A
shares.......... 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------------------
1993-Class A
shares.......... 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------- ---------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... $ 9.85 $0.6431 $0.2282 $(0.0005) $ 0.8708 $(0.6408)
1997-
Administration
Shares.......... 9.84 0.6182 0.2380 (0.0005) 0.8557 (0.6157)
1997-Service
Shares.......... 9.86 0.5937 0.2287 (0.0005) 0.8219 (0.5919)
1997-Class A
Shares(o)....... 9.70 0.3059 0.3596 (0.0008) 0.6647 (0.3048)
1997-Class B
Shares(o)....... 9.72 0.2686 0.3695 (0.0008) 0.6373 (0.2673)
1997-Class C
Shares(p)....... 9.93 0.1118 0.1591 (0.0003) 0.2706 (0.1107)
1996-
Institutional
Shares.......... 10.00 0.6448 (0.0704) -- 0.5744 (0.6438)
1996-
Administrative
Shares(/1/)..... 9.91 0.4083 (0.0703) -- 0.3380 (0.4080)
1996-Service
Shares(l)....... 9.77 0.3756 0.0898 -- 0.4654 (0.3754)
1995-
Institutional
Shares.......... 9.24 0.6423 0.7610 -- 1.4033 (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares.......... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648)
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares.......... $14.53 $ 0.59 $ 0.50 $ 0.27 $ 1.36 $ (0.79)
1997-Class B
shares.......... 14.53 0.72 0.36 0.20 1.28 (0.73)
1997-Class C
shares(p)....... 14.80 0.16 0.19 0.10 0.45 (0.19)
1997-
Institutional
Shares.......... 14.52 0.88 0.37 0.19 1.44 (0.87)
1997-Service
Shares(s)....... 14.69 0.53 0.25 0.14 0.92 (0.52)
1996-Class A
shares.......... 14.45 0.71 0.62 0.18 1.51 (1.43)
1996-Class B
shares(q)....... 14.03 0.34 0.41 0.11 0.86 (0.36)
1996-
Institutional
shares.......... 14.45 1.15 0.32 0.10 1.57 (1.50)
1995-Class A
shares.......... 13.43 0.89 0.92 0.15 1.96 (0.94)
1995-
Institutional
shares(r)....... 14.09 0.22 0.34 0.06 0.62 (0.26)
1994-Class A
shares.......... 15.07 0.84 (1.37) (0.12) (0.65) (0.22)
1993-Class A
shares.......... 14.69 0.85 1.07 (0.42) 1.50 (0.85)
1992-Class A
shares.......... 14.60 1.14 0.45 (0.36) 1.23 (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares.......... 14.55 0.25 0.23 (0.19) 0.29 (0.24)
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
FROM NET IN EXCESS OF RATIO OF
REALIZED NET REALIZED NET NET
GAIN ON GAIN ON INCREASE RATIO OF INVESTMENT
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) NET ASSET NET INCOME
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET VALUE AT EXPENSES (LOSS)
FUTURES INVESTMENT FUTURES IN TO ASSET END OF TOTAL TO AVERAGE TO AVERAGE
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) NET ASSETS NET ASSETS
------------ ---------- ------------ ------- ------------- ---------- --------- ---------- ---------- ----------
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.6408) $ 0.2300 $10.08 9.19% 0.45% 6.53%
1997-
Administration
Shares.......... -- -- -- -- (0.6157) 0.2300 10.07 8.92 0.70 6.27
1997-Service
Shares.......... -- -- -- -- (0.5919) 0.2300 10.09 8.65 0.95 6.00
1997-Class A
Shares(o)....... -- -- -- -- (0.3048) 0.3599 10.06 6.94(f) 0.70(b) 6.13(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.2673) 0.3700 10.09 6.63(f) 1.45(b) 5.28(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.1107) 0.1599 10.09 2.74(f) 1.45(b) 4.84(b)
1996-
Institutional
Shares.......... (0.0806) -- -- -- (0.7244) (0.1500) 9.85 5.98 0.45 6.51
1996-
Administrative
Shares(/1/)..... -- -- -- -- (0.4080) (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b)
1996-Service
Shares(l)....... -- -- -- -- (0.3754) 0.0900 9.86 4.90(f) 0.95(b) 6.37(b)
1995-
Institutional
Shares.......... -- -- -- -- (0.6433) 0.7600 10.00 15.72 0.45 6.56
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares.......... -- -- -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45(b) 6.48(b)
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares.......... -- -- -- -- $ (0.79) $ 0.57 $15.10 9.66% 1.17% 5.19%
1997-Class B
shares.......... -- -- -- -- (0.73) 0.55 15.08 9.04 1.71 4.76
1997-Class C
shares(p)....... -- -- -- -- (0.19) 0.26 15.06 3.03(f) 1.71(b) 4.98(b)
1997-
Institutional
Shares.......... -- -- -- -- (0.87) 0.57 15.09 10.26 0.65 5.72
1997-Service
Shares(s)....... -- -- -- -- (0.52) 0.40 15.09 6.42(f) 1.15(b) 5.33(b)
1996-Class A
shares.......... -- -- -- -- (1.43) 0.08 14.53 11.05 1.16 5.81
1996-Class B
shares(q)....... -- -- -- -- (0.36) 0.50 14.53 6.24(f) 1.70(b) 5.16(b)
1996-
Institutional
shares.......... -- -- -- -- (1.50) 0.07 14.52 11.55 0.65 6.35
1995-Class A
shares.......... -- -- -- -- (0.94) 1.02 14.45 15.08 1.29 6.23
1995-
Institutional
shares(r)....... -- -- -- -- (0.26) 0.36 14.45 4.42(f) 0.65(b) 6.01(b)
1994-Class A
shares.......... (0.16) -- -- (0.61) (0.99) (1.64) 13.43 (4.49) 1.28 5.73
1993-Class A
shares.......... (0.27) -- -- -- (1.12) 0.38 15.07 10.75 1.30 5.78
1992-Class A
shares.......... -- -- -- -- (1.14) 0.09 14.69 8.77 1.37 7.85
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares.......... -- -- -- -- (0.24) 0.05 14.60 2.00(f) 0.38(f) 1.72(f)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
---------------------
RATIO OF
NET NET
ASSETS INVESTMENT
AT END RATIO OF INCOME
PORTFOLIO OF EXPENSES (LOSS)
TURNOVER PERIOD TO AVERAGE TO AVERAGE
RATE(D) (IN 000'S) NET ASSETS NET ASSETS
----------- ---------- ---------- ----------
CORE FIXED INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... 361.27% $79,230 0.83% 6.15%
1997-
Administration
Shares.......... 361.27 6,176 1.08 5.89
1997-Service
Shares.......... 361.27 1,868 1.33 5.62
1997-Class A
Shares(o)....... 361.27(f) 9,336 1.33(b) 5.50(b)
1997-Class B
Shares(o)....... 361.27(f) 621 1.83(b) 4.90(b)
1997-Class C
Shares(p)....... 361.27(f) 272 1.83(b) 4.46(b)
1996-
Institutional
Shares.......... 414.20 72,061 0.83 6.13
1996-
Administrative
Shares(/1/)..... 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(l)....... 414.20 381 1.33(b) 5.99(b)
1995-
Institutional
Shares.......... 382.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares.......... 285.25 24,508 1.46(b) 5.47(b)
<CAPTION>
GLOBAL INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares.......... 383.72% $167,096 1.60% 4.76%
1997-Class B
shares.......... 383.72 3,465 2.10 4.37
1997-Class C
shares(p)....... 383.72(f) 496 2.10(b) 4.59(b)
1997-
Institutional
Shares.......... 383.72 60,929 1.04 5.33
1997-Service
Shares(s)....... 383.72(f) 151 1.54(b) 4.94(b)
1996-Class A
shares.......... 232.15 198,665 1.64 5.33
1996-Class B
shares(q)....... 232.15(f) 256 2.14(b) 4.72(b)
1996-
Institutional
shares.......... 232.15 54,254 1.11 5.89
1995-Class A
shares.......... 265.86 245,835 1.58 5.94
1995-
Institutional
shares(r)....... 265.86(f) 31,619 1.08(b) 5.58(b)
1994-Class A
shares.......... 343.74 396,584 1.53 5.48
1993-Class A
shares.......... 313.88 675,662 1.55 5.53
1992-Class A
shares.......... 270.75 588,893 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares.......... 34.22(f) 388,744 0.44(f) 1.66(f)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED
AND NET REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS
--------- ---------- ------------ ------------ ----------
HIGH YIELD FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares.......... $10.00 $0.17 $(0.03) 0.01 $0.15
1997-Class B
Shares.......... 10.00 0.15 (0.03) 0.01 0.13
1997-Class C
Shares(p)....... 9.97 0.14 -- 0.01 0.12
1997-Institu-
tional Shares... 10.00 0.18 (0.03) 0.01 0.16
1997-Service
Shares.......... 10.00 0.17 (0.03) 0.01 0.15
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
---------------------------------------------------------------------
FROM NET IN EXCESS OF
REALIZED NET REALIZED NET
GAIN ON GAIN ON INCREASE RATIO OF
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) NET ASSET NET
FROM NET OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET VALUE AT EXPENSES
INVESTMENT FUTURES INVESTMENT FUTURES IN TO ASSET END OF TOTAL TO AVERAGE
INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) NET ASSETS
---------- ------------ ---------- ------------ ------- ------------- ---------- --------- ----------- -----------
HIGH YIELD FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares.......... $(0.17) -- $(0.01) -- -- $(0.18) $(0.03) $9.97 1.50%(f) 0.95%(b)
1997-Class B
Shares.......... (0.15) -- (0.01) -- -- (0.16) (0.03) 9.97 1.31(f) 1.70(b)
1997-Class C
Shares(p)....... (0.14) -- (0.01) -- -- (0.15) (0.03) 9.97 1.46(f) 1.70(b)
1997-Institu-
tional Shares... (0.18) -- (0.01) -- -- (0.19) (0.03) 9.97 1.58(f) 0.70(b)
1997-Service
Shares.......... (0.17) -- (0.01) -- -- (0.18) (0.03) 9.97 1.46(f) 1.20(b)
<CAPTION>
RATIOS ASSUMING
NO VOLUNTARY WAIVER
OF FEES OR
EXPENSE LIMITATIONS
-----------------------
RATIO OF RATIO OF
NET NET NET
INVESTMENT ASSETS INVESTMENT
INCOME AT END RATIO OF INCOME
(LOSS) PORTFOLIO OF EXPENSES (LOSS)
TO AVERAGE TURNOVER PERIOD TO AVERAGE TO AVERAGE
NET ASSETS RATE(D) (IN 000'S) NET ASSETS NET ASSETS
----------- ----------- ---------- ----------- -----------
HIGH YIELD FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares.......... 7.06%(b) 44.80%(f) $325,911 1.57%(b) 6.44%(b)
1997-Class B
Shares.......... 6.28(b) 44.80(f) 10.308 2.07(b) 5.91(b)
1997-Class C
Shares(p)....... 6.17(b) 44.80(f) 1,791 2.07(b) 5.80(b)
1997-Institu-
tional Shares... 7.16(b) 44.80(f) 2 1.07(b) 6.79(b)
1997-Service
Shares.......... 6.69(b) 44.80(f) 2 1.57(b) 6.32(b)
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Short Duration Government Fund Administration shares were redeemed in full
on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if a sale charge for Class A shares
or a contingent deferred sales charge for Class B and Class C shares were
taken into account.
(l) Administration and Service share activity commenced on February 28, 1996
and March 13, 1996, respectively.
(m) Service charge activity commenced on March 27, 1997.
(n) Includes the balancing effect of calculating per share amounts.
(o) Class A and Class B share activity commenced on May 1, 1997.
(p) Commenced operations on August 15, 1997.
(q) Class B shares commenced operations on May 1, 1996.
(r) Institutional shares commenced operations on June 1, 1995.
(s) Service Class shares commenced operations on March 12, 1997.
16
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one nationally recognized statistical rating organization ("NRSRO") including,
but not limited to, Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's") even though it has been rated below the
minimum rating by one or more other NRSROs, or, if unrated, is determined by
the Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will usually have access to the research of, and
certain proprietary technical models developed by, Goldman Sachs and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a nine-month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other mortgage securities with periodic
interest rate resets. The remainder of the Fund's assets (up to 35%) may be
invested in other U.S. Government Securities, including fixed rate mortgage
pass-through securities, other securities representing an interest in or
collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-
Backed Securities") and repurchase agreements collateralized by U.S.
Government Securities. Substantially all of the Fund's assets will be invested
in U.S. Government Securities. 100% of the Fund's portfolio will be invested
in U.S. dollar-denominated securities.
17
<PAGE>
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a two-year bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a three-year bond.
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed- income securities issued by or on behalf of
states, territories and possessions of the United States (including the
18
<PAGE>
District of Columbia) and the political subdivisions, agencies and
instrumentalities thereof ("Municipal Securities"), the interest on which is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes) and is not a tax preference item under the
federal alternative minimum tax. Under normal circumstances, the Fund's
investments in private activity bonds and taxable investments will not exceed,
in the aggregate, 20% of the Fund's net assets. The interest from certain
private activity bonds (including the Fund's distributions of such interest)
may be a preference item for purposes of the federal alternative minimum tax.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB or Baa by an NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. Municipal Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities may
reflect the existence of guarantees, letters of credit or other credit
enhancement features available to the issuers or holders of such Municipal
Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
GOVERNMENT INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA or Aaa by an NRSRO or, if unrated, will be
determined by the Investment Adviser to be of comparable quality.
19
<PAGE>
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
MUNICIPAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a fifteen-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA or Aa by an NRSRO. All securities purchased by the Fund will be rated, at
the time of investment, at least BBB or Baa by an NRSRO or, if unrated, will
be determined by the Investment Adviser to be of comparable quality. Fixed-
income securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement
features available to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
20
<PAGE>
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is expected to be
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa by an NRSRO. The securities currently included in the Index
have at least one year remaining to maturity; have an outstanding principal
amount of at least $100 million; and are issued by the following types of
issuers, with each category receiving a different weighting in the Index: U.S.
Treasury; agencies, authorities or instrumentalities of the U.S. government;
issuers of Mortgage-Backed Securities; utilities; industrial issuers;
financial institutions; foreign issuers; and issuers of Asset-Backed
Securities. The Index is a trademark of Lehman Brothers. Inclusion of a
security in the Index does not imply an opinion by Lehman Brothers as to its
attractiveness or appropriateness for investment. Although Lehman Brothers
obtains factual information used in connection with the Index from sources
which it considers reliable, Lehman Brothers claims no responsibility for the
accuracy, completeness or timeliness of such information and has no liability
to any person for any loss arising from results obtained from the use of the
Index data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
or Baa by an NRSRO. The non-U.S. dollar-denominated fixed-income securities in
which the Fund may invest will be rated, at the time of investment, at least
AA or Aa by an NRSRO or, if unrated, will be determined by the Investment
Adviser to be of comparable quality. Fixed-income securities rated BBB or Baa
are considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
securities and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
21
<PAGE>
exchange rate fluctuations or to seek to increase total return. The Fund may
invest in custodial receipts, Municipal Securities and convertible securities.
The Fund may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices, described
under "Investment Techniques."
GLOBAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income and, to a lesser extent,
providing opportunities for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a six-year bond.
INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.
The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper; and (vi) Mortgage-Backed and
Asset-Backed Securities.
CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least BBB or Baa by an NRSRO. However, the Fund will
invest at least 50% of its total assets in securities rated, at the time of
investment, AAA or Aaa by an NRSRO. Unrated securities will be determined by
the Investment Adviser to be of comparable quality. Fixed-income securities
rated BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
22
<PAGE>
exchange rate fluctuations or to seek to increase total return. While the Fund
will have both long and short currency positions, its net long and short
foreign currency exposure will not exceed the value of the Fund's total
assets. To the extent that the Fund is fully invested in foreign securities
while also maintaining currency positions, it may be exposed to greater
combined risk. The Fund's net currency positions may expose it to risks
independent of its securities positions. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into mortgage dollar rolls, repurchase agreements and
other investment practices described under "Investment Techniques."
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. Not more than 25% of the Fund's
total assets will be invested in the securities of issuers in any other single
foreign country.
HIGH YIELD FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a 6-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB, Ba or below by an NRSRO or, if unrated, determined by
the Investment Adviser to be of comparable quality. The Fund may invest in all
types of fixed-income securities, including senior and subordinated corporate
debt obligations (such as bonds, debentures, notes and commercial paper),
convertible and non-convertible corporate debt obligations, loan
participations, custodial receipts, municipal securities and preferred stock.
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers (including securities of issuers located in countries with
emerging markets and economies) which are denominated in currencies other than
the U.S. dollar. Under normal market conditions, the Fund may invest up to 35%
of its total assets in investment grade fixed income securities, including
U.S. Government Securities, Asset-Backed and Mortgage-Backed Securities and
corporate securities. The Fund may also invest in common stocks, warrants,
rights and other equity securities, but will generally hold such equity
investments only when debt or preferred stock of the issuer of such equity
securities is held by the Fund. A number of investment strategies are used to
seek to achieve the Fund's investment objective, including market sector
selection, determination of yield curve exposure, and issuer selection. In
addition, the Investment Adviser will attempt to take advantage of pricing
inefficiencies in the fixed-income markets.
CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade, including securities of issuers in
default. Non-investment grade securities (commonly known as "junk bonds") tend
to offer higher yields than higher rated securities with similar maturities.
Non-investment grade securities are, however, considered speculative and
generally involve greater price volatility and greater risk of loss of
principal and interest than higher rated securities. See "Description of
Securities." A description of the corporate bond and preferred stock ratings
is contained in Appendix B to the Additional Statement.
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<PAGE>
For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and nonconvertible
bonds) held by the Fund during the most recent fiscal year:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUND'S ASSETS
CREDIT QUALITY -------------
<S> <C>
AAA/Aaa...................................................... 1.3%
AA/Aa........................................................ 0%
A............................................................ 0%
BBB/Baa...................................................... 0.3%
BB/Ba........................................................ 13.1%
Below Ba..................................................... 85.3%
Not rated.................................................... 0%
Comparable to A............................................. 0%
Comparable to BBB/Baa....................................... 0%
Comparable to BB/Ba......................................... 0%
Comparable to Below Ba...................................... 0%
-----
100%
=====
</TABLE>
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
securities and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps, and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
exchange rate fluctuations or to seek to increase total return. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities, and entering into repurchase agreements and
other investment practices described under "Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
24
<PAGE>
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to amortize fully principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or
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<PAGE>
Freddie Mac, in order to receive a high quality rating from the rating
organizations (i.e., S&P or Moody's), they normally are structured with one or
more types of "credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue Code of 1986,
as amended (the "Code"), and invests in certain mortgages principally secured
by interests in real property and other permitted investments. The Funds do
not intend to purchase residual interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities. SMBS are
usually structured with two different classes: one that receives 100% of the
interest payments and the other that receives 100% of the principal payments
from a pool of mortgage loans. If the underlying mortgage loans experience
different than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The market value of the
class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. A Fund's
investments in SMBS may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements.
ASSET-BACKED SECURITIES
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be to
issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a number of lenders, usually banks (co-
lenders), lend a corporate borrower a specified sum pursuant to the terms and
conditions of a loan agreement. One of the co-lenders usually agrees to act as
the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another
26
<PAGE>
participant, or a participation in the seller's share of the loan. When the
High Yield Fund acts as co-lender in connection with a participation interest
or when the High Yield Fund acquires certain participation interests, the High
Yield Fund will have direct recourse against the borrower if the borrower
fails to pay scheduled principal and interest. In cases where the High Yield
Fund lacks direct recourse, it will look to the agent bank to enforce
appropriate credit remedies against the borrower. In these cases, the High
Yield Fund may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Fund had purchased a direct
obligation (such as commercial paper) of such borrower. For example, in the
event of the bankruptcy or insolvency of the corporate borrower, a loan
participation may be subject to certain defenses by the borrower as a result
of improper conduct by the agent bank. Moreover, under the terms of the loan
participation, the High Yield Fund may be regarded as a creditor of the agent
bank (rather than of the underlying corporate borrower), so that the High
Yield Fund may also be subject to the risk that the agent bank may become
insolvent. The secondary market, if any, for these loan participations is
limited and any loan participations purchased by the High Yield Fund will be
regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. The Core Fixed Income and High Yield Funds may also invest in
taxable Municipal Securities.
PRIVATE ACTIVITY BONDS. Municipal Securities include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds' distributions attributable to the interest income from private
activity bonds may subject certain investors to the federal alternative
minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or
27
<PAGE>
other instruments. The primary risk associated with municipal lease
obligations and certificates of participation is that the governmental lessee
will fail to appropriate funds to enable it to meet its payment obligations
under the lease. Although the obligations may be secured by the leased
equipment or facilities, the disposition of the property in the event of non-
appropriation or foreclosure might prove difficult, time consuming and costly,
and result in a delay in recovering or the failure to fully recover a Fund's
original investment. To the extent that a Fund invests in unrated municipal
leases or participates in such leases, the credit quality rating and risk of
cancellation of such unrated leases will be monitored on an ongoing basis.
Certain municipal lease obligations and certificates of participation may be
deemed illiquid for the purpose of a Fund's limitation on investments in
illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may also invest in trust preferred securities. A trust preferred or capital
security is a long dated bond (for example, 30 years) with preferred features.
The preferred features are that payment of interest can be deferred for a
specified period without initiating a default event. From a bondholder's
viewpoint, the securities are senior in claim to standard preferred stock but
junior to other bondholders. From the issuer's viewpoint, the securities are
attractive because their interest is deductible for tax purposes like other
types of debt instruments.
CONVERTIBLE SECURITIES
The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities
28
<PAGE>
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price, the price of
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
securities to 25% of their total assets. Investment in foreign securities may
offer potential benefits that are not available from investing exclusively in
U.S. dollar-denominated domestic issues. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign fixed-income securities do not necessarily move in a manner parallel
to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have been unable to keep pace with the volume of
securities transactions, making it more difficult to conduct such
transactions.
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<PAGE>
The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in volatility of market prices of sovereign
debt, and in turn a Fund's net asset value, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristics of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of a Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries). See the Additional Statement
for further information regarding a Fund's investments in emerging markets.
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FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell foreign currencies on a spot basis and may also
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, a 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 increase total return, forward foreign currency exchange contracts are
considered speculative. The Funds may also engage in cross-hedging by using
forward contracts in a currency different from that in which the hedged
security is denominated or quoted if the Investment Advisers determine that
there is a pattern of correlation between the two currencies. If a Fund enters
into a forward foreign currency exchange contract to buy foreign currency for
any purpose or 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, or to otherwise
cover its position in a manner permitted by the SEC. A Fund will incur costs
in connection with conversions between various currencies. A Fund may hold
foreign currency received in connection with investments in foreign securities
when, in the judgment of the Investment Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force a Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.
The Core Fixed Income, Global Income and High Yield Funds' use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging markets, the Investment
Adviser does not currently anticipate that a significant portion of the Funds'
currency exposure in emerging markets, if any, will be covered by such
instruments. For a discussion of such instruments and the risks associated
with their use, see "Investment Objectives and Policies" in the Additional
Statement.
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STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. Call risk typically results when
interest rates have declined.Under
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such circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities. Extension risk (i.e., where the issuer exercises its right to pay
principal on an obligation later than scheduled) causes cash flows to be
returned later than expected. Extension risk typically results when interest
rates have increased. Under such circumstances, a Fund will suffer from the
inability to invest in higher yielding securities. Certain types of U.S.
Government, Asset-Backed, corporate, foreign, Mortgage-Backed and Municipal
Securities have call and/or extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay more slowly. As with fixed-
rate mortgages, ARM prepayment rates vary in both stable and changing interest
rate environments. There are certain ARMs where the homeowner's payments do
not fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating-rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a speculative
practice and involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices, interest rates or
currency prices. A Fund's use of certain derivative transactions may be
limited by the requirements of the Internal Revenue Code of 1986, as amended
(the "Code") for qualification as a regulated investment company.
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TAX RISK OF MUNICIPAL SECURITIES. The yields and market values of Municipal
Securities may be more adversely impacted by changes in tax rates and policies
than taxable fixed-income securities. Because interest income from Municipal
Securities is normally not subject to regular federal income taxation, the
attractiveness of Municipal Securities in relation to other investment
alternatives is affected by changes in federal income tax rates applicable to,
or the continuing federal income tax-exempt status of, such interest income.
Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of
Municipal Securities, which could in turn affect a Fund's ability to acquire
and dispose of Municipal Securities at desirable yield and price levels.
RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed- income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed-income
securities is generally lower and the secondary market for such securities
could contract under
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adverse market or economic conditions, independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the market price and a Fund's ability to dispose of
particular portfolio investments. A less liquid secondary market also may make
it more difficult for a Fund to obtain precise valuations of the high yield
securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.
OTHER RISKS. Floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the Fund loses the right to receive principal and interest paid
on the securities sold. However, the Fund would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase or fee income plus the interest earned
on the cash proceeds of the securities sold until the settlement date for the
forward purchase. Unless such benefits exceed the income, capital appreciation
and gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the mortgage dollar roll, the use of this
technique will diminish the investment performance of the Fund . Successful
use of mortgage dollar rolls depends upon the Investment Adviser's ability to
predict correctly interest rates and mortgage prepayments. There is no
assurance that mortgage dollar rolls can
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be successfully employed. The Fund will hold and maintain in a segregated
account until the settlement date cash or liquid assets in an amount equal to
the forward purchase price. For financial reporting and tax purposes, each
Fund treats mortgage dollar rolls as two separate transactions; one involving
the purchase of a security and a separate transaction involving a sale. The
Funds do not currently intend to enter into mortgage dollar rolls that are
accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index comprised of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return or to hedge against changes in interest rates or securities
prices, or in the case of the Core Fixed Income, Global Income and High Yield
Funds, currency exchange rates, a Fund may purchase and sell various kinds of
futures contracts, and purchase and write call and put options on any of such
futures contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions only for bona fide hedging purposes as defined in
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regulations of the Commodity Futures Trading Commission or to seek to increase
total return to the extent permitted by such regulations. A Fund may not
purchase or sell futures contracts or purchase or sell related options to seek
to increase total return, except for closing purchase or sale transactions, if
immediately thereafter the sum of the amount of initial margin deposits and
premiums paid on a Fund's outstanding positions in futures and related options
entered into for the purpose of seeking to increase total return would exceed
5% of the market value of a Fund's net assets. These transactions involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the
Fund to segregate and maintain cash or liquid assets with a value equal to the
amount of the Fund's obligations or to otherwise cover the obligations in a
manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund will not enter into
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or, if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The use of currency swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Adviser is
incorrect in its forecasts of currency exchange rates, the investment
performance of a Fund would be less favorable than it would have been if this
investment technique were not used.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of
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securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the
settlement date. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, a Fund may dispose of when-issued securities or
forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which include securities (both foreign
and domestic) that are not readily marketable, certain SMBS, certain municipal
leases and participation interests, repurchase agreements maturing in more
than seven days, time deposits with a notice or demand period of more than
seven days, certain over-the-counter options and certain restricted
securities, unless it is determined, based upon the continuing review of the
trading markets for a specific restricted security, that such restricted
security is eligible for resale under Rule 144A under the Securities Act of
1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. The
purchase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (i) U. S. Government Securities or
(ii) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free and Municipal Income Funds may for temporary defensive
purposes depart from their stated investment objectives and invest more than
20% of their respective net assets in taxable investments. The High Yield Fund
may for temporary defensive purposes invest in investment grade securities.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments.
38
<PAGE>
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund still
remains an appropriate investment in light of their then current financial
positions and needs.
The Short Duration Tax-Free and Municipal Income Funds' policies to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.
NON-DIVERSIFIED STATUS. Since the Global Income Fund is "non-diversified"
under the Act, it is subject only to certain federal tax diversification
requirements. Under federal tax laws, the Global Income Fund may, with respect
to 50% of its total assets, invest up to 25% of its total assets in the
securities of any issuer (except that this limitation does not apply to U.S.
Government Securities). With respect to the remaining 50% of the Fund's total
assets, (1) the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject to certain conditions and limitations under the Code. Since
the Global Income Fund is not diversified under the Act, it will be more
susceptible to adverse developments affecting any single issuer. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income and High Yield
Funds are, in addition to these tax diversification requirements, also subject
to the diversification requirements arising out of their diversified status
under the Act.
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. The
portfolio turnover rate is computed by dividing the lesser of the dollar
amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by a Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for a
Fund consistent with the Fund's investment objectives and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to a Fund. The portfolio turnover rate includes the effect of entering
into mortgage dollar rolls. See "Financial Highlights" for a statement of each
Fund's historical portfolio turnover rates.
39
<PAGE>
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs registered as an investment adviser in 1981.
Goldman Sachs Asset Management International, 133 Peterborough Court, London
EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment adviser
to the Global Income Fund. Goldman Sachs Asset Management International became
a member of the Investment Management Regulatory Organization Limited in 1990
and registered as an investment adviser in 1991. As of January 26, 1998, GSAM,
GSFM and GSAMI, together with their affiliates, acted as investment adviser or
distributor for assets in excess of $140 billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Advisers will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides office space and all necessary office equipment and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio managers are Jonathan A. Beinner, Richard C. Lucy, James B. Clark,
Peter A. Dion and James P. McCarthy. Their responsibilities include investing
in the particular types of securities the Funds may hold. Mr. Beinner is a
Managing Director of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Beinner
40
<PAGE>
joined the Investment Adviser in 1990. Mr. Lucy is a Vice President of Goldman
Sachs and Co-Head of GSAM's U.S. Fixed Income Department. Mr. Lucy joined the
Investment Adviser in 1992. Mr. Clark joined GSAM in 1994 after working as a
senior trader at the Federal Home Loan Mortgage Corporation. Prior to that, he
was an investment manager at Travelers Insurance Company. Mr. Dion is a Vice
President of Goldman Sachs and joined GSAM in 1992. Mr. McCarthy is a Vice
President of Goldman Sachs. Mr. McCarthy joined GSAM in 1995 after working as
a bond trader at Nomura Securities.
GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner and Mr. Lucy. Messrs. Beinner and Lucy each specialize in
investing in a particular type of security the Fund may hold. James Clark is
also a portfolio manager for the Government Income Fund. See above for
information about Mr. Clark.
SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group
at GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM
in early 1992, Mr. Thompson worked in the Structured Finance Group of the
Chase Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was
a Director of Fitch Investors Service evaluating the credit ratings of tax-
backed issues. Prior to that, she worked for ten years in the Goldman Sachs
Municipal Finance Department.
GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Mr.
Wilson joined GSAMI in 1995 and is Executive Director and Portfolio Manager
for international fixed income. Prior to joining GSAMI, he spent three years
as an Assistant Director at Rothschild Asset Management where he was
responsible for managing global and international bond portfolios, with
specific focus on the U.S., Canadian, Australian and Japanese economies.
HIGH YIELD FUND. The Fund's portfolio managers are Richard Buckholz,
Christopher Testa, Michael L. Pasternak and Andrew Jessop. Mr. Buckholz is a
Vice President of Goldman Sachs and is responsible for emerging markets fixed
income portfolio management. Mr. Buckholz joined GSAM in 1994. Prior to
joining GSAM, Mr. Buckholz was Head of Emerging Market Fixed Income Research
at Bear Stearns & Company and previously in a similar position at Citibank.
Mr. Testa is a Vice President of Goldman Sachs and Director of Credit Research
responsible for corporate bond research. Mr. Testa joined GSAM in 1994. Prior
to joining GSAM, Mr. Testa was a credit analyst with CS First Boston and prior
to that he was an analyst for Metropolitan Life Insurance Company investing in
private placements and public debt. Mr. Pasternak is a Vice President of
Goldman Sachs and is responsible for managing high yield assets. Mr. Pasternak
joined GSAM in 1997. Prior to joining GSAM, Mr. Pasternak spent eight years
managing high yield corporate bond and loan portfolios at Saudi International
Bank (an affiliate of JP Morgan) in London. Prior to that, he was an officer
of the bank in Eurocurrency Lending and Syndications and served as an
investment analyst in New York. Mr. Jessop is a Vice President of Goldman
Sachs and is responsible for managing high yield assets. Mr. Jessop joined
GSAM in 1997. Prior to joining GSAM, Mr. Jessop spent six years managing high
yield portfolios at Saudi International Bank in London. Prior to that, he
worked for the bank on the interest rate swap desk and served as an investment
analyst in New York.
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign markets. Such orders may
41
<PAGE>
be directed to any broker including, to the extent and in the manner permitted
by applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Advisers will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR OR PERIOD
CONTRACTUAL ENDED
RATE* OCTOBER 31, 1997*
----------- -----------------
GSAM
- ----
<S> <C> <C>
Short Duration Tax-Free........................... 0.40% 0.40%
Government Income................................. 0.65% 0.25%
Municipal Income.................................. 0.55% 0.55%
Core Fixed Income................................. 0.40% 0.40%
High Yield........................................ 0.70% 0.65%
<CAPTION>
GSFM
- ----
<S> <C> <C>
Adjustable Rate Government........................ 0.40% 0.40%
Short Duration Government......................... 0.50% 0.40%
<CAPTION>
GSAMI
- -----
<S> <C> <C>
Global Income..................................... 0.90% 0.59%
</TABLE>
- --------
* 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 for the year
ended October 31, 1997. Effective March 1, 1998, the management fee for the
Short Duration Government Fund and Government Income Fund will equal 0.50%
and 0.65%, respectively. The Investment Advisers may discontinue or modify
such limitations in the future at their discretion, although they have no
current intention to do so.
The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management, distribution and
authorized dealer service fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses (and transfer
agency fees in the case of the Global Income and High Yield Funds)) to the
extent such expenses exceed 0.05%, 0.05%, 0.00%, 0.05%, 0.05%, 0.06% and 0.14%
per annum of such Funds' average daily net assets, respectively. Such
reductions or limits, if any, are calculated monthly on a cumulative basis and
may be discontinued or modified by the applicable Investment Adviser in its
discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary
42
<PAGE>
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds. The
results of a Fund's investment activities, therefore, may differ from those of
Goldman Sachs and its affiliates and it is possible that a Fund could sustain
losses during periods in which Goldman Sachs and its affiliates and other
accounts achieve significant profits on their trading for proprietary or other
accounts. In addition, the Funds may, from time to time, enter into
transactions in which other clients of Goldman Sachs have an adverse interest.
From time to time, a Fund's activities may be limited because of regulatory
restrictions applicable to Goldman Sachs and its affiliates, and/or their
internal policies designed to comply with such restrictions. 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. The Global Income and High Yield Funds pay
Goldman Sachs (as Transfer Agent) a fee with respect to Class A, Class B and
Class C shares of $12,000 per year plus $7.50 per account (plus out-of-pocket
and transaction-related expenses). The Global Income and High Yield Funds'
Class A, Class B and Class C shares may also bear fees paid to Authorized
Dealers or other persons providing sub-transfer agency and similar services.
The Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income and Core Fixed Income Funds pay
Goldman Sachs transfer agency fees and expenses with respect to Class A, Class
B and Class C shares equal to each class's proportionate share of a Fund's
total transfer agency costs. Such costs are equal to the charges set forth
above applicable to Class A, Class B and Class C shares plus 0.04% of the
average daily net assets of the other classes of the Fund plus any sub-
transfer agency expenses. 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.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
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.
43
<PAGE>
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."
(As of the date of this Prospectus, the Adjustable Rate Government Fund did
not offer Class B and Class C shares.) If you do not specify in your
instructions to the Funds which class of shares you wish to purchase, the
Funds will assume that your instructions apply to Class A shares.
CLASS A SHARES. If you invest less than $1 million ($500,000 in the case of
Short Duration Government and Short Duration Tax-Free Funds) in Class A shares
you will pay an initial sales charge. Certain purchases may qualify for
reduced initial sales charges. If you initially invest $1 million ($500,000 in
the case of Short Duration Government and Short Duration Tax-Free Funds) or
more in Class A shares of a Fund, no sales charge will be imposed at the time
of purchase, but you will incur a deferred sales charge equal to 1.00% if you
redeem your shares within 18 months of purchase. Direct purchases (as opposed
to exchanges) of $1 million or more of Class A shares of the Adjustable Rate
Government Fund will not be subject to a deferred sales charge when redeemed.
Class A shares are subject to distribution fees of 0.25% (which currently are
being waived in the case of Adjustable Rate Government, Short Duration
Government, Short Duration Tax-Free, Core Fixed Income, Municipal Income,
Government Income and High Yield Funds and are limited to 0.21% for the Global
Income Fund) and authorized dealer service fees of 0.25%, per annum
respectively, of each Fund's average daily net assets attributable to Class A
shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 2% in the
case of the Short Duration Government and Short Duration Tax-Free Funds if
redeemed within three years of purchase and up to 5% in the case of the
Government Income, Municipal Income, Core Fixed Income, Global Income and High
Yield Funds if redeemed within six years of purchase. Class B shares are
subject to distribution and authorized dealer service fees of 0.75% (which is
currently being limited to 0.60% in the case of the Short Duration Government
and Short Duration Tax-Free Funds) and 0.25%, per annum respectively, of a
Fund's average daily net assets attributable to Class B shares. See
"Distribution and Authorized Dealer Service Plans." Class B shares will
automatically convert to Class A shares, based on their relative net asset
values, eight years after the initial purchase. Your entire investment in
Class B shares is available to work for you from the time you make your
initial investment, but the distribution fee paid by Class B shares will cause
your Class B shares (until conversion to Class A shares) to have a higher
expense ratio and to pay lower dividends, to the extent dividends are paid,
than Class A shares.
CLASS C SHARES. Class C shares are sold without an initial sales charge, but
are subject to a CDSC of 1% if redeemed within 12 months of purchase. Class C
shares are subject to distribution and authorized dealer service fees of 0.75%
and 0.25%, per annum, respectively, of a Fund's average daily net assets
attributable to Class C shares. See "Distribution and Authorized Dealer
Service Plans." Class C shares have no conversion feature, and accordingly, an
investor that purchases Class C shares will be subject to the distribution
fees imposed on Class C shares for an indefinite period, subject to annual
approval by the Trust's Board of Trustees and certain regulatory limitations.
Your entire investment in Class C shares is available to work for you from the
time you make your initial investment, but the distribution fee paid by Class
C shares will cause your Class C shares to have a higher expense ratio and to
pay lower dividends, to the extent dividends are paid, than Class A shares (or
Class B shares after conversion to Class A shares).
44
<PAGE>
FACTORS TO CONSIDER IN CHOOSING CLASS A, CLASS B OR CLASS C SHARES. The
decision as to which class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation. For example, if
you are making an investment of $100,000 or more that qualifies for a reduced
sales charge, you should consider purchasing Class A shares. A brief
description of when the initial sales charge may be reduced or eliminated is
set forth below under "Right of Accumulation" and "Statement of Intention." If
you prefer not to pay an initial sales charge on an investment and plan to
hold your investment for at least six years (three in the case of the Short
Duration Government and Short Duration Tax-Free Funds), you might consider
purchasing Class B shares. If you prefer not to pay an initial sales charge
and are unsure of the length of your investment or plan to hold your
investment for less than eight years, you may prefer Class C shares. There is
no size limit on the purchase of Class A shares. A maximum purchase limitation
of $250,000 in the aggregate normally applies to purchases of Class B shares
and $1,000,000 ($500,000 in the case of Short Duration Government and Short
Duration Tax-Free) in the aggregate normally applies to purchases of Class C
shares. Although Class C shares are subject to a CDSC for only twelve months
and at a lower rate than Class B shares, Class C shares do not have the
conversion feature applicable to Class B shares, making them subject to higher
distribution fees for an indefinite period. Authorized Dealers may receive
different compensation for selling Class A, Class B or Class C shares.
HOW TO BUY SHARES OF THE FUNDS -- CLASS A, CLASS B AND CLASS C SHARES
You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order as described below under
"Other Purchase Information" plus, in the case of Class A shares, any
applicable sales charge. Currently, net asset value is determined as of the
close of regular trading on the New York Stock Exchange (which is normally,
but not always, 4:00 p.m. New York time) ("Close of Trading"). If a purchase
order for shares of a Fund (other than Global Income Fund) is received with a
specified settlement date in proper form by the Close of Trading and payment
is made by (a) wire transfer or ACH transfer, shares will be issued and
dividends declared with respect to such shares will begin to accrue on the
later of (i) the Business Day after receipt of the purchase order or (ii) the
date of receipt of payment for the shares or (b) check, Federal Reserve draft
or bank wire, shares will be issued and dividends declared with respect to
such shares will begin to accrue on the Business Day after the date payment is
received. If a purchase order for shares of a Fund (other than the Global
Income Fund) is received in proper form without a specified settlement date,
shares will be issued and dividends declared with respect to such shares will
begin to accrue on the Business Day after payment is received. Shares of the
Global Income Fund will begin to be eligible for dividends paid on or after
the day the shares are purchased.
The minimum initial investment in each Fund is $1,000. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans or accounts established under the Uniform Gift to Minors Act
("UGMA"). An initial minimum investment of $250 applies to purchases in
connection with 403(b) Plans. For purchases through the Automatic Investment
Plan, the minimum investment is $50. The minimum subsequent investment is $50.
These requirements may be waived at the discretion of the Trust's officers.
You may pay for purchases of shares by check (except that the Trust will not
accept a check drawn on a foreign bank or a third party check), Federal
Reserve draft, federal funds wire, ACH transfer or bank wire. Purchases of
shares by check or Federal Reserve draft should be made payable as follows:
(i) to an investor's Authorized Dealer, if purchased through such Authorized
Dealer, or (ii) to Goldman Sachs Fixed Income Funds -- (Name of Fund and Class
of shares) and sent to NFDS, P.O. Box 419711, Kansas City, MO 64141-6711.
Federal funds wires, ACH transfers and bank wires should be sent to State
Street Bank and Trust Company
45
<PAGE>
("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 (i) provide a social security number or other taxpayer
identification number, or (ii) certify that such number is correct (if
required to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
OFFERING PRICE -- CLASS A SHARES
The offering price of Class A shares of the Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds is the next
determined net asset value per share plus a sales charge, if any, paid to
Goldman Sachs at the time of purchase of shares as shown in the following
table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less Than $100,000............. 4.50% 4.71% 4.00%
$100,000 up to (but less than)
$250,000...................... 3.00 3.09 2.50
$250,000 up to (but less than)
$500,000...................... 2.50 2.56 2.00
$500,000 up to (but less than)
$1 million.................... 2.00 2.04 1.75
$1 million or more............. 0.00* 0.00* **
The offering price of Class A shares of the Short Duration Government and
Short Duration Tax-Free Funds is the next determined net asset value per share
plus a sales charge, if any, paid to Goldman Sachs at the time of purchase of
shares as shown in the following table:
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less than $250,000............. 2.00% 2.04% 1.75%
$250,000 up to (but less than)
$500,000...................... 1.50 1.52 1.25
$500,000 or more............... 0.00%* 0.00* **
The offering price of Class A shares of the Adjustable Rate Government Fund
is the next determined net asset value per share plus a sales charge, if any,
paid to Goldman Sachs at the time of purchase of shares as shown in the
following table:
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
(INCLUDING SALES CHARGE, IF ANY) OFFERING PRICE INVESTED OFFERING PRICE***
- -------------------------------- --------------- ------------- -----------------
<S> <C> <C> <C>
Less Than $500,000............. 1.50% 1.52% 1.25%
$500,000 up to (but less than)
$1 million.................... 1.00 1.01 0.75
$1 million or more............. 0.00 0.00 0.00
</TABLE>
46
<PAGE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million ($500,000 in the case of the Short Duration Government and Short
Duration Tax Free Funds) or more, but a CDSC may be imposed in the event
of certain redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of shares
of each Fund ($500,000 in the case of the Short Duration Government and
Short Duration Tax-Free Funds) equal to 1.00% of the amount under $3
million, 0.50% of the next $2 million, and 0.25% thereafter. Goldman Sachs
may also pay, with respect to all or a portion of the amount purchased, a
commission in accordance with the foregoing schedule to Authorized Dealers
who initiate or are responsible for purchases of $500,000 or more by plans
or $1 million or more ($500,000 in the case of the Short Duration
Government and Short Duration Tax-Free Funds) by "wrap" accounts
satisfying the criteria set forth in (h) or (i) below. Purchases by such
plans will be made at net asset value with no initial sales charge, but if
all of the shares held are redeemed within 18 months after the end of the
calendar month in which such purchase was made, a contingent deferred
sales charge (CDSC), as described below, of 1.00% will be imposed upon the
plan sponsor or the third party administrator. In addition, Authorized
Dealers will remit to Goldman Sachs such payments received in connection
with "wrap" accounts in the event that shares are redeemed within 18
months after the end of the calendar month in which the purchase was made.
*** During special promotions, the entire sales charge may be reallowed to
Authorized Dealers. Authorized Dealers to whom substantially the entire
sales charge is reallowed may be deemed to be "underwriters" under the
Securities Act of 1933.
Purchases of $1 million ($500,000 in the case of the Short Duration
Government and Short Duration Tax-Free Funds) or more of Class A shares of
each Fund (other than the Adjustable Rate Government Fund) will be made at net
asset value with no initial sales charge, but if the shares are redeemed
within 18 months after the end of the calendar month in which the purchase was
made, excluding any period of time in which the shares were 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, children and parents; (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
47
<PAGE>
that (1) buy shares costing $500,000 or more, or (2) have at the time of
purchase, 100 or more eligible participants, or (3) certify that they project
to have annual plan purchases of $200,000 or more, or (4) are provided
administrative services by a third-party administrator that in the aggregate
satisfies (1) or (3) above; (i) "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; (j) registered investment
advisers investing for accounts for which they receive asset-based fees;
(k) accounts over which GSAM or its advisory affiliates have investment
discretion; and (l) shareholders receiving distributions from a qualified
retirement plan invested in the Goldman Sachs Funds and reinvesting such
proceeds in a Goldman Sachs IRA. Purchasers must certify eligibility for an
exemption on the Account Application and notify Goldman Sachs if the
shareholder is no longer eligible for an exemption. Exemptions will be granted
subject to confirmation of a purchaser's entitlement. Investors purchasing
shares of the Funds at net asset value without payment of any initial sales
charge may be charged a fee if they effect transactions in shares through a
broker or agent. In addition, under certain circumstances, dividends and
distributions from any of the Goldman Sachs Funds may be reinvested in shares
of each Fund at net asset value, as described under "Cross-Reinvestment of
Dividends and Distributions and Automatic Exchange Program."
RIGHT OF ACCUMULATION -- CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $100,000 or more in the case of the Government Income,
Municipal Income, Core Fixed Income, Global Income and High Yield Funds,
$250,000 or more in the case of the Short Duration Government and Short
Duration Tax-Free Funds and $500,000 or more in the case of the Adjustable
Rate Government Fund. Class A shares of the Goldman Sachs Funds may be
combined under the Right of Accumulation. See the Additional Statement for
more information about the Right of Accumulation.
STATEMENT OF INTENTION -- CLASS A SHARES
Purchases of $100,000 or more in the case of the Government Income,
Municipal Income, Core Fixed Income, Global Income and High Yield Funds,
$250,000 or more in the case of the Short Duration Government and Short
Duration Tax-Free Funds and $500,000 in the case of the Adjustable Rate
Government Fund made over a 13-month period are eligible for reduced sales
charges. Class A shares of the Goldman Sachs Funds may be combined under the
Statement of Intention. See the Additional Statement for more information
about the Statement of Intention.
OFFERING PRICE -- CLASS B SHARES
Investors may purchase Class B shares of a Fund (other than Adjustable Rate
Government Fund) at the next determined net asset value without the imposition
of an initial sales charge. However, Class B shares redeemed within six years
(three years in the case of the Short Duration Government and Short Duration
Tax-Free Funds) of purchase will be subject to a CDSC at the applicable rates
shown in the tables that follow. At redemption, the charge will be assessed on
the amount equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. No CDSC will be imposed on
increases in account value above the initial purchase price, including shares
derived from the reinvestment of dividends or capital gains distributions.
Upon redemption of shares subject to a CDSC, shareholders will receive that
portion of the appreciation in account value attributable to the shares
actually redeemed.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the applicable period.
48
<PAGE>
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
DOLLAR AMOUNTS SUBJECT TO CDSC
-----------------------------------------
GOVERNMENT INCOME,
MUNICIPAL INCOME, SHORT DURATION
GLOBAL INCOME, GOVERNMENT AND SHORT
YEAR SINCE CORE FIXED INCOME DURATION TAX-
PURCHASE AND HIGH YIELD FUNDS FREE FUNDS
---------- -------------------- --------------------
<S> <C> <C>
First.......................... 5.0% 2.0%
Second......................... 4.0% 1.0%
Third.......................... 3.0% 1.0%
Fourth......................... 3.0% none
Fifth.......................... 2.0% none
Sixth.......................... 1.0% none
Seventh and thereafter......... none none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 2.0% in the case of the Short Duration Government and
Short Duration Tax-Free Funds and 4.0% in the case of the other Funds of the
amount invested is paid to Authorized Dealers.
Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund acquired by
exchange from Class B shares of another Fund will convert into Class A shares
of such Fund based on the date of the initial purchase. Class B shares
acquired through reinvestment of distributions will convert into Class A
shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares will
not occur at any time the Funds are advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe is
unlikely. If conversions do not occur as a result of possible taxability,
Class B shares would continue to be subject to higher expenses than Class A
shares for an indeterminate period.
OFFERING PRICE -- CLASS C SHARES
Investors may purchase Class C shares of a Fund (other than the Adjustable
Rate Government Fund) 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.
49
<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 the redemption proceeds (plus that
amount necessary to acquire a fractional share to round off the 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 the redemption proceeds
(plus that amount necessary to acquire a fractional share to round off the
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
50
<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 (other than the Short Duration Tax-Free and Municipal Income
Funds) offer their shares for purchase by retirement plans, including IRA
plans for individuals and their non-employed spouses, IRA plans for employees
in connection with employer sponsored SEP, SAR-SEP and SIMPLE IRA plans,
403(b) plans and defined contribution plans such as 401(k) Salary Reduction
Plans. Detailed information concerning these plans may be obtained from the
Transfer Agent. This information should be read carefully, and consultation
with an attorney or tax adviser may be advisable. The information sets forth
the service fee charged for retirement plans and describes the federal income
tax consequences of establishing a plan.
51
<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 materially modified
or withdrawn at any time upon sixty (60) days' notice to shareholders and is
subject to certain limitations.
An exchange of shares subject to a CDSC will not be subject to the
applicable CDSC at the time of exchange. Shares subject to a CDSC acquired in
an exchange will be subject to the CDSC of the shares originally held. For
purposes of determining the amount of any applicable CDSC, the length of time
a shareholder has owned shares will be measured from the date the shareholder
acquired the original shares subject to a CDSC and will not be affected by any
subsequent exchange.
An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Fixed
Income Funds, Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas City, MO
64141-6711 or, unless the investor has specifically declined telephone
exchange privileges on the Account Application or elected in writing not to
utilize telephone exchanges, by a telephone request to the Transfer Agent at
800-526-7384 (8:00 a.m. to 4:00 p.m. Chicago time). Certain procedures are
employed to prevent unauthorized or fraudulent exchange requests as set forth
under "How to Sell Shares of the Funds." Under the telephone exchange
privilege, shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only if
the exchange instructions are in writing and received in accordance with the
procedures set forth under "How to Sell Shares of the Funds." In times of
drastic economic or market changes the telephone exchange privilege may be
difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a redemption of the shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of shares received in the exchange. If such redemption occurs within ninety
(90) days after the purchase of such shares, to the extent an initial sales
charge that would otherwise apply to the shares received in the exchange is
not imposed, the sales charge paid on such purchase of Class A shares cannot
be taken into account by the exchanging shareholder for purposes of
determining gain or loss, if any, realized on such redemption for federal
income tax purposes, but instead will be added to the tax basis of the shares
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange.
Eligible investors may exchange Class A shares for Institutional shares of
the same Fund. For further information contact Goldman Sachs at the number set
forth in the back of the Prospectus.
All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
52
<PAGE>
OTHER PURCHASE INFORMATION
Authorized Dealers and other financial intermediaries may be authorized to
accept on the Trust's behalf orders placed by or on behalf of their customers
and, if approved by the Trust, to designate other intermediaries to accept
such orders. In these cases, a Fund will be deemed to have received an order
that is in proper form when the order is accepted by an Authorized Dealer or
intermediary on a Business Day, and the order will be priced at 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. Customers
should contact their Authorized Dealers or intermediaries to learn whether
they are authorized to accept orders for the Trust.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Fund shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their
clients for other investment or administrative services and may independently
establish and charge additional fees not described in this Prospectus to their
clients for such services. If shares of a Fund are held in a "street name"
account or were purchased through an Authorized Dealer, shareholders should
contact the Authorized Dealer to purchase, redeem or exchange shares, to make
changes in or give instructions concerning the account or to obtain
information about the account.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of shares of a Fund is evident, or if purchases,
sales or exchanges are, or a subsequent abrupt redemption might be, of a size
that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Advisers, Distributor, and/or their affiliates, also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other investment funds of the Trust (such as additional
payments based on new sales, amounts exceeding pre-established thresholds, or
the length of time customers' assets have remained in a Fund) and, 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 can vary among
Authorized Dealers depending upon such factors as the amounts their customers
have invested (or may invest) in particular investment funds of the Trust, 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.
53
<PAGE>
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLAN -- CLASS A, CLASS B AND CLASS C SHARES
The Trust, on behalf of the Funds' Class A, Class B and Class C shares, has
adopted Distribution Plans pursuant to Rule 12b-1 under the Act (each a
"Distribution Plan"). Goldman Sachs is entitled to a monthly fee from each
Fund for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributable to
Class A, Class B and Class C shares, respectively, of such Fund. Currently,
with respect to Class A shares, Goldman Sachs has voluntarily agreed to waive
the entire amount of such fee for the Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free, Core Fixed Income, Government
Income, Municipal Income and High Yield Funds and to limit the amount of such
fee to 0.21% of average daily net assets attributable to Class A shares of the
Global Income Fund. Goldman Sachs has also voluntarily agreed to limit such
fee to 0.60% of the average daily net assets attributable to Class B shares of
the Short Duration Government and Short Duration Tax-Free Funds. Goldman Sachs
has no current intention of modifying or discontinuing such waivers, but may
do so in the future at its discretion. For the fiscal year ended October 31,
1997 the Funds paid distribution fees at the foregoing rate.
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
Distribution Plans include compensation paid to and expenses incurred by
Authorized Dealers, Goldman Sachs and their respective officers, employees and
sales representatives, commissions paid to Authorized Dealers, allocable
overhead, telephone and travel expenses, the printing of prospectuses for
prospective shareholders, preparation and distribution of sales literature,
advertising of any type and all other expenses incurred in connection with
activities primarily intended to result in the sale of Class A, Class B and
Class C shares. If the fees received by Goldman Sachs pursuant to the
Distribution Plans exceed its expenses, Goldman Sachs may realize a profit
from these arrangements. The Distribution Plans will be reviewed and are
subject to approval annually by the Trustees. The aggregate compensation that
may be received under the Distribution Plans for distribution services may not
exceed the limitations imposed by the NASD's Conduct Rules.
In connection with the sale of Class C shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the shares have been held for one year. Goldman Sachs pays the
distribution fee on a quarterly basis.
AUTHORIZED DEALER SERVICE PLANS
The Trust on behalf of each Fund's Class A, Class B and Class C shares has
adopted non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs, Authorized Dealers or other persons are
compensated for providing personal and account maintenance services. Each Fund
pays a fee under its Class A, Class B or Class C Service Plan equal on an
annual basis to 0.25% of its average daily net assets attributable to Class A,
Class B or Class C shares. The fee for personal and account maintenance
services paid pursuant to a Service Plan may be used to make payments to
Goldman Sachs, Authorized Dealers and their officers, sales representatives
and employees for responding to inquiries of, and furnishing assistance to,
shareholders regarding ownership of their shares or their accounts or similar
services not otherwise provided on behalf of the Funds. The Service Plans will
be reviewed and are subject to approval annually by the Trustees. For the
fiscal year ended October 31, 1997, each Fund paid Authorized Dealer service
fees at the foregoing rate for each Fund's Class A, Class B and Class C
shares.
54
<PAGE>
In connection with the sale of Class C shares of any Fund or Class A shares
or Class B shares of the Short Duration Government and Short Duration Tax-Free
Funds, Goldman Sachs begins paying the 0.25% ongoing service fee to Authorized
Dealers after the shares have been held for one year. Goldman Sachs pays the
service fee on a quarterly basis.
HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable CDSC. See "Net Asset Value."
Redemption proceeds will be mailed by check to a shareholder within three (3)
Business Days of receipt of a properly executed request. If shares to be
redeemed were recently purchased by check, a Fund may delay transmittal of
redemption proceeds until such time as it has assured itself that good funds
have been collected for the purchase of such shares. This may take up to
fifteen (15) days. Redemption requests may be made by writing to or calling
the Transfer Agent at the address or telephone number set forth on the back
cover page of this Prospectus or an Authorized Dealer.
The Trust accepts telephone requests for redemption of shares for amounts up
to $50,000 within any seven (7) calendar day period, except for investors who
have specifically declined telephone redemption privileges on the Account
Application or elected in writing not to utilize telephone redemptions
(proceeds which are sent to a Goldman Sachs brokerage account are not subject
to the $50,000 limit). It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes. By completing an
Account Application, an investor agrees that the Trust, the Distributor and
the Transfer Agent shall not be liable for any loss incurred by the investor
by reason of the Trust accepting unauthorized telephone redemption requests
for his account if the Trust reasonably believes the instructions to be
genuine. Thus, shareholders risk possible losses in the event of a telephone
redemption not authorized by them. The Trust may accept telephone redemption
instructions from any person identifying himself as the owner of an account or
the owner's broker where the owner has not declined in writing to utilize this
service.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable
procedures specified by the Trust to confirm that such instructions are
genuine. Consequently, proceeds of telephone redemption requests will be sent
only to the shareholder's address of record or authorized bank account
designated in the Account Application and exchanges of shares will be made
only to an identical account. Telephone requests will also be recorded. The
Trust may implement other procedures from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not employed, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. Proceeds of telephone redemptions will be mailed to the
shareholder's address of record or wired to the authorized bank account
indicated on the Account Application, unless the shareholder provides written
instructions (accompanied by a signature guarantee) indicating another
address. Telephone redemptions will not be accepted during the 30-day period
following any change in a shareholder's address of record. This redemption
option does not apply to shares held in a "street name" account. Shareholders
whose accounts are held in "street name" should contact their broker of record
who may effect telephone redemptions on their behalf. The Trust reserves the
right to terminate or modify the telephone redemption service at any time.
Shares of each Fund (other than Global Income Fund) earn dividends accrued
through the day on which such shares are redeemed.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and
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loan association, a building and loan association, a cooperative bank, a
federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such
institution satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as federal funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in federal funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Application to receive redemption proceeds, a written request must be
received by the Transfer Agent. This request must be signature guaranteed as
set forth above. Further documentation may be required for executors, trustees
or corporations. Once wire transfer instructions have been given by Goldman
Sachs or an Authorized Dealer, neither a Fund, the Trust, Goldman Sachs nor
any Authorized Dealer assumes any further responsibility for the performance
of intermediaries or the shareholder's bank in the transfer process. If a
problem with such performance arises, the shareholder should deal directly
with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically via check or ACH in
any amount specified by the shareholder over $50. Checks are only available on
or about the 25th of each month. Each systematic withdrawal is a redemption
and therefore a taxable transaction. A minimum balance of $5,000 in shares of
a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A, Class B or Class C shares would be
disadvantageous because of the sales charge imposed on your purchases of Class
A shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C shares. The CDSC applicable to Class A, Class B and Class C shares
redeemed under a systematic withdrawal plan may be waived. See "How to
Invest--Waiver or Reduction of Contingent Deferred Sales Charge." See 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 (i) in cash, (ii) in additional shares of the same
class of the Fund or (iii) in shares of the same or an equivalent class of any
other Goldman Sachs Fund or units of the ILA Portfolios (the Prime Obligations
Portfolio only for Class B and Class C) as described under "Cross-Reinvestment
of Dividends and Distributions and Automatic Exchange Program." This election
should initially be made on a shareholder's Account Application and may be
changed upon written notice to Goldman Sachs at any time prior to the record
date for a particular dividend or distribution. If no election is made, all
dividends from net investment income and capital gains distributions will be
reinvested in the applicable Fund.
The election to reinvest dividends and distributions paid by the Fund in
additional shares or units of the Fund or any other Goldman Sachs Fund or ILA
Portfolio will not affect the tax treatment of such dividends and
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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 capital gains, after reduction by available capital losses,
including any capital losses carried forward from prior years, will be
declared as dividends for each taxable year. In the case of the Core Fixed
Income, Global Income and High Yield Funds, net loss, if any, from certain
foreign currency transactions or instruments that is otherwise taken into
account in calculating net investment income or net realized capital gains for
accounting purposes may not be taken into account in determining the amount of
dividends to be declared and paid, with the result that a portion of the
Fund's dividends may be treated as a return of capital, nontaxable to the
extent of a shareholder's tax basis in his shares. Each Fund (other than the
Global Income Fund) will declare dividends daily and pay dividends monthly.
The Global Income Fund will declare and pay dividends monthly. All of the
Funds will pay dividends from net realized capital gains, reduced by available
capital losses, at least annually. From time to time a portion of any Fund's
dividends may constitute a return of capital.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such income or realized appreciation may be taxable to the
investor even if the net asset value of the investor's shares is, as a result
of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the
purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time) on each Business Day (as such term is defined under "Additional
Information") immediately after the determination, if any, of the income to be
declared as a dividend (except in the case of the Global Income Fund). Net
asset value per share of each class is calculated by determining the net
assets of each class and dividing by the number of outstanding shares of that
class.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their tax equivalent yields in advertisements and communications
to shareholders or prospective investors. Average annual total return is
determined by
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computing the average annual percentage change in value of $1,000 invested at
the maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Total
return calculations for Class A shares reflect the effect of paying the
maximum initial sales charge. Investment at a lower sales charge would result
in higher performance figures. Total return calculations for Class B and Class
C shares reflect deduction of the applicable CDSC imposed upon redemption of
Class B and Class C shares held for the applicable period. Each Fund may also
from time to time advertise total return on a cumulative, average, year-by-
year or other basis for various specified periods by means of quotations,
charts, graphs or schedules. In addition, each Fund may furnish total return
calculations based on investments at various sales charge levels or at net
asset value. Any performance data which is based on a Fund's net asset value
per share would be reduced if a sales charge were taken into account. In
addition to the above, each Fund may from time to time advertise its
performance relative to certain averages, performance rankings, indices, other
information prepared by recognized mutual fund statistical services and
investments for which reliable performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the tax-free yield of the Short Duration Tax-Free or the
Municipal Income Funds. Tax equivalent yield is calculated by dividing the
applicable Fund's tax-exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A, Class B and Class C
shares will be affected by the payment of a sales charge and distribution fees
and other class specific expenses. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the
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Trust's Declaration of Trust to create and classify shares of beneficial
interest in separate series, without further action by shareholders.
Additional series may be added in the future. The Trustees also have authority
to classify or reclassify any series or portfolio of shares into one or more
classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose and,
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting for the
purpose of electing Trustees if, at any time, less than a majority of Trustees
holding office at the time were elected by shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
As of February 1, 1998, the shareholders listed below owned beneficially and
of record 25% or more of the outstanding shares of the following Fund: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (29.64%); Core Fixed Income Fund--Vinson and Elkins
Lawyers, Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2550, Houston, TX
77252-2558 (25.48%).
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected to
be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal
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Income Funds that are attributable to interest on tax-exempt obligations and
that the Funds properly designate as exempt-interest dividends will be exempt
from regular federal income tax, although all or a portion of these
distributions may be subject to the federal alternative minimum tax and may be
includable in the tax base for determining taxability of social security or
railroad retirement benefits. Persons who are "substantial users" (or related
persons to such substantial users) of facilities financed by industrial
development or certain private activity bonds should consult their own tax
advisers before purchasing shares of the Short Duration Tax-Free and Municipal
Income Funds. Interest on indebtedness incurred or continued to purchase or
carry shares of the Short Duration Tax-Free and Municipal Income Funds is not
deductible to the extent attributable to the Funds' distributions that are
exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by the Short Duration Tax-Free and Municipal Income
Funds, as described above. Distributions out of the net capital gain (the
excess of net long-term capital gain over net short-term capital loss), if
any, of a Fund, will be taxed to shareholders as long term capital gains,
regardless of the length of time a shareholder has held his or her shares or
whether such gain was reflected in the price paid for the shares. Such long-
term capital gain will constitute 20% or 28% rate gain, depending upon the
Fund's holding period for the assets the sale of which generated the gain.
These tax consequences will apply whether distributions are received in cash
or reinvested in shares. Certain distributions paid by a Fund in January of a
given year may be taxable to shareholders as if received the prior December
31. Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not
U.S. persons under the Code are subject to different tax rules and may be
subject to nonresident alien withholding at the rate of 30% (or a lower rate
provided by an applicable tax treaty) on amounts treated as ordinary dividends
from the Funds.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, a Fund may deduct these taxes in computing its
taxable income, if any. As an alternative, if more than 50% of the value of
the total assets of the Global Income Fund is comprised of securities of
foreign corporations at the end of its taxable year and the Fund so elects,
the Fund's shareholders will include in their gross incomes (in addition to
dividends and distributions they receive) their pro rata shares of qualified
foreign taxes paid by the Fund and may be entitled under the Code to claim
foreign tax credits or deductions with respect to such taxes.
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OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
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APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $100,000 ($500,000 in the case of
the Adjustable Rate Government Fund and $250,000 in the case of Short Duration
Government and Short Duration Tax-Free Funds) or more of Class A shares of a
Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Fund within a 13-month period, the shareholder may obtain Class
A shares of the Fund at the same reduced sales charge as though the total
quantity were invested in one lump sum by filing this Statement of Intention
incorporated by reference in the Account Application. Income dividends and
capital gain distributions taken in additional shares will not apply toward
the completion of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that this Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the
sales charge, the Transfer Agent will redeem an appropriate number of the
escrowed shares in order to realize such difference. Shares remaining after
any such redemption will be released by the Transfer Agent.
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GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
FIPROAB
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS CLASS A, B AND C SHARES
LOGO GOLDMAN SACHS
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PROSPECTUS
March 1, 1998 GOLDMAN SACHS FIXED INCOME FUNDS
INSTITUTIONAL SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOLDMAN SACHS MUNICIPAL INCOME FUND
GOVERNMENT FUND Seeks a high level of current income
that is exempt from regular federal in-
Seeks a high level of current come tax, consistent with preservation
income, consistent with low of capital. The Fund invests primarily
volatility of principal. The in municipal securities.
Fund invests primarily in ad-
justable rate mortgage pass-
through securities and other
mortgage securities with peri-
odic interest rate resets,
which are issued or guaranteed
by the U.S. government, its
agencies, instrumentalities or
sponsored enterprises.
GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of
capital appreciation and income that
exceeds the total return of the Lehman
Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income
securities, including securities issued
or guaranteed by the U.S. government,
GOLDMAN SACHS SHORT DURATION its agencies, instrumentalities or
GOVERNMENT FUND sponsored enterprises, corporate
securities, mortgage-backed securities
Seeks a high level of current and asset-backed securities.
income and secondarily, in
seeking current income, may
also consider the potential for
capital appreciation. The Fund
invests primarily in securities
issued or guaranteed by the
U.S. government, its agencies,
instrumentalities or sponsored
enterprises.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks a high total return, emphasizing
current income and, to a lesser extent,
providing opportunities for capital
appreciation. The Fund invests
primarily in a portfolio of high
quality fixed-income securities of U.S.
and foreign issuers and foreign
GOLDMAN SACHS SHORT currencies.
DURATIONTAX-FREE FUND
GOLDMAN SACHS HIGH YIELD FUND
Seeks a high level of current
income, consistent with rela-
tively low volatility of prin- Seeks a high level of current income
cipal, that is exempt from reg- and, secondarily, may also consider the
ular federal income tax. The potential for capital appreciation. The
Fund invests primarily in mu- Fund invests primarily in fixed-income
nicipal securities. securities rated below investment
grade.
GOLDMAN SACHS GOVERNMENT INCOME
FUND
Seeks a high level of current
income, consistent with safety
of principal. The Fund invests
primarily in securities, in-
cluding mortgage-backed securi-
ties, issued or guaranteed by
the U.S. government, its agen-
cies, instrumentalities or
sponsored enterprises.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated March 1, 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
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(cover continued)
THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED-INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED-INCOME SECURITIES.
INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND/OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser
to the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 7
Financial Highlights................ 9
Investment Objectives and Policies.. 15
Description of Securities........... 22
Risk Factors........................ 30
Investment Techniques............... 33
Investment Restrictions............. 37
Portfolio Turnover.................. 38
Management.......................... 38
Dividends........................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value................... 43
Performance Information........... 43
Shares of the Trust............... 44
Taxation.......................... 45
Additional Information............ 46
Reports to Shareholders........... 47
Purchase of Institutional Shares.. 47
Exchange Privilege................ 50
Redemption of Institutional
Shares........................... 50
Appendix.......................... A-1
Account Information Form
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in this
Prospectus.
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 further
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of January 26, 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $140 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
1
<PAGE>
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government
RATE current income, to 1-year total assets in Securities
GOVERNMENT consistent with U.S. Treasury securities issued or
FUND low volatility Security guaranteed by the
of principal. Maximum = 2 years U.S. government,
its agencies,
instrumentalities
or sponsored
enterprises
("U.S. Government
Securities")
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government
GOVERNMENT current income, U.S. Treasury total assets in Securities
FUND and secondarily, Security plus U.S. Government
in seeking current or minus .5 years Securities
income, may also Maximum = 3 years and repurchase
consider the poten- agreements
tial for capital collateralized
appreciation. by such securities.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa
TAX-FREE current income, Brothers net assets in
FUND consistent with 3-year Municipal municipal securities.
low volatility Bond Index
of principal, plus or minus
that is exempt .5 years
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of total U.S. Government
INCOME current income, Brothers Mutual assets in U.S. Securities; non-U.S.
FUND consistent with Fund Government/ Government Government
safety of Mortgage Index Securities, including Securities =
principal. plus or minus mortgage-backed AAA/Aaa
1 year U.S. Government
Maximum = 6 years Securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
--------------------------------------------------------------------------------------------
<S> <C> <C>
ADJUSTABLE Fixed-rate 6-month and
RATE mortgage 1-year U.S.
GOVERNMENT pass-through Treasury Security
FUND securities and
repurchase
agreements
collateralized by
U.S. Government
Securities.
--------------------------------------------------------------------------------------------
SHORT DURATION Mortgage pass- 2-year U.S.
GOVERNMENT through Treasury Security
FUND securities and
other securities
representing an
interest in or
collateralized
by mortgage loans.
--------------------------------------------------------------------------------------------
SHORT DURATION U.S. Government Lehman Brothers
TAX-FREE Securities 3-Year Municipal
FUND and repurchase Bond Index
agreements
collateralized
by such securities.
--------------------------------------------------------------------------------------------
GOVERNMENT Non-government Lehman Brothers
INCOME mortgage pass- Mutual Fund
FUND through securities, Government/
asset-backed Mortgage Index
securities and
corporate
fixed-income
securities.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum = BBB/Baa
INCOME current income Brothers 15-year net assets in Average = AA/Aa
FUND that is exempt Municipal Bond municipal securities.
from regular Index plus
federal income or minus 1 year
tax, consistent Maximum = 12 years
with preservation
of capital.
--------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa
INCOME FUND consisting Brothers assets in fixed-income Minimum for non-
of capital Aggregate Bond securities, including dollar securities =
appreciation Index plus or U.S. Government AA/Aa
and income that minus 1 year Securities, corporate,
exceeds the total Maximum = 6 years mortgage-backed
return of the and asset-backed
Lehman Brothers securities.
Aggregate Bond
Index.
--------------------------------------------------------------------------------------------
GLOBAL A high total return, Target = J.P. Morgan 6-year bond Securities of U.S. Minimum = BBB/Baa
INCOME emphasizing current Global Government and foreign At least 50% =
FUND income, and, to a Bond Index governments and AAA/Aaa
lesser extent, (hedged) corporations.
providing plus or minus
opportunities 2.5 years
for capital Maximum = 7.5 years
appreciation.
--------------------------------------------------------------------------------------------
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% =
FUND current income Brothers High assets in fixed- BB/Ba or below
and, secondarily, Yield Bond Index income securities
capital appreciation. plus or minus rated below
2.5 years investment grade,
Maximum =7.5 years including U.S. and
non-U.S. dollar
corporate debt,
foreign government
securities,
convertible
securities
and preferred stock.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
- -----------------------------------------------------
<S> <C> <C>
MUNICIPAL U.S. Government Lehman Brothers
INCOME Securities and 15-Year
FUND repurchase Municipal
agreements Bond Index
collateralized by
such securities.
- -----------------------------------------------------
CORE FIXED Foreign fixed- Lehman Brothers
INCOME FUND income, Aggregate Bond
municipal and Index
convertible
securities,
foreign currencies
and repurchase
agreements
collateralized
by U.S.
Government
Securities.
--------------------------------------------------------------------------------------------
GLOBAL Mortgage and asset- J.P. Morgan
INCOME backed securities, Global
FUND foreign currencies Government Bond
and repurchase Index (hedged)
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government securities.
--------------------------------------------------------------------------------------------
HIGH YIELD Mortgage-backed Lehman Brothers
FUND and asset-backed High Yield
securities, U.S. Bond Index
Government
Securities,
investment grade
corporate fixed-
income securities,
structured
securities,
foreign currencies
and repurchase
agreements
collateralized by
U.S. Government
Securities.
</TABLE>
3
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations, and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. Call risk
typically results when interest rates have declined. Under such
circumstances a Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension risk (i.e., where the issuer exercises its right to pay principal
on an obligation later than scheduled) causes cash flows to be returned
later than expected. Extension risk typically results when interest rates
have increased. Under such circumstances, a Fund will suffer from the
inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Because of their tax-exempt status, the
yields and market values of municipal securities may be more adversely
impacted by changes in tax rates and policies than taxable fixed-income
securities.
Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. In addition, the securities
4
<PAGE>
markets of foreign countries are generally less liquid and subject to
greater price volatility. To the extent that the Core Fixed Income, Global
Income and High Yield Funds invest in emerging markets and countries, these
risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
Diversified and Non-Diversified Funds. Each Fund, other than the Global
Income Fund, is a "diversified open-end management company" as defined under
the Investment Company Act of 1940, as amended (the "Act"). The Global
Income Fund is a "non-diversified" open-end management company as defined
under the Act, and is, therefore, subject only to certain federal tax
diversification requirements (to which the other Funds are also subject), in
addition to the policies adopted by the Investment Adviser. To the extent
that the Fund is not diversified under the Act, it will be more susceptible
to adverse developments affecting any single issuer of portfolio securities.
See "Investment Restrictions."
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for the Adjustable Rate Government, Short
Duration Government, Short Duration Tax-Free and Core Fixed Income Funds is
$50,000 in Institutional Shares of a 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. The minimum initial investment for the Government Income, Municipal
Income, Global Income and High Yield Funds is either $1,000,000 or
$10,000,000 depending upon an investor's eligibility.
HOW DO I PURCHASE INSTITUTIONAL SHARES?
You may purchase Institutional Shares of the Funds through Goldman Sachs.
Institutional Shares are purchased at the current net asset value without
any sales load. See "Purchase of Institutional Shares."
HOW DO I SELL MY INSTITUTIONAL SHARES?
You may redeem Institutional Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Institutional Shares."
5
<PAGE>
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT INCOME
DIVIDENDS
------------------ CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government.................. Daily Monthly Annually
Short Duration Government................... Daily Monthly Annually
Short Duration Tax-Free..................... Daily Monthly Annually
Government Income........................... Daily Monthly Annually
Municipal Income............................ Daily Monthly Annually
Core Fixed Income........................... Daily Monthly Annually
Global Income............................... Monthly Monthly Annually
High Yield.................................. Daily Monthly Annually
</TABLE>
Recordholders of Institutional Shares may receive dividends in additional
Institutional Shares of the Fund in which they have invested or may elect to
receive cash. For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES (INSTITUTIONAL SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT CORE
RATE DURATION DURATION GOVERNMENT MUNICIPAL FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT TAX-FREE INCOME INCOME INCOME INCOME YIELD
FUND/1/ FUND/1/ FUND FUND/1/ FUND FUND FUND FUND/1/
---------- ---------- -------- ---------- --------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge
Imposed on Pur-
chases............... none none none none none none none none
Maximum Sales Charge
Imposed on Reinvested
Dividends............ none none none none none none none none
Redemption Fees....... none none none none none none none none
Exchange Fees......... none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a
percentage of average daily net
assets)
Management Fees (after
applicable limita-
tions)/2/............ 0.40% 0.50% 0.40% 0.65% 0.55% 0.40% 0.59% 0.65%
Distribution (Rule
12b-1) Fees.......... none none none none none none none none
Other Expenses (after
applicable
limitations)/3/...... 0.13% 0.05% 0.05% 0.00% 0.05% 0.05% 0.06% 0.18%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (after fee
and
expense limita-
tions)/4/........... 0.53% 0.55% 0.45% 0.65% 0.60% 0.45% 0.65% 0.83%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $ 5 $17 $30 $66
Short Duration Government....................... $ 6 $18 $31 $69
Short Duration Tax-Free......................... $ 5 $14 $25 $57
Government Income............................... $ 7 $21 $36 $81
Municipal Income................................ $ 6 $19 $33 $75
Core Fixed Income............................... $ 5 $14 $25 $57
Global Income................................... $ 7 $21 $36 $81
High Yield...................................... $ 8 $26 N/A N/A
</TABLE>
- --------
/1/ Based on estimated amounts for the current fiscal year.
/2/ The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Global Income and High Yield
Funds equal to .31% and .05%, respectively. Without such limitations,
management fees would be .90% and .70% of each Fund's average daily net
assets, respectively.
/3/ The Investment Advisers voluntarily have agreed to reduce or limit certain
other expenses (excluding management fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses (and
transfer agency fees in the case of the Global Income and High Yield Funds))
to the extent such expenses exceed .05%, .05%, .00%, .05%, .05%, .06% and
.14% of the average daily net assets of the Short Duration Government, Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income,
Global Income and High Yield Funds, respectively.
7
<PAGE>
/4/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds (with the exception of the High Yield Fund
which is estimated for the current fiscal year) for the fiscal year ended
October 31, 1997 would have been as follows:
<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Short Duration Government........................... .32% .82%
Short Duration Tax-Free............................. .83% 1.23%
Government Income................................... .67% 1.32%
Municipal Income.................................... .57% 1.12%
Core Fixed Income................................... .43% .83%
Global Income....................................... .14% 1.04%
High Yield.......................................... .37% 1.07%
</TABLE>
In addition, for the year ended October 31, 1997, the Investment Adviser
waived and reimbursed certain fees and expenses such that the "Other
Expenses" and "Total Operating Expenses" actually incurred by the Adjustable
Rate Government Fund were 0.09% and 0.49%, respectively. Without such
limitations, "Other Expenses" and "Total Operating Expenses" of the Fund
would have been 0.12% and 0.52%, respectively. For the year ended October 31,
1997, the Investment Adviser voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government and
Government Income Funds equal to 0.10% and 0.40%, respectively. Without such
limitations, management fees would have been 0.50% and 0.65% of each Fund's
average daily net assets, respectively. In addition, the Investment Adviser
reimbursed certain expenses such that "Other Expenses" actually incurred by
the Short Duration Government and Government Income Funds for Institutional
Shares were 0.05% and 0.00%, respectively, and "Total Operating Expenses"
were 0.45% and 0.25%, respectively. Without such limitations, "Other
Expenses" would have been 0.32% and 0.67%, respectively, and "Total Operating
Expenses" would have been 0.82% and 1.32%, respectively.
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Institutional Shares of the Funds.
Each Fund also offers Service and Class A Shares and, with the exception of
the Adjustable Rate Government Fund, Class B and Class C Shares. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-Free
and Core Fixed Income Funds also offer Administration Shares. The other
classes of the Funds are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
Certain institutions that invest in Institutional Shares on behalf of their
customers may receive certain compensation in connection with the sale and
distribution of such Shares or for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Purchase of Institutional Shares" in this Prospectus and the Additional
Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management --Investment Advisers."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data has been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended October 31, 1997 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
--------------------------------------------------- ---------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... $ 9.83 $0.5914(a) $ 0.0494 (a) -- $0.6408 $(0.5908)
1997-
Administration
Shares.......... 9.83 0.5665(a) 0.0497 (a) -- 0.6162 (0.5662)
1997-Service
Shares(m)....... 9.84 0.3298(a) 0.0400 (a) -- 0.3698 (0.3298)
1997-Class A
Shares.......... 9.83 0.5662(a) 0.0500 (a) -- 0.6162 (0.5662)
1996-
Institutional
Shares.......... 9.77 0.5759(a) 0.0772 (a) -- 0.6531 (0.5725)
1996-
Administration
Shares.......... 9.77 0.5489(a) 0.0797 (a) -- 0.6286 (0.5489)
1996-Class A
Shares.......... 9.77 0.5481(a) 0.0806 (a) -- 0.6287 (0.5489)
1995-
Institutional
Shares.......... 9.74 0.5630(a) 0.0717 (a) -- 0.6347 (0.5759)
1995-
Administration
Shares.......... 9.74 0.5366(a) 0.0737 (a) -- 0.6103 (0.5528)
1995-Class A
Shares(c)....... 9.79 0.2721(a) (0.0090)(a) -- 0.2631 (0.2697)
1994-
Institutional
Shares.......... 10.00 0.4341(a) (0.2455)(a) -- 0.1886 (0.4486)
1994-
Administration
Shares.......... 10.00 0.4211(a) (0.2572)(a) -- 0.1639 (0.4239)
1993-
Institutional
Shares.......... 10.04 0.4397 (0.0376)(d) -- 0.4021 (0.4397)
1993-
Administration
Shares(e)....... 10.02 0.2146 (0.0173)(d) -- 0.1973 (0.2146)
1992-
Institutional
Shares.......... 10.03 0.5599 (0.0029)(d) -- 0.5570 (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... 10.00 0.1531 0.0322(d) -- 0.1853 (0.1553)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
FUTURES INVESTMENT FUTURES IN TO
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
------------ ---------- ------------ ------- -------------
ADJUSTABLE RATE GOVERNMENT FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.5908)
1997-
Administration
Shares.......... -- -- -- -- (0.5662)
1997-Service
Shares(m)....... -- -- -- -- (0.3298)
1997-Class A
Shares.......... -- -- -- -- (0.5662)
1996-
Institutional
Shares.......... -- (0.0206) -- -- (0.5931)
1996-
Administration
Shares.......... -- (0.0198) -- -- (0.5687)
1996-Class A
Shares.......... -- (0.0198) -- -- (0.5687)
1995-
Institutional
Shares.......... -- (0.0287) -- -- (0.6046)
1995-
Administration
Shares.......... -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)....... -- (0.0134) -- -- (0.2831)
1994-
Institutional
Shares.......... -- -- -- -- (0.4486)
1994-
Administration
Shares.......... -- -- -- -- (0.4239)
1993-
Institutional
Shares.......... -- (0.0024) -- -- (0.4421)
1993-
Administration
Shares(e)....... -- (0.0027) -- -- (0.2173)
1992-
Institutional
Shares.......... -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... -- -- -- -- (0.1553)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF
NET NET NET RATIO OF RATIO OF RATIO OF
INCREASE ASSET EXPENSES NET NET EXPENSES NET
(DECREASE) VALUE TO INVESTMENT ASSETS AT TO INVESTMENT
IN NET AT END AVERAGE INCOME TO PORTFOLIO END OF AVERAGE INCOME TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ ---------- --------- ---------- ----------- --------- --------- ----------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS END
- -------------
1997-
Institutional
Shares.......... $ 0.0500 $ 9.88 6.70% 0.49% 5.99% 46.58% $ 463,511 0.52% 5.96%
1997-
Administration
Shares.......... 0.0500 9.88 6.43 0.74 5.73 46.58 2,793 0.77 5.70
1997-Service
Shares(m)....... 0.0400 9.88 3.81(f) 1.05(b) 5.64(b) 46.58(f) 346 1.08(b) 5.61(b)
1997-Class A
Shares.......... 0.0500 9.88 6.43 0.74 5.60 46.58 43,393 1.02 5.32
1996-
Institutional
Shares.......... 0.0600 9.83 6.86 0.45 5.85 52.36 613,149 0.51 5.79
1996-
Administration
Shares.......... 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-
Institutional
Shares.......... 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-
Administration
Shares.......... 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12(f) 15,203 1.01(b) 5.55(b)
1994-
Institutional
Shares.......... (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-
Administration
Shares.......... (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-
Institutional
Shares.......... (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-
Administration
Shares(e)....... (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74(f) 5,326 0.73(b) 3.78(b)
1992-
Institutional
Shares.......... 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(f) 239,642 1.02(b) 6.49(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... $ 9.83 $0.6412(a) $ 0.0300(a) -- $ 0.6712 $(0.6412)
1997-
Administration
Shares.......... 9.85 0.6183(a) 0.0400(a) -- 0.6583 (0.6183)
1997-Service
Shares.......... 9.82 0.5904(a) 0.0401(a) -- 0.6305 (0.5904)
1997-Class A
Shares(o)....... 9.78 0.3121(a) 0.0883(a) -- 0.4004 (0.3004)
1997-Class B
Shares(o)....... 9.75 0.2787(a) 0.1011(a) -- 0.3798 (0.2698)
1997-Class C
Shares(p)....... 9.83 0.1185(a) 0.0225(a) -- 0.1410 (0.1110)
1996-
Institutional
Shares.......... 9.82 0.6290(a) 0.0136(a) -- 0.6426 (0.6326)
1996-
Administration
Shares(h)....... 9.86 0.3837(a) 0.0003(a) -- 0.3840 (0.3940)
1996-Service
Shares(i)....... 9.72 0.3134(a) 0.1018(a) -- 0.4152 (0.3152)
1995-
Institutional
Shares.......... 9.64 0.6652(a) 0.1666(a) -- 0.8318 (0.6518)
1995-
Administration
Shares.......... 9.64 0.2384(a) (0.0433)(a) -- 0.1951 (0.2051)
1994-
Institutional
Shares.......... 10.14 0.5628(a) (0.4592)(a) -- 0.1036 (0.5598)
1994-
Administration
Shares.......... 10.14 0.5329(a) (0.4539)(d) -- 0.0790 (0.5352)
1993-
Institutional
Shares.......... 10.16 0.5627 (0.0135)(d) -- 0.5492 (0.5627)
1993-
Administration
Shares(e)....... 10.23 0.2725 (0.0900)(d) -- 0.1825 (0.2725)
1992-
Institutional
Shares.......... 10.22 0.6703 (0.0600)(d) -- 0.6103 (0.6703)
1991-
Institutional
Shares.......... 10.00 0.8020 0.2200(d) -- 1.0220 (0.8020)
1990-
Institutional
Shares.......... 10.07 0.8300 (0.0700)(d) -- 0.7600 (0.8300)
1989-
Institutional
Shares.......... 10.10 0.8800 -- -- 0.8800 (0.8800)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------
1988-
Institutional
Shares.......... 10.00 0.1800 0.1000(d) -- 0.2800 (0.1800)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
IN EXCESS
FROM NET OF NET RATIO OF
REALIZED REALIZED NET NET NET RATIO OF
GAIN ON GAIN ON INCREASE ASSET EXPENSES NET
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) VALUE TO INVESTMENT
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET AT END AVERAGE INCOME TO
FUTURES INVESTMENT FUTURES IN TO ASSET OF TOTAL NET AVERAGE
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS
------------ ---------- ------------ -------- ------------- ---------- --------- ---------- --------- ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.6412) $ 0.0300 $ 9.86 7.07% 0.45% 6.43%
1997-
Administration
Shares.......... -- -- -- -- (0.6183) 0.0400 9.89 6.91 0.70 6.19
1997-Service
Shares.......... -- -- -- -- (0.5904) 0.0401 9.86 6.63 0.95 5.92
1997-Class A
Shares(o)....... -- -- -- -- (0.3004) 0.1000 9.88 4.14(f) 0.70(b) 6.05(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.2698) 0.1100 9.86 3.94(f) 1.30(b) 5.52(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.1110) 0.0300 9.86 1.44(f) 1.45(b) 5.52(b)
1996-
Institutional
Shares.......... -- -- -- -- (0.6326) 0.0100 9.83 6.75 0.45 6.44
1996-
Administration
Shares(h)....... -- -- -- -- (0.3940) (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b)
1996-Service
Shares(i)....... -- -- -- -- (0.3152) 0.1000 9.82 4.35(f) 0.95(b) 6.05(b)
1995-
Institutional
Shares.......... -- -- -- -- (0.6518) 0.1800 9.82 8.97 0.45 6.87
1995-
Administration
Shares.......... -- -- -- -- (0.2051) (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b)
1994-
Institutional
Shares.......... (0.0438) -- -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-
Administration
Shares.......... (0.0438) -- -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-
Institutional
Shares.......... -- (0.0065) -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-
Administration
Shares(e)....... -- -- -- -- (0.2725) (0.0900) 10.14 1.74(f) 0.70(b) 4.84(b)
1992-
Institutional
Shares.......... -- -- -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-
Institutional
Shares.......... -- -- -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-
Institutional
Shares.......... -- -- -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-
Institutional
Shares.......... -- -- -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------
1988-
Institutional
Shares.......... -- -- -- -- (0.1800) 0.1000 10.10 3.30(f) 0.55(b) 8.55(b)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
NET
ASSETS RATIO OF RATIO OF
AT END EXPENSES NET
OF TO INVESTMENT
PORTFOLIO PERIOD AVERAGE INCOME TO
TURNOVER (IN NET AVERAGE
RATE(D) 000S) ASSETS NET ASSETS
----------- -------- --------- ----------
- ------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ----------------
1997-
Institutional
Shares.......... 102.58% $103,729 0.82% 6.06%
1997-
Administration
Shares.......... 102.58 1,060 1.07 5.82
1997-Service
Shares.......... 102.58 3,337 1.32 5.55
1997-Class A
Shares(o)....... 102.58(f) 9,491 1.32(b) 5.43(b)
1997-Class B
Shares(o)....... 102.58(f) 747 1.82(b) 5.00(b)
1997-Class C
Shares(p)....... 102.58(f) 190 1.82(b) 5.15(b)
1996-
Institutional
Shares.......... 115.45 99,944 0.71 6.18
1996-
Administration
Shares(h)....... 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)....... 115.45 1,822 1.21(b) 5.79(b)
1995-
Institutional
Shares.......... 292.56 103,760 0.72 6.60
1995-
Administration
Shares.......... 292.56 -- 0.90(b) 7.71(b)
1994-
Institutional
Shares.......... 289.79 193,095 0.59 5.55
1994-
Administration
Shares.......... 289.79 730 0.84 5.24
1993-
Institutional
Shares.......... 411.66 359,708 0.64 5.31
1993-
Administration
Shares(e)....... 411.66 16,490 0.80(b) 4.74(b)
1992-
Institutional
Shares.......... 216.07 277,927 0.69 6.36
1991-
Institutional
Shares.......... 155.44 158,848 0.79 7.91
1990-
Institutional
Shares.......... 173.21 68,995 0.95 8.12
1989-
Institutional
Shares.......... 137.37 31,015 1.39 7.78
FOR THE PERIOD A
- ----------------
1988-
Institutional
Shares.......... 167.00(f) 39,052 1.42(b) 7.68(b)
- ------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
--------------------------------------------------- ---------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... $ 9.96 $0.4181(a) $ 0.1091(a) -- $ 0.5272 $(0.4172)
1997-
Administration
Shares.......... 9.96 0.3924(a) 0.1100(a) -- 0.5024 (0.3924)
1997-Service
Shares.......... 9.97 0.3675(a) 0.1000(a) -- 0.4675 (0.3675)
1997-Class A
Shares(o)....... 9.94 0.1950(a) 0.1400(a) -- 0.3350 (0.1950)
1997-Class B
Shares(o)....... 9.94 0.1663(a) 0.1368(a) -- 0.3031 (0.1631)
1997-Class C
Shares(p)....... 10.04 0.0670(a) 0.0300(a) -- 0.0970 (0.0670)
1996-
Institutional
Shares.......... 9.94 0.4192(a) 0.0200(a) -- 0.4392 (0.4192)
1996-
Administration
Shares.......... 9.94 0.3944(a) 0.0200(a) -- 0.4144 (0.3944)
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200(a) -- 0.3897 (0.3697)
1995-
Institutional
Shares.......... 9.79 0.4235(a) 0.1500(a) -- 0.5735 (0.4235)
1995-
Administration
Shares.......... 9.79 0.3989(a) 0.1500(a) -- 0.5489 (0.3989)
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600(a) -- 0.5344 (0.3744)
1994-
Institutional
Shares.......... 10.23 0.3787(a) (0.3575)(a) -- 0.0212 (0.3787)
1994-
Administration
Shares.......... 10.23 0.3537(a) (0.3575)(a) -- (0.0038) (0.3537)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) -- (0.0225) (0.0475)
1993-
Institutional
Shares.......... 9.93 0.3834 0.3000(d) -- 0.6834 (0.3834)
1993-
Administration
Shares(j)....... 10.16 0.1555 0.0720(d) -- 0.2275 (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... 10.00 0.0341 (0.0700)(d) -- (0.0359) (0.0341)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
FUTURES INVESTMENT FUTURES IN TO
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... -- -- -- -- $(0.4172)
1997-
Administration
Shares.......... -- -- -- -- (0.3924)
1997-Service
Shares.......... -- -- -- -- (0.3675)
1997-Class A
Shares(o)....... -- -- -- -- (0.1950)
1997-Class B
Shares(o)....... -- -- -- -- (0.1631)
1997-Class C
Shares(p)....... -- -- -- -- (0.0670)
1996-
Institutional
Shares.......... -- -- -- -- (0.4192)
1996-
Administration
Shares.......... -- -- -- -- (0.3944)
1996-Service
Shares.......... -- -- -- -- (0.3697)
1995-
Institutional
Shares.......... -- -- -- -- (0.4235)
1995-
Administration
Shares.......... -- -- -- -- (0.3989)
1995-Service
Shares.......... -- -- -- -- (0.3744)
1994-
Institutional
Shares.......... (0.0825) -- -- -- (0.4612)
1994-
Administration
Shares.......... (0.0825) -- -- -- (0.4362)
1994-Service
Shares(j)....... -- -- -- -- (0.0475)
1993-
Institutional
Shares.......... -- -- -- -- (0.3834)
1993-
Administration
Shares(j)....... -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... -- -- -- -- (0.0341)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF NET
NET NET NET RATIO OF ASSETS RATIO OF RATIO OF
INCREASE ASSET EXPENSES NET AT END EXPENSES NET
(DECREASE) VALUE TO INVESTMENT OF TO INVESTMENT
IN NET AT END AVERAGE INCOME TO PORTFOLIO PERIOD AVERAGE INCOME TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ ----------- --------- ---------- ----------- -------- --------- ----------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS END
1997-
Institutional
Shares.......... $ 0.1100 $10.07 5.40% 0.45% 4.18% 194.75% $ 28,821 1.23% 3.40%
1997-
Administration
Shares.......... 0.1100 10.07 5.14 0.70 3.91 194.75 77 1.48 3.13
1997-Service
Shares.......... 0.1000 10.07 4.77 0.95 3.66 194.75 2,051 1.73 2.88
1997-Class A
Shares(o)....... 0.1400 10.08 3.39(f) 0.70(b) 3.81(b) 194.75(f) 4,023 1.73(b) 2.78(b)
1997-Class B
Shares(o)....... 0.1400 10.08 3.07(f) 1.30(b) 3.31(b) 194.75(f) 106 2.23(b) 2.38(b)
1997-Class C
Shares(p)....... 0.0300 10.07 0.97(f) 1.45(b) 2.60(b) 194.75(f) 2 2.23(b) 1.82(b)
1996-
Institutional
Shares.......... 0.0300 9.96 4.50 0.45 4.21 231.65 34,814 1.01 3.65
1996-
Administration
Shares.......... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares.......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-
Institutional
Shares.......... 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-
Administration
Shares.......... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares.......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-
Institutional
Shares.......... (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-
Administration
Shares.......... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)....... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-
Institutional
Shares.......... 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-
Administration
Shares(j)....... 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------- -------------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT, FROM
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND PAID
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES IN
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $14.36 $0.91 $0.29 -- $1.20 $(0.90) $(0.07) -- -- --
1997-Class B
Shares 14.37 0.80 0.30 -- 1.10 (0.79) (0.07) -- -- --
1997-Class C
Shares(p) 14.38 0.17 0.22 -- 0.39 (0.17) -- -- -- --
1997-
Institutional
Shares(p) 14.37 0.20 0.22 -- 0.42 (0.20) -- -- -- --
1997-Service
Shares(p) 14.37 0.20 0.21 -- 0.41 (0.19) -- -- -- --
1996-Class A
shares 14.47 0.92 (0.11) -- 0.81 (0.92) -- -- -- --
1996-Class B
shares(q) 14.11 0.41 0.26 -- 0.67 (0.41) -- -- -- --
1995-Class A
shares 13.47 0.94 1.00 -- 1.94 (0.94) -- -- -- --
1994-Class A
shares 14.90 0.85 (1.28) -- (0.43) (0.85) (0.12) (0.02) (0.01) --
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A
shares 14.32 0.56 0.58 -- 1.14 (0.56) -- -- -- --
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $14.37 $0.67 $0.62 -- $1.29 $(0.67) -- -- -- --
1997-Class B
Shares 14.37 0.56 0.63 -- 1.19 (0.56) -- -- -- --
1997-Class C
Shares(p) 14.85 0.12 0.14 -- 0.26 (0.12) -- -- -- --
1997-
Institutional
Shares(p) 14.84 0.15 0.16 -- 0.31 (0.15) -- -- -- --
1997-Service
Shares(p) 14.84 0.14 0.15 -- 0.29 (0.14) -- -- -- --
1996-Class A
shares 14.17 0.65 0.20 -- 0.85 (0.65) -- -- -- --
1996-Class B
shares(q) 14.03 0.27 0.34 -- 0.61 (0.27) -- -- -- --
1995-Class A
shares 13.08 0.67 1.09 -- 1.76 (0.67) -- -- -- --
1994-Class A
shares 14.64 0.73 (1.51) -- (0.78) (0.73) (0.05) -- -- --
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A
shares 14.32 0.22 0.32 -- 0.54 (0.22) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
------------- ---------- ------ ---------- --------- ---------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $(0.97) $0.23 $14.59 8.72% 0.50% 6.38% 395.75% $68,859 1.82% 5.06%
1997-Class B
Shares (0.86) 0.24 14.61 7.96 1.25 5.59 395.75 8,041 2.32 4.52
1997-Class C
Shares(p) (0.17) 0.22 14.60 2.72(f) 1.25(b) 5.45(b) 395.75(f) 1,196 2.32(b) 4.38(b)
1997-
Institutional
Shares(p) (0.20) 0.22 14.59 2.94(f) 0.25(b) 7.03(b) 395.75(f) 1,894 1.32(b) 5.96(b)
1997-Service
Shares(p) (0.19) 0.22 14.59 2.85(f) 0.75(b) 6.49(b) 395.75(f) 2 1.82(b) 5.42(b)
1996-Class A
shares (0.92) (0.11) 14.36 5.80 0.75 6.42 485.09 30,603 1.89 5.03
1996-Class B
shares(q) (0.41) 0.26 14.37 4.85(f) 1.25(b) 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A
shares (0.94) 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A
shares (1.00) (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A
shares (0.56) 0.58 14.90 8.03(f) 0.00(b) 4.87(e) 725.41(f) 12,860 4.00(b)
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $(0.67) $0.62 $14.99 9.23% 0.85% 4.60% 153.12% $64,553 1.62% 3.83%
1997-Class B
Shares (0.56) 0.63 15.00 8.48 1.60 3.74 153.12 1,750 2.12 3.22
1997-Class C
Shares(p) (0.12) 0.14 14.99 1.75(f) 1.60(b) 3.24(b) 153.12(f) 130 2.12(b) 2.72(b)
1997-
Institutional
Shares(p) (0.15) 0.16 15.00 2.10(f) 0.60(b) 4.41(b) 153.12(f) 351 1.12(b) 3.89(b)
1997-Service
Shares(p) (0.14) 0.15 14.99 1.93(f) 1.10(b) 4.24(b) 153.12(f) 2 1.62(b) 3.72(b)
1996-Class A
shares (0.65) 0.20 14.37 6.13 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B
shares(q) (0.27) 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13(f) 255 2.05(b) 3.10(b)
1995-Class A
shares (0.67) 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A
shares (0.78) (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A
shares (0.22) 0.32 14.64 3.73(f) 0.00(b) 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares $ 9.85 $0.6431 $0.2282 $(0.0005) $ 0.8708 $(0.6408)
1997-
Administration
Shares 9.84 0.6182 0.2380 (0.0005) 0.8557 (0.6157)
1997-Service
Shares 9.86 0.5937 0.2287 (0.0005) 0.8219 (0.5919)
1997-Class A
Shares(o) 9.70 0.3059 0.3596 (0.0008) 0.6647 (0.3048)
1997-Class B
Shares(o) 9.72 0.2686 0.3695 (0.0008) 0.6373 (0.2673)
1997-Class C
Shares(p) 9.93 0.1118 0.1591 (0.0003) 0.2706 (0.1107)
1996-
Institutional
Shares 10.00 0.6448 (0.0704) -- 0.5744 (0.6438)
1996-
Administrative
Shares(/1/) 9.91 0.4083 (0.0703) -- 0.3380 (0.4080)
1996-Service
Shares(l) 9.77 0.3756 0.0898 -- 0.4654 (0.3754)
1995-
Institutional
Shares 9.24 0.6423 0.7610 -- 1.4033 (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares 10.00 0.4648 (0.7617) -- (0.2969) (0.4648)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares $14.53 $ 0.59 $ 0.50 $ 0.27 $ 1.36 $ (0.79)
1997-Class B
shares 14.53 0.72 0.36 0.20 1.28 (0.73)
1997-Class C
shares(p) 14.80 0.16 0.19 0.10 0.45 (0.19)
1997-
Institutional
Shares 14.52 0.88 0.37 0.19 1.44 (0.87)
1997-Service
Shares(s) 14.69 0.53 0.25 0.14 0.92 (0.52)
1996-Class A
shares 14.45 0.71 0.62 0.18 1.51 (1.43)
1996-Class B
shares(q) 14.03 0.34 0.41 0.11 0.86 (0.36)
1996-
Institutional
shares 14.45 1.15 0.32 0.10 1.57 (1.50)
1995-Class A
shares 13.43 0.89 0.92 0.15 1.96 (0.94)
1995-
Institutional
shares(r) 14.09 0.22 0.34 0.06 0.62 (0.26)
1994-Class A
shares 15.07 0.84 (1.37) (0.12) (0.65) (0.22)
1993-Class A
shares 14.69 0.85 1.07 (0.42) 1.50 (0.85)
1992-Class A
shares 14.60 1.14 0.45 (0.36) 1.23 (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares 14.55 0.25 0.23 (0.19) 0.29 (0.24)
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
FUTURES INVESTMENT FUTURES IN TO
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
------------ ---------- ------------ ------- -------------
CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares -- -- -- -- $(0.6408)
1997-
Administration
Shares -- -- -- -- (0.6157)
1997-Service
Shares -- -- -- -- (0.5919)
1997-Class A
Shares(o) -- -- -- -- (0.3048)
1997-Class B
Shares(o) -- -- -- -- (0.2673)
1997-Class C
Shares(p) -- -- -- -- (0.1107)
1996-
Institutional
Shares (0.0806) -- -- -- (0.7244)
1996-
Administrative
Shares(/1/) -- -- -- -- (0.4080)
1996-Service
Shares(l) -- -- -- -- (0.3754)
1995-
Institutional
Shares -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares -- -- -- -- (0.4648)
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares -- -- -- -- $ (0.79)
1997-Class B
shares -- -- -- -- (0.73)
1997-Class C
shares(p) -- -- -- -- (0.19)
1997-
Institutional
Shares -- -- -- -- (0.87)
1997-Service
Shares(s) -- -- -- -- (0.52)
1996-Class A
shares -- -- -- -- (1.43)
1996-Class B
shares(q) -- -- -- -- (0.36)
1996-
Institutional
shares -- -- -- -- (1.50)
1995-Class A
shares -- -- -- -- (0.94)
1995-
Institutional
shares(r) -- -- -- -- (0.26)
1994-Class A
shares (0.16) -- -- (0.61) (0.99)
1993-Class A
shares (0.27) -- -- -- (1.12)
1992-Class A
shares -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares -- -- -- -- (0.24)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ ---------- ----------- ------------ ----------- -------- --------- ----------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares $ 0.2300 $10.08 9.19% 0.45% 6.53% 361.27% $79,230 0.83% 6.15%
1997-
Administration
Shares 0.2300 10.07 8.92 0.70 6.27 361.27 6,176 1.08 5.89
1997-Service
Shares 0.2300 10.09 8.65 0.95 6.00 361.27 1,868 1.33 5.62
1997-Class A
Shares(o) 0.3599 10.06 6.94(f) 0.70(b) 6.13(b) 361.27(f) 9,336 1.33(b) 5.50(b)
1997-Class B
Shares(o) 0.3700 10.09 6.63(f) 1.45(b) 5.28(b) 361.27(f) 621 1.83(b) 4.90(b)
1997-Class C
Shares(p) 0.1599 10.09 2.74(f) 1.45(b) 4.84(b) 361.27(f) 272 1.83(b) 4.46(b)
1996-
Institutional
Shares (0.1500) 9.85 5.98 0.45 6.51 414.20 72,061 0.83 6.13
1996-
Administrative
Shares(/1/) (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(l) 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-
Institutional
Shares 0.7600 10.00 15.72 0.45 6.56 382.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 285.25 24,508 1.46(b) 5.47(b)
- -------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares $ 0.57 $15.10 9.66% 1.17% 5.19% 383.72% $167,096 1.60% 4.76%
1997-Class B
shares 0.55 15.08 9.04 1.71 4.76 383.72 3,465 2.10 4.37
1997-Class C
shares(p) 0.26 15.06 3.03(f) 1.71(b) 4.98(b) 383.72(f) 496 2.10(b) 4.59(b)
1997-
Institutional
Shares 0.57 15.09 10.26 0.65 5.72 383.72 60,929 1.04 5.33
1997-Service
Shares(s) 0.40 15.09 6.42(f) 1.15(b) 5.33(b) 383.72(f) 151 1.54(b) 4.94(b)
1996-Class A
shares 0.08 14.53 11.05 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B
shares(q) 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15(f) 256 2.14(b) 4.72(b)
1996-
Institutional
shares 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(r) 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86(f) 31,619 1.08(b) 5.58(b)
1994-Class A
shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares 0.05 14.60 2.00(f) 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------- -------------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT, FROM
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND PAID
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES IN
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares $10.00 $0.17 $(0.03) 0.01 $0.15 $(0.17) -- $(0.01) -- --
1997-Class B
Shares 10.00 0.15 (0.03) 0.01 0.13 (0.15) -- (0.01) -- --
1997-Class C
Shares(p) 9.97 0.14 -- 0.01 0.12 (0.14) -- (0.01) -- --
1997-
Institutional
Shares 10.00 0.18 (0.03) 0.01 0.16 (0.18) -- (0.01) -- --
1997-Service
Shares 10.00 0.17 (0.03) 0.01 0.15 (0.17) -- (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
----------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
------------- ---------- ------ ----------- ---------- ----------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares $(0.18) $(0.03) $9.97 1.50%(f) 0.95%(b) 7.06%(b) 44.80%(f) $325,911 1.57%(b) 6.44%(b)
1997-Class B
Shares (0.16) (0.03) 9.97 1.31(f) 1.70(b) 6.28(e) 44.80(f) 10.308 2.07(b) 5.91(b)
1997-Class C
Shares(p) (0.15) (0.03) 9.97 1.46(f) 1.70(b) 6.17(b) 44.80(f) 1,791 2.07(b) 5.80(b)
1997-
Institutional
Shares (0.19) (0.03) 9.97 1.58(f) 0.70(b) 7.16(b) 44.80(f) 2 1.07(b) 6.79(b)
1997-Service
Shares (0.18) (0.03) 9.97 1.46(f) 1.20(b) 6.69(b) 44.80(f) 2 1.57(b) 6.32(b)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Short Duration Government Fund Administration shares were redeemed in full
on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge for Class A
shares or a contingent deferred sales charge for Class B and Class C
shares were taken into account.
(l) Administration and Service share activity commenced on February 28, 1996
and March 13, 1996, respectively.
(m) Service share activity commenced on March 27, 1997.
(n) Includes the balancing effect of calculating per share amounts.
(o) Class A and Class B share activity commenced on May 1, 1997.
(p) Commenced operations on August 15, 1997.
(q) Class B shares commenced operations on May 1, 1996.
(r) Institutional shares commenced operations on June 1, 1995.
(s) Service Class shares commenced operations on March 12, 1997.
- -------------------------------------------------------------------------------
14
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one nationally recognized statistical rating organization ("NRSRO") including,
but not limited to, Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's") even though it has been rated below the
minimum rating by one or more other NRSROs or, if unrated, is determined by
the Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will usually have access to the research of, and
certain proprietary technical models developed by, Goldman Sachs and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a nine-month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other mortgage securities with periodic
interest rate resets. The remainder of the Fund's assets (up to 35%) may be
invested in other U.S. Government Securities, including fixed rate mortgage
pass-through securities, other securities representing an interest in or
collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-
Backed Securities") and repurchase agreements collateralized by U.S.
Government Securities. Substantially all of the Fund's assets
15
<PAGE>
will be invested in U.S. Government Securities. 100% of the Fund's portfolio
will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a two-year bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a three-year bond.
16
<PAGE>
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed-income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and the political subdivisions, agencies and instrumentalities
thereof ("Municipal Securities"), the interest on which is exempt from regular
federal income tax (i.e., excluded from gross income for federal income tax
purposes), and is not a tax preference item under the federal alternative
minimum tax. Under normal circumstances, the Fund's investments in private
activity bonds and taxable investments will not exceed, in the aggregate, 20%
of the Fund's net assets. The interest from certain private activity bonds
(including the Fund's distributions of such interest) may be a preference item
for purposes of the federal alternative minimum tax. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB or Baa by an NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. Municipal Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities may
reflect the existence of guarantees, letters of credit or other credit
enhancement features available to the issuers or holders of such Municipal
Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
GOVERNMENT INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
17
<PAGE>
CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA or Aaa by an NRSRO or, if unrated, will be
determined by the Investment Adviser to be of comparable quality.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
MUNICIPAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a fifteen-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA or Aa by an NRSRO. All securities purchased by the Fund will be rated, at
the time of investment, at least BBB or Baa by an NRSRO or, if unrated, will
be determined by the Investment Adviser to be of comparable quality. Fixed-
income securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement
features available to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
18
<PAGE>
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is expected to be
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa by an NRSRO. The securities currently included in the Index
have at least one year remaining to maturity; have an outstanding principal
amount of at least $100 million; and are issued by the following types of
issuers, with each category receiving a different weighting in the Index: U.S.
Treasury; agencies, authorities or instrumentalities of the U.S. government;
issuers of Mortgage-Backed Securities; utilities; industrial issuers;
financial institutions; foreign issuers; and issuers of Asset-Backed
Securities. The Index is a trademark of Lehman Brothers. Inclusion of a
security in the Index does not imply an opinion by Lehman Brothers as to its
attractiveness or appropriateness for investment. Although Lehman Brothers
obtains factual information used in connection with the Index from sources
which it considers reliable, Lehman Brothers claims no responsibility for the
accuracy, completeness or timeliness of such information and has no liability
to any person for any loss arising from results obtained from the use of the
Index data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
or Baa by an NRSRO. The non-U.S. dollar-denominated fixed-income securities in
which the Fund may invest will be rated, at the time of investment, at least
AA or Aa by an NRSRO or, if unrated, will be determined by the Investment
Adviser to be of comparable quality. Fixed-income securities rated BBB or Baa
are considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
19
<PAGE>
exchange rate fluctuations or to seek to increase total return. The Fund may
invest in custodial receipts, Municipal Securities and convertible securities.
The Fund may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices, described
under "Investment Techniques."
GLOBAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income, and, to a lesser extent,
providing opportunities for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a six-year bond.
INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.
The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper; and (vi) Mortgage-Backed and
Asset-Backed Securities.
CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least BBB or Baa by an NRSRO. However, the Fund will
invest at least 50% of its total assets in securities rated, at the time of
investment, AAA or Aaa by an NRSRO. Unrated securities will be determined by
the Investment Adviser to be of comparable quality. Fixed-income securities
rated BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S.
20
<PAGE>
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value of the Fund's total assets. To the extent that the Fund is fully
invested in foreign securities while also maintaining currency positions, it
may be exposed to greater combined risk. The Fund's net currency positions may
expose it to risks independent of its securities positions. The Fund may also
employ other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. Not more than 25% of the Fund's
total assets will be invested in securities of issuers in any other single
foreign country.
HIGH YIELD FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a 6-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed-income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB, Ba or below by an NRSRO, or, if unrated, determined
by the Investment Adviser to be of comparable quality. The Fund may invest in
all types of fixed-income securities, including senior and subordinated
corporate debt obligations (such as bonds, debentures, notes and commercial
paper), convertible and non-convertible corporate debt obligations, loan
participations, custodial receipts, municipal securities and preferred stock.
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers (including securities of issuers located in countries with
emerging markets and economies) which are denominated in currencies other than
the U.S. dollar. Under normal market conditions, the Fund may invest up to 35%
of its total assets in investment grade fixed-income securities, including
U.S. Government Securities, Asset-Backed and Mortgage-Backed Securities and
corporate securities. The Fund may also invest in common stocks, warrants,
rights and other equity securities, but will generally hold such equity
investments only when debt or preferred stock of the issuer of such equity
securities is held by the Fund. A number of investment strategies are used to
seek to achieve the Fund's investment objective, including market sector
selection, determination of yield curve exposure, and issuer selection. In
addition, the Investment Adviser will attempt to take advantage of pricing
inefficiencies in the fixed-income markets.
CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade, including securities of issuers in
default. Non-investment grade securities (commonly known as "junk bonds") tend
to offer higher yields than higher rated securities with similar maturities.
Non-investment grade
21
<PAGE>
securities are, however, considered speculative and generally involve greater
price volatility and greater risk of loss of principal and interest than
higher rated securities. See "Description of Securities." A description of the
corporate bond and preferred stock ratings is contained in Appendix B to the
Additional Statement.
For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and nonconvertible
bonds) held by Fund during the most recent fiscal year:
CREDIT QUALITY
<TABLE>
<CAPTION>
PERCENTAG OF
FUND'S ASSETS
-------------
<S> <C>
AAA/Aaa...................................................... 1.3%
AA/Aa........................................................ 0%
A............................................................ 0%
BBB/Baa...................................................... 0.3%
BB/Ba........................................................ 13.1%
Below Ba..................................................... 85.3%
Not rated.................................................... 0%
Comparable to A............................................. 0%
Comparable to BBB/Baa....................................... 0%
Comparable to BB/Ba or lower................................ 0%
Comparable to Below Ba...................................... 0%
-----
100.0%
=====
</TABLE>
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
securities and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps, and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
exchange rate fluctuations or to seek to increase total return. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into repurchase agreements and other
investment practices described under "Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
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<PAGE>
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to amortize fully principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
23
<PAGE>
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive
a high quality rating from the rating organizations (i.e., S&P or Moody's),
they normally are structured with one or more types of "credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue Code of 1986,
as amended (the "Code"), and invests in certain mortgages principally secured
by interests in real property and other permitted investments. The Funds do
not intend to purchase residual interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities. SMBS are
usually structured with two different classes: one that receives 100% of the
interest payments and the other that receives 100% of the principal payments
from a pool of mortgage loans. If the underlying mortgage loans experience
different than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The market value of the
class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. A Fund's
investments in SMBS may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements.
ASSET-BACKED SECURITIES
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be to
issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan
24
<PAGE>
syndication, a number of lenders, usually banks (co-lenders), lend a corporate
borrower a specified sum pursuant to the terms and conditions of a loan
agreement. One of the co-lenders usually agrees to act as the agent bank with
respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the High Yield Fund lacks
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses by the borrower as a result of improper conduct
by the agent bank. Moreover, under the terms of the loan participation, the
High Yield Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the High Yield Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. The Core Fixed Income and High Yield Funds may also invest in
taxable Municipal Securities.
PRIVATE ACTIVITY BONDS. Municipal Securities include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds'
25
<PAGE>
distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such leases, the credit
quality rating and risk of cancellation of such unrated leases will be
monitored on an ongoing basis. Certain municipal lease obligations and
certificates of participation may be deemed illiquid for the purpose of a
Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may also invest in trust preferred securities. A trust preferred or capital
security is a long dated bond (for example, 30 years) with preferred features.
The preferred features are that payment of interest can be deferred for a
specified period without initiating a default event. From a bondholder's
viewpoint, the securities are senior in claim to standard preferred stock but
junior to other bondholders. From the issuer's viewpoint, the securities are
attractive because their interest is deductible for tax purposes like other
types of debt instruments.
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CONVERTIBLE SECURITIES
The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
securities to 25% of their total assets. Investment in foreign securities may
offer potential benefits that are not available from investing exclusively in
U.S. dollar-denominated domestic issues. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign fixed-income securities do not necessarily move in a manner parallel
to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain
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sufficient cash to pay such dividends. In addition, clearance and settlement
procedures may be different in foreign countries and, in certain markets, such
procedures have been unable to keep pace with the volume of securities
transactions, making it more difficult to conduct such transactions.
The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in volatility of market prices of sovereign
debt, and in turn a Fund's net asset value, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristic of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of a Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets
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(such as the U.S., Japan and most Western European countries). See the
Additional Statement for further information regarding a Fund's investments in
emerging markets.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell foreign currencies on a spot basis and may also
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, a Fund also may enter into such
contracts to seek to increase total return when the Investment Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to increase total return, forward foreign currency
exchange contracts are considered speculative. The Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or to sell foreign currency to seek to
increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract, or to otherwise cover its position in a manner permitted by
the SEC. A Fund will incur costs in connection with conversions between
various currencies. A Fund may hold foreign currency received in connection
with investments in foreign securities when, in the judgment of the Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force the Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.
The Core Fixed Income, Global Income and High Yield Funds' use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging
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markets, the Investment Adviser does not currently anticipate that a
significant portion of the Funds' currency exposure in emerging markets, if
any, will be covered by such instruments. For a discussion of such instruments
and the risks associated with their use, see "Investment Objectives and
Policies" in the Additional Statement.
STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed-
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
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CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. Call risk typically results when
interest rates have declined. Under such circumstances, a Fund may be unable
to recoup all of its initial investment and will also suffer from having to
reinvest in lower yielding securities. Extension risk (i.e., where the issuer
exercises its right to pay principal on an obligation later than scheduled)
causes cash flows to be returned later than expected. Extension risk typically
results when interest rates have increased. Under such circumstances, a Fund
will suffer from the inability to invest in higher yielding securities.
Certain types of U.S. Government, Asset-Backed, corporate, foreign, Mortgage-
Backed and Municipal Securities have this call and/or extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay more slowly. As with fixed-
rate mortgages, ARM prepayment rates vary in both stable and changing interest
rate environments. There are certain ARMs where the homeowner's payments do
not fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a
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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.
TAX RISK OF MUNICIPAL SECURITIES. The yields and market values of Municipal
Securities may be more adversely impacted by changes in tax rates and policies
than taxable fixed-income securities. Because interest income from Municipal
Securities is normally not subject to regular federal income taxation, the
attractiveness of Municipal Securities in relation to other investment
alternatives is affected by changes in federal income tax rates applicable to,
or the continuing federal income tax-exempt status of, such interest income.
Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of
Municipal Securities, which could in turn affect a Fund's ability to acquire
and dispose of Municipal Securities at desirable yield and price levels.
RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.
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The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed-income
securities is generally lower and the secondary market for such securities
could contract under adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. These
factors may have an adverse effect on the market price and a Fund's ability to
dispose of particular portfolio investments. A less liquid secondary market
also may make it more difficult for a Fund to obtain precise valuations of the
high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.
OTHER RISKS. Floating-rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the Fund loses the right to receive principal and interest paid
on the securities sold.
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However, the Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase or fee income plus the interest earned on the cash proceeds of
the securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. Successful use of mortgage dollar rolls
depends upon the Investment Adviser's ability to predict correctly interest
rates and mortgage prepayments. There is no assurance that mortgage dollar
rolls can be successfully employed. The Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. For financial reporting and tax
purposes, each Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving
a sale. The Funds do not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index comprised of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
or in the case of the Core Fixed Income, Global Income and High Yield Funds,
currency exchange rates, a Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on a Fund's outstanding positions in futures and related options entered into
for the purpose of seeking to increase total return would exceed 5% of the
market value of a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets with a value equal to the amount
of the Fund's obligations or to otherwise cover the obligations in a manner
permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund will not enter into
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or, if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The use of currency swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Adviser is
incorrect in its forecasts of currency exchange rates, the investment
performance of a Fund would be less favorable than it would have been if this
investment technique were not used.
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<PAGE>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which include securities (both foreign
and domestic) that are not readily marketable, certain SMBS, certain municipal
leases and participation interests, repurchase agreements maturing in more
than seven days, time deposits with a notice or demand period of more than
seven days, certain over-the-counter options, and certain restricted
securities, unless it is determined, based upon the continuing review of the
trading markets for a specific restricted security, that such restricted
security is eligible for resale under Rule 144A under the Securities Act of
1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. The
purchase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (i) U. S. Government Securities or
(ii) repurchase agreements collateralized by U.S. Government
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<PAGE>
Securities. The Short Duration Tax-Free and Municipal Income Funds may for
temporary defensive purposes depart from their stated investment objectives
and invest more than 20% of their respective net assets in taxable
investments. The High Yield Fund may for temporary defensive purposes invest
in investment grade securities.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating-rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund, as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund still
remains an appropriate investment in light of their then current financial
positions and needs.
The Short Duration Tax-Free and Municipal Income Funds' policy to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.
NON-DIVERSIFIED STATUS. Since the Global Income Fund is "non-diversified"
under the Act, it is subject only to certain federal tax diversification
requirements. Under federal tax laws, the Global Income Fund may, with respect
to 50% of its total assets, invest up to 25% of its total assets in the
securities of any issuer (except that this limitation does not apply to U.S.
Government Securities). With respect to the remaining 50% of the Fund's total
assets, (1) the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject to certain conditions and limitations under the Code. Since
the Global Income Fund is not diversified under the Act, it will be more
susceptible to adverse developments affecting any single issuer. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income and High Yield
Funds are, in addition to these tax diversification requirements, also subject
to the diversification requirements arising out of their diversified status
under the Act.
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<PAGE>
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. The
portfolio turnover rate is computed by dividing the lesser of the dollar
amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by a Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for a
Fund consistent with the Fund's investment objectives and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to a Fund. The portfolio turnover rate includes the effect of entering
into mortgage dollar rolls. See "Financial Highlights" for a statement of each
Fund's historical portfolio turnover rates.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as the investment adviser to the
Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income and High Yield Funds. Goldman Sachs registered as an investment adviser
in 1981. Goldman Sachs Asset Management International, 133 Peterborough Court,
London EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organization Limited in 1990 and registered as an investment adviser in 1991.
As of January 26, 1998, GSAM, GSFM and GSAMI, together with their affiliates,
acted as investment adviser or distributor for assets in excess of $140
billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset
38
<PAGE>
management affiliates for portfolio decisions and management with respect to
certain portfolio securities. In addition, the Investment Advisers will have
access to the research of, and certain proprietary technical models developed
by, Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides the Funds with office space and all necessary office equipment
and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio managers are Jonathan A. Beinner, Richard C. Lucy, James B. Clark,
Peter D. Dion and James P. McCarthy. Their responsibilities include investing
in the particular types of securities the Funds may hold. Mr. Beinner is a
Managing Director of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Beinner joined the Investment Adviser in 1990. Mr. Lucy is a
Vice President of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Lucy joined the Investment Adviser in 1992. Mr. Clark joined
GSAM in 1994 after working as a senior trader at the Federal Home Loan
Mortgage Corporation. Prior to that, he was an investment manager at Travelers
Insurance Company. Mr. Dion is a Vice President of Goldman Sachs and joined
GSAM in 1992. Mr. McCarthy is a Vice President of Goldman Sachs. Mr. McCarthy
joined GSAM in 1995 after working as a bond trader at Nomura Securities.
GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner and Mr. Lucy. Messrs. Beinner and Lucy each specialize in
investing in a particular type of security the Fund may hold. James Clark is
also a portfolio manager for the Government Income Fund. See above for
information about Mr. Clark.
SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group
at GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM
in early 1992, Mr. Thompson worked in the Structured Finance Group of the
Chase Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was
a Director of Fitch Investors Service evaluating the credit ratings of tax-
backed issues. Prior to that, she worked for ten years in the Goldman Sachs
Municipal Finance Department.
GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Mr.
Wilson joined GSAMI in 1995 and is Executive Director and Portfolio Manager
for international fixed income. Prior to joining GSAMI, he spent three years
as an Assistant Director at Rothschild Asset Management where he was
responsible for managing global and international bond portfolios, with
specific focus on the U.S., Canadian, Australian and Japanese economies.
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<PAGE>
HIGH YIELD FUND. The Fund's portfolio managers are Richard Buckholz,
Christopher Testa, Michael L. Pasternak and Andrew Jessop. Mr. Buckholz is a
Vice President of Goldman Sachs and is responsible for emerging markets fixed
income portfolio management. Mr. Buckholz joined GSAM in 1994. Prior to
joining GSAM, Mr. Buckholz was Head of Emerging Market Fixed Income Research
at Bear Stearns & Company and previously in a similar position at Citibank.
Mr. Testa is a Vice President of Goldman Sachs and Director of Credit Research
responsible for corporate bond research. Mr. Testa joined GSAM in 1994. Prior
to joining GSAM, Mr. Testa was a credit analyst with CS First Boston and prior
to that he was an analyst for Metropolitan Life Insurance Company investing in
private placements and public debt. Mr. Pasternak is a Vice President of
Goldman Sachs and is responsible for managing high yield assets. Mr. Pasternak
joined GSAM in 1997. Prior to joining GSAM, Mr. Pasternak spent eight years
managing high yield corporate bond and loan portfolios at Saudi International
Bank (an affiliate of JP Morgan) in London. Prior to that, he was an officer
of the bank in Eurocurrency Lending and Syndications and served as an
investment analyst in New York. Mr. Jessop is a Vice President of Goldman
Sachs and is responsible for managing high yield assets. Mr. Jessup joined
GSAM in 1997. Prior to joining GSAM, Mr. Jessop spent six years managing high
yield portfolios at Saudi International Bank in London. Prior to that, he
worked for the bank on the interest rate swap desk and served as an investment
analyst in New York.
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for a Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Advisers will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* OCTOBER 31, 1997*
----------- --------------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free...................... 0.40% 0.40%
Government Income............................ 0.65% 0.25%
Municipal Income............................. 0.55% 0.55%
Core Fixed Income............................ 0.40% 0.40%
High Yield................................... 0.70% 0.65%
GSFM
- ----
Adjustable Rate Government................... 0.40% 0.40%
Short Duration Government.................... 0.50% 0.40%
GSAMI
- -----
Global Income................................ 0.90% 0.59%
</TABLE>
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<PAGE>
- --------
* 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 for the
year ended October 31, 1997. Effective March 1, 1998, the management fee
for the Short Duration Government Fund and Government Income Fund will
equal 0.50% and 0.65%, respectively. The Investment Advisers may
discontinue or modify such limitations in the future at their discretion,
although they have no current intention to do so.
The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Global Income and High
Yield Funds), to the extent such expenses exceed 0.05%, 0.05%, 0.00%, 0.05%,
0.05%, 0.06% and 0.14% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. 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. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. From time to time, a Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management -- Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a fee from the Global Income Fund with respect to the
Institutional and Service Shares for transfer agency services. The Adjustable
Rate Government, Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income and Core Fixed Income Funds pay Goldman
Sachs transfer agency fees and expenses with respect to Institutional and
Service Shares equal to that class's proportionate share of the total transfer
agency costs borne by the Fund. Those costs are equal to a fixed per account
charge of $12,000 per year plus $7.50 per account, together with out-of-pocket
and transaction related expenses applicable to Class A, Class B and Class C
shares where applicable plus 0.04% of the average daily net assets of the
other classes of the Funds. Goldman Sachs is entitled to receive a fee from
the High Yield Fund equal to .04% of the average
41
<PAGE>
daily net assets of Institutional and Service Shares. In each case,
Institutional Shares of a Fund may bear fees paid to Service Organizations or
other persons providing sub-transfer agency and similar services.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
DIVIDENDS
Each Fund (other than the Global Income Fund) will declare a daily dividend
which will be paid monthly. The Global Income Fund will declare and pay
dividends monthly. Over the course of the fiscal year, dividends accrued and
paid will constitute all or substantially all of the Funds' net investment
income. From time to time a portion of such dividends may constitute a return
of capital. In the case of Core Fixed Income, Global Income and High Yield
Funds, net loss, if any, from certain foreign currency transactions or
instruments that is otherwise taken into account in calculating net investment
income or net realized capital gains for accounting purposes may not be taken
into account in determining the amount of dividends to be declared and paid,
with the result that a portion of the Fund's dividends may be treated as a
return of capital, nontaxable to the extent of a shareholder's tax basis in
his shares. The Funds also intend that all net realized capital gains will be
declared as a dividend at least annually. In determining amounts of capital
gains to be distributed, capital losses, including any available capital loss
carryovers from prior years will be offset against capital gains.
A Fund's net investment income is determined on a daily basis (monthly in
the case of the Global Income Fund). On days on which net asset value is
calculated, such determination is made immediately prior to the calculation of
a Fund's net asset value. On days on which net asset value is not calculated,
such determination is made as of 3:00 p.m. Chicago time.
Payment of dividends (other than the Global Income Fund) from net investment
income will be made on the last calendar day of each month in additional
shares of a Fund at the net asset value on such day, unless cash distributions
are elected, in which case, cash payment will be made on the first Business
Day of the succeeding month. In the case of Global Income Fund, reinvestment
of dividends from net investment income in additional shares of the Fund will
be made on the second to last Business Day of each month. Cash dividends will
be paid on or about the last Business Day of the month. Payment of dividends
with respect to capital gains, if any, when declared will be made in
additional shares of the Fund at the net asset value on the payment date,
unless cash distributions are elected. This election to receive dividends in
cash is initially made on the Account Information Form and may be changed upon
written notice to the Transfer Agent at any time prior to the record date for
a particular dividend or distribution. If cash dividends are elected with
respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long-term capital gains
component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of a Fund, a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such income or realized appreciation may be taxable to the
investor even if the net asset value of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
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<PAGE>
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time) on each Business Day (as such term is defined under "Additional
Information") immediately after the determination, if any, of the income to be
declared as a dividend (except in the case of the Global Income Fund). Net
asset value per share of each class is calculated by determining the net
assets of each class and dividing by the number of outstanding shares of that
class.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their tax equivalent yields in advertisements and communications
to shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value. The total return calculation
assumes a complete redemption of the investment at the end of the relevant
period. Each Fund may also from time to time advertise total return on a
cumulative, average, year-by-year or other basis for various specified periods
by means of quotations, charts, graphs or schedules. In addition to the above,
each Fund may from time to time advertise its performance relative to certain
averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semiannual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free and Municipal Income Funds'
tax-free yield. Tax equivalent yield is calculated by dividing a Fund's tax-
exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
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Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of shares
into one or more classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
As of February 1, 1998, the shareholders listed below owned beneficially and
of record 25% or more of the outstanding shares of the following Funds: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (29.64%); Core Fixed Income Fund--Vinson and Elkins
Lawyers, Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2550, Houston, TX
77252-2558 (25.48%).
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TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected to
be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal Income Funds that are attributable to interest on tax-
exempt obligations and that the Funds properly designate as exempt-interest
dividends will be exempt from regular federal income tax, although all or a
portion of these distributions may be subject to the federal alternative
minimum tax and may be includable in the tax base for determining taxability
of social security or railroad retirement benefits. Persons who are
"substantial users" (or related persons to such substantial users) of
facilities financed by industrial development or certain private activity
bonds should consult their own tax advisers before purchasing shares of the
Short Duration Tax-Free and Municipal Income Funds. Interest on indebtedness
incurred or continued to purchase or carry shares of the Short Duration Tax-
Free and Municipal Income Funds is not deductible to the extent attributable
to the Funds' distributions that are exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free and Municipal Income Funds,
as described above. Distributions out of the net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any, of a
Fund, will be taxed to shareholders as long-term capital gains, regardless of
the length of time a shareholder has held his or her shares or whether such
gain was reflected in the price paid for the shares. Such long-term capital
gain will constitute 20% or 28% rate gain, depending upon the Fund's holding
period for the assets the sale of which generated the gain. These tax
consequences will apply whether distributions are received in cash or
reinvested in shares. Certain distributions paid by a Fund in January of a
given year may be taxable to shareholders as if received the prior December
31. Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to
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furnish their correct taxpayer identification number and certain
certifications required by the Internal Revenue Service or if they are
otherwise subject to backup withholding. Individuals, corporations and other
shareholders that are not U.S. persons under the Code are subject to different
tax rules and may be subject to nonresident alien withholding at the rate of
30% (or a lower rate provided by an applicable tax treaty) on amounts treated
as ordinary dividends from the Funds.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, a Fund may deduct these taxes in computing its
taxable income, if any. As an alternative, if more than 50% of the value of
the total assets of the Global Income Fund is comprised of securities of
foreign corporations at the end of its taxable year and the Fund so elects,
the Fund's shareholders will include in their gross incomes (in addition to
dividends and distributions they receive) their pro rata shares of qualified
foreign taxes paid by the Fund and may be entitled under the Code to claim
foreign tax credits or deductions with respect to such taxes.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed
on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day (observed), Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
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REPORTS TO SHAREHOLDERS
Recordholders of Institutional Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Institutional Shares will also be provided with a printed
confirmation for each transaction in its account and an individual monthly
statement (quarterly in the case of Global Income Fund). A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.
SUB-ACCOUNTING SERVICE
Each Fund has designed special procedures to assist institutional investors
(including banks) desiring to establish multiple accounts (master accounts and
their sub-accounts). Sub-accounts may be established with registration by name
and/or number. Institutions will not normally be charged for this service
unless otherwise agreed upon. Upon request, master accounts will be provided
with a monthly summary report which sets forth in order by account number (or
name) the share balance at month end and the income, if any, together with the
total share balance and income, if any, for the master account. The Global
Income Fund does not generally provide sub-accounting services with respect to
beneficial ownership of Institutional Shares.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares may be purchased on any Business Day at the net asset
value per share next determined after receipt of an order. No sales load will
be charged. Currently, net asset value is determined as of the close of
regular trading on the New York Stock Exchange (normally, but not always, 3:00
p.m. Chicago time, 4:00 p.m. New York time), as described under "Net Asset
Value." Purchases of Institutional Shares of the Funds must be settled within
three (3) Business Days of receipt of a complete purchase order. Payment of
the proceeds of redemption of shares purchased by check may be delayed for a
period of time as described under "Redemption of Institutional Shares."
Prior to making an initial investment in a Fund, an investor must open an
account with a Fund by furnishing necessary information to such Fund or
Goldman Sachs. An Account Information Form, a copy of which is attached to
this Prospectus, should be used to open such an account. Subsequent purchases
may be made in the manner set forth below.
PURCHASE PROCEDURES APPLICABLE TO EACH FUND OTHER THAN THE GLOBAL INCOME FUND
Purchases of Institutional Shares may be made by qualified investors by
placing an order with Goldman Sachs at 800-621-2550 and either wiring federal
funds to The Northern Trust Company ("Northern") as subcustodian for State
Street Bank and Trust Company ("State Street") on the next Business Day or
initiating an ACH transfer to ensure receipt by Northern on the next Business
Day. Purchases may also be made by check (except that the Trust will not accept
a check drawn on a foreign bank or a third-party check) or Federal Reserve
draft payable to Goldman Sachs Fixed Income Funds--Name of Fund and Class of
shares and should be directed to Goldman Sachs Fixed Income Funds--Name of Fund
and Class of shares, c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago,
Illinois 60606.
PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND
Purchases of Institutional Shares may be made by qualified investors by
placing an order with Goldman Sachs at 800-621-2550 and either wiring federal
funds to State Street or initiating an ACH transfer. Purchases
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may also be made by check (except that the Trust will not accept a check drawn
on a foreign bank or a third-party check) or Federal Reserve draft made
payable to Goldman Sachs Fixed Income Funds-- Name of Fund and Class of shares
and should be directed to Goldman Sachs Fixed Income Funds--Name of Fund and
Class of shares c/o National Financial Data Services, Inc., P.O. Box 419711,
Kansas City, MO 64141-6711.
MINIMUM INITIAL INVESTMENTS
In the case of each Fund other than the Government Income, Municipal Income,
Global Income and High Yield Funds, the minimum initial investment is $50,000
in Institutional Shares of a Fund alone or in combination with Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as
an eligible fund for this purpose and the corresponding class of any portfolio
of the Goldman Sachs Money Market Funds.
Institutional Shares of the Government Income, Municipal Income, Global
Income and High Yield Funds may be 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) any state, county, city or any
instrumentality, department, authority or agency thereof; (d) corporations and
other for-profit business organizations with assets of at least $100 million
or publicly traded securities outstanding; (e) "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; and (f)
registered investment advisers investing for accounts for which they receive
asset-based fees. With respect to these investors, 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.
The minimum initial investment in Institutional Shares for (a) individual
investors; (b) qualified non-profit organizations, charitable trusts,
foundations and endowments; and (c) accounts over which GSAM or its advisory
affiliates have investment discretion is $10,000,000. The minimum investment
requirement may be waived at the discretion of the Trust's officers. No
minimum amount is required for subsequent investments.
The minimum investment requirement may be waived for current and former
officers, partners, directors or employees of Goldman Sachs or any of its
affiliates or for other investors at the discretion of the Trust's officers.
OTHER PURCHASE INFORMATION
Normally purchase, exchange and redemption orders will not be effective
until received by Goldman Sachs. The Trust may, however, authorize certain
institutions (including banks, trust companies, brokers and investment
advisers) that provide recordkeeping, reporting and processing services to
their customers to accept on the Trust's behalf orders placed by or on behalf
of such customers and, if approved by the Trust, to designate other
intermediaries to accept such orders. In these cases, a Fund will be deemed to
have received an order in proper form by or on behalf of a customer when the
order is accepted by the authorized institution 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 institution or intermediary will be
responsible for transmitting accepted orders to the Trust within the period
agreed upon by them. A customer should contact an institution to learn whether
it is authorized to accept orders for the Trust. Such institutions may receive
payments from the Funds or Goldman Sachs for the services provided by them
with respect to the Funds' Institutional Shares. These payments may be in
addition to other servicing and/or subtransfer agency payments borne by the
Funds and their share classes.
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Institutional Shares of the Global Income Fund will be issued and dividends
will begin to be paid with respect to dividends which accrue on or after the
purchase of Institutional Shares. For the other Funds, the following applies:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received with a specified settlement date in proper form before the
determination of net asset value that day and payment is made by wire
transfer or ACH transfer, shares will be issued and dividends will begin to
accrue on the purchased shares on the later of (i) the Business Day after
receipt of the purchase order or (ii) the day of receipt of a federal funds
wire or an ACH transfer by State Street. For purchases without a specified
settlement date, shares will be issued and dividends declared with respect
to such shares will begin to accrue on the Business Day after payment is so
received.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is
received with a specified settlement date in proper form before the
determination of net asset value that day and payment is made by check or
Federal Reserve draft, shares will be issued and dividends will begin to
accrue on the purchased shares on the Business Day after the date payment
is received. For purchases without a specified settlement date, shares will
be issued and dividends declared with respect to such shares will begin to
accrue on the Business Day after payment is so received.
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in
Institutional Shares. Such institutions should be consulted for information
regarding such charges.
The Investment Advisers, Distributor, and/or their affiliates may pay
compensation, from time to time, out of their assets and not as an additional
charge to the Funds, to selected institutions (including banks, trust
companies, brokers and investment advisers) and other persons in connection
with the sale and/or servicing of shares of the Funds and other investment
portfolios of the Trust (such as additional payments based on new sales,
amounts exceeding pre-established thresholds, or the length of time clients'
assets have remained in the Trust), and 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 can vary among institutions
depending upon such factors as the amounts their clients have invested (or may
invest) in particular portfolios of the Trust, the particular program
involved, or the amount of reimbursable expenses. For further information, see
the Additional Statement.
The Funds reserve the right to redeem the Institutional Shares of any
shareholder of record whose account balance is less than $50 as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
a recordholder'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 recordholders whose Institutional Shares are being redeemed to allow
them to purchase sufficient additional Institutional Shares of a Fund to avoid
such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Institutional Shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption might
be, of a size that would disrupt management of a Fund.
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In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
EXCHANGE PRIVILEGE
Institutional Shares of a Fund may be exchanged for (i) Institutional Shares
of any other mutual fund sponsored by Goldman Sachs and designated as an
eligible fund for this purpose and (ii) the corresponding class of any Goldman
Sachs Money Market Fund at the net asset value next determined either by
writing to Goldman Sachs, Attention: Goldman Sachs Fixed Income Funds--Name of
Fund and Class of shares, c/o GSAM Shareholders Services, 4900 Sears Tower,
Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 5:30 p.m. Chicago
time). A shareholder should obtain and read the prospectus relating to any
other fund and its shares and consider its investment objective, policies and
applicable fees before making an exchange. Under the telephone exchange
privilege, Institutional Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification numbers
only if the exchange instructions are in writing and received in accordance
with the procedures set forth under "Redemption of Institutional Shares."
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Institutional Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes, the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is
treated as a redemption of the Institutional Shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of Institutional Shares, or the corresponding class of any Goldman Sachs Money
Market Funds received in the exchange. Shareholders should consult their own
tax advisers concerning the tax consequences of an exchange.
Each exchange which represents an initial investment in a Fund must satisfy
the minimum investment requirements of the fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of the Trust. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be
materially 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 a
recordholder of such Shares on any Business Day at the net asset value next
determined after receipt of a request in proper form by Goldman Sachs from the
recordholder. (See "Purchase of Institutional Shares--Other Purchase
Information" for a description of limited situations where an institution or
other intermediary may be authorized to accept redemptions for the Funds.) If
Institutional Shares to be redeemed were recently purchased by check, a Fund
may delay transmittal of redemption proceeds until such time as it has assured
itself that good funds have been collected for the purchase of such
Institutional Shares. This may take up to fifteen (15) days. Redemption
requests may be made by a shareholder of record by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
page of this Prospectus. A shareholder of record may request redemptions by
telephone
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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 recordholder 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.
Institutional Shares of each Fund (other than Global Income Fund) earn
dividends declared on the day the shares are redeemed.
The Fund will arrange for the proceeds of redemptions effected by any means
to be wired as federal funds to the bank account designated in the
recordholder's Account Information Form 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) Business Days after receipt of a properly
executed redemption request. Wiring of redemption proceeds may be delayed one
additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would ordinarily be wired. Redemption proceeds paid by
check will normally be mailed to the address of record within three (3)
Business Days of receipt of a properly executed redemption request. In order
to change the bank designated on the Account Information Form to receive
redemption proceeds, a written request must be received by the Transfer Agent.
This request must be signature guaranteed as set forth above. Further
documentation may be required for executors, trustees or corporations. Once
wire transfer instructions have been given by Goldman Sachs, neither the
Funds, the Trust nor Goldman Sachs assumes any further responsibility for the
performance of intermediaries or the recordholder's bank in the transfer
process. If a problem with such performance arises, the recordholder 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.
Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests by
their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions have established times
by which redemption requests must be received by them. Additional
documentation may be required when deemed appropriate by an institution.
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APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could apply to payments relating to
your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
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GOLDMAN SACHS ASSET GOLDMAN SACHS
MANAGEMENT FIXED INCOME FUNDS
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004 --------------------
GOLDMAN SACHS FUNDS PROSPECTUS
MANAGEMENT, L.P. INSTITUTIONAL SHARES
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . 800-621-2550 GOLDMAN
SACHS
FIPROINST
- --------------------------------------- --------------------------------------
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PROSPECTUS
March 1, 1998 GOLDMAN SACHS FIXED INCOME FUNDS SERVICE SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Seeks a high level of current income, consistent with low volatility of
principal. The Fund invests primarily in adjustable rate mortgage pass-
through securities and other mortgage securities with periodic interest rate
resets, which are issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current in-
come, may also consider the potential for capital appreciation. The Fund in-
vests primarily in securities issued or guaranteed by the U.S. government,
its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low vola-
tility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.
GOLDMAN SACHS GOVERNMENT
INCOME FUND
Seeks a high level of current
income, consistent with
safety of principal. The Fund
invests primarily in
securities, including
mortgage-backed securities,
issued or guaranteed by the
U.S. government, its
agencies, instrumentalities
or sponsored enterprises.
GOLDMAN SACHS MUNICIPAL INCOME FUND
Seeks a high level of current income that is exempt from regular federal in-
come tax, consistent with preservation of capital. The Fund invests primar-
ily in municipal securities.
GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of capital appreciation and income that ex-
ceeds the total return of the Lehman Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income securities, including securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or spon-
sored enterprises, corporate securities, mortgage-backed securities and as-
set-backed securities.
GOLDMAN SACHS GLOBAL INCOME FUND
Seeks a high total return, emphasizing current income and, to a lesser ex-
tent, providing opportunities for capital appreciation. The Fund invests
primarily in a portfolio of high quality fixed-income securities of U.S. and
foreign issuers and foreign currencies.
GOLDMAN SACHS HIGH YIELD FUND
Seeks a high level of current income and, secondarily, may also consider the
potential for capital appreciation. The Fund invests primarily in fixed-in-
come securities rated below investment grade.
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated March 1, 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
<PAGE>
(cover continued)
THE ADJUSTABLE RATE GOVERNMENT, SHORT DURATION GOVERNMENT AND GOVERNMENT
INCOME FUNDS' NET ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S.
GOVERNMENT OR BY ITS AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME, GLOBAL INCOME AND HIGH YIELD FUNDS MAY INVEST IN
SECURITIES OF FOREIGN ISSUERS AND FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-
INCOME SECURITIES. IN PARTICULAR, THE SECURITIES MARKETS OF EMERGING MARKET
COUNTRIES ARE LESS LIQUID, ARE SUBJECT TO GREATER PRICE VOLATILITY, HAVE
SMALLER MARKET CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT
SUBJECT TO AS EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING
REQUIREMENTS AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES.
THE HIGH YIELD FUND INVESTS PRIMARILY IN HIGH YIELD, FIXED-INCOME SECURITIES
RATED BELOW INVESTMENT GRADE THAT ARE CONSIDERED SPECULATIVE AND GENERALLY
INVOLVE GREATER PRICE VOLATILITY AND GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN INVESTMENTS IN HIGHER RATED FIXED-INCOME SECURITIES.
INVESTORS SHOULD CONSIDER THE RISKS ASSOCIATED WITH INVESTMENT IN A FUND
INVESTING IN FOREIGN AND/OR HIGH YIELD SECURITIES. THE FUNDS MAY NOT BE
SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND "RISK
FACTORS."
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free, Government Income, Municipal Income, Core Fixed Income and
High Yield Funds. Goldman Sachs Asset Management International ("GSAMI"),
London, England, an affiliate of Goldman Sachs, serves as investment adviser
to the Global Income Fund. GSAM, GSFM and GSAMI are each referred to in this
Prospectus as the "Investment Adviser." Goldman Sachs serves as each Fund's
distributor and transfer agent.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights........................ 1
Fees and Expenses...................... 7
Financial Highlights................... 9
Investment Objectives and Policies..... 15
Description of Securities.............. 22
Risk Factors........................... 30
Investment Techniques.................. 33
Investment Restrictions................ 37
Portfolio Turnover..................... 38
Management............................. 38
Dividends.............................. 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value.................................. 43
Performance Information.......................... 43
Shares of the Trust.............................. 44
Taxation......................................... 45
Additional Information........................... 46
Additional Services.............................. 47
Reports to Shareholders.......................... 47
Purchase of Service Shares....................... 48
Exchange Privilege............................... 50
Redemption of Service Shares..................... 50
Appendix......................................... A-1
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in this
Prospectus.
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 further
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P. serves as Investment Adviser to the
Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income and High
Yield Funds. Goldman Sachs Asset Management International serves as
Investment Adviser to the Global Income Fund. As of January 26, 1998, the
Investment Advisers, together with their affiliates, acted as investment
adviser or distributor for assets in excess of $140 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
1
<PAGE>
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
- -------------- ------------------ ------------------- ------------ --------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government Fixed-rate
RATE current income, to 1-year total assets in Securities mortgage
GOVERNMENT consistent with U.S. Treasury securities issued or pass-through
FUND low volatility Security guaranteed by the securities and
of principal. Maximum = 2 years U.S. government, repurchase
its agencies, agreements
instrumentalities collateralized by
or sponsored U.S. Government
enterprises Securities.
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and other
mortgage securities
with periodic
interest rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government Mortgage pass-
GOVERNMENT current income, U.S. Treasury total assets in Securities through
FUND and secondarily, Security plus U.S. Government securities and
in seeking current or minus .5 years Securities other securities
income, may Maximum = 3 years and repurchase representing an
also consider agreements interest in or
the potential collateralized collateralized
for capital by such securities. by mortgage loans.
appreciation.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa U.S. Government
TAX-FREE current income, Brothers net assets in Securities
FUND consistent with 3-year Municipal municipal securities. and repurchase
low volatility Bond Index agreements
of principal, plus or minus collateralized
that is exempt .5 years by such securities.
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
GOVERNMENT A high level of Target = Lehman 5-year bond At least 65% of total U.S. Government Non-government
INCOME current income, Brothers Mutual assets in U.S. Securities; non-U.S. mortgage pass-
FUND consistent with Fund Government/ Government Government through securities,
safety of Mortgage Index Securities, including Securities = asset-backed
principal. plus or minus mortgage-backed AAA/Aaa securities and
1 year U.S. Government corporate
Maximum = 6 years Securities and fixed-income
repurchase securities.
agreements
collateralized by
U.S. Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
- --------------- -----------------
<S> <C>
ADJUSTABLE 6-month and
RATE 1-year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION 2-year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION Lehman Brothers
TAX-FREE 3-Year Municipal
FUND Bond Index
--------------------------------------------------------------------------------------------
GOVERNMENT Lehman Brothers
INCOME Mutual Fund
FUND Government/
Mortgage Index
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MUNICIPAL A high level of Target = Lehman 15-year bond At least 80% of Minimum = BBB/Baa
INCOME current income Brothers 15-year net assets in Average = AA/Aa
FUND that is exempt Municipal Bond municipal securities.
from regular Index plus
federal income or minus 1 year
tax, consistent Maximum = 12 years
with preservation
of capital.
--------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa
INCOME FUND consisting Brothers assets in fixed-income Minimum for
of capital Aggregate Bond securities, including non-dollar securities
appreciation Index plus or U.S. Government = AA/Aa
and income that minus 1 year Securities, corporate,
exceeds the total Maximum = 6 years mortgage-backed
return of the and asset-backed
Lehman Brothers securities.
Aggregate Bond
Index.
--------------------------------------------------------------------------------------------
GLOBAL A high total return, Target = J.P. Morgan 6-year bond Securities of Minimum = BBB/Baa
INCOME emphasizing current Global Government U.S. and foreign At least 50% =
FUND income, and, to Bond Index governments and AAA/Aaa
a lesser extent, (hedged) plus or corporations.
providing minus 2.5 years
opportunities Maximum = 7.5 years
for capital
appreciation.
--------------------------------------------------------------------------------------------
HIGH YIELD A high level of Target = Lehman 6-year bond At least 65% of At least 65% =
FUND current income Brothers High assets in fixed- BB/Ba or below
and, secondarily, Yield Bond Index income securities
capital appreciation. plus or minus rated below
2.5 years investment grade,
Maximum =7.5 years including U.S. and
non-U.S. dollar
corporate debt,
foreign
government
securities,
convertible
securities
and preferred stock.
<CAPTION>
FUND NAME OTHER INVESTMENTS BENCHMARK
--------------------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL U.S. Government Lehman Brothers
INCOME Securities and 15-Year
FUND repurchase Municipal
agreements Bond Index
collateralized by
such securities.
--------------------------------------------------------------------------------------------
CORE FIXED Foreign fixed- Lehman Brothers
INCOME FUND income, Aggregate Bond
municipal and Index
convertible
securities,
foreign currencies
and repurchase
agreements
collateralized
by U.S.
Government
Securities.
--------------------------------------------------------------------------------------------
GLOBAL Mortgage and J.P. Morgan
INCOME asset-backed Global
FUND securities, foreign Government
currencies and Bond Index
repurchase (hedged)
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government securities.
--------------------------------------------------------------------------------------------
HIGH YIELD Mortgage-backed Lehman Brothers
FUND and asset-backed High Yield
securities, U.S. Bond Index
Government
Securities,
investment grade
corporate fixed-
income securities,
structured
securities,
foreign currencies
and repurchase
agreements
collateralized by
U.S. Government
Securities.
</TABLE>
3
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income, Global Income and High Yield Funds,
foreign exchange conditions, so that an investment in any of the Funds may
be worth more or less when redeemed than when purchased. None of the Funds
should be relied upon as a complete investment program. There can be no
assurance that a Fund's investment objectives will be achieved. See "Risk
Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations, and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. Call risk
typically results when interest rates have declined. Under such
circumstances, a Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension risk (i.e., where the issuer exercises its right to pay principal
on an obligation later than scheduled) causes cash flows to be returned
later than expected. Extension risk typically results when interest rates
have increased. Under such circumstances, a Fund will suffer from the
inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Because of their tax-exempt status, the
yields and market values of municipal securities may be more adversely
impacted by changes in tax rates and policies than taxable fixed-income
securities.
Risks of investing in non-investment grade fixed-income securities. Non-
investment grade fixed-income securities (commonly referred to as "junk
bonds") are subject to greater volatility and risk of loss and are less
liquid than securities which are perceived to be of higher credit quality.
Such securities, also referred to as high yield securities, are considered
to be speculative by traditional investment standards. High yield securities
are subject to increased risk of an issuer's inability to meet principal and
interest payments. The High Yield Fund may invest in securities which are in
default at the time of investment. The market for non-investment grade
securities tends to be concentrated in a limited number of market makers,
which may affect liquidity. In addition, the market price of such securities
tends to reflect individual corporate developments to a greater extent than
that of higher rated securities which react primarily to the general level
of interest rates.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. In addition, the securities
4
<PAGE>
markets of foreign countries are generally less liquid and subject to
greater price volatility. To the extent that the Core Fixed Income, Global
Income and High Yield Funds invest in emerging markets and countries, these
risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
Diversified and Non-Diversified Funds. Each Fund, other than the Global
Income Fund, is a "diversified open-end management company" as defined under
the Investment Company Act of 1940, as amended (the "Act"). The Global
Income Fund is a "non-diversified" open-end management company as defined
under the Act and is, therefore, subject only to certain federal tax
diversification requirements (to which the other Funds are also subject), in
addition to the policies adopted by the Investment Adviser. To the extent
that the Fund is not diversified under the Act, it will be more susceptible
to adverse developments affecting any single issuer of portfolio securities.
See "Investment Restrictions."
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance.
HOW DO I PURCHASE SERVICE SHARES?
Customers of Service Organizations may invest in Service Shares only
through their Service Organizations. Service Shares of a Fund are purchased
at the current net asset value without any sales load. See "Purchase of
Service Shares."
ADDITIONAL SERVICES. The Trust, on behalf of the Funds, has adopted a
Service Plan with respect to the Service Shares which authorizes a Fund to
compensate Service Organizations for providing account administration and
shareholder liaison services to their customers who are the beneficial
owners of such Shares. The Trust, on behalf of the Funds, will enter into
agreements with each Service Organization which will provide for
compensation to the Service Organization in an amount up to 0.50% (on an
annualized basis) of the average daily net assets of the Services Shares of
the Funds attributable to or held in the name of the Service Organization
for its customers. See "Additional Services."
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 PAID DISTRIBUTION
---- ------------------ -------------
<S> <C> <C> <C>
Adjustable Rate Government.................. Daily Monthly Annually
Short Duration Government .................. Daily Monthly Annually
Short Duration Tax-Free..................... Daily Monthly Annually
Government Income........................... Daily Monthly Annually
Municipal Income............................ Daily Monthly Annually
Core Fixed Income........................... Daily Monthly Annually
Global Income .............................. Monthly Monthly Annually
High Yield.................................. Daily Monthly Annually
</TABLE>
Recordholders of Service Shares may receive dividends in additional
Service Shares of the Fund in which they have invested or may elect to
receive cash. For further information concerning dividends, see "Dividends."
6
<PAGE>
FEES AND EXPENSES
(SERVICE SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE RATE SHORT DURATION GOVERNMENT MUNICIPAL CORE FIXED GLOBAL HIGH
GOVERNMENT GOVERNMENT SHORT DURATION INCOME INCOME INCOME INCOME YIELD
FUND/1/ FUND/1/ TAX-FREE FUND FUND/1/ FUND FUND FUND FUND/1/
--------------- -------------- -------------- ---------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES:
Maximum Sales Charge Im-
posed on Purchases....... none none none none none none none none
Maximum Sales Charge Im-
posed on Reinvested Divi-
dends.................... none none none none none none none none
Redemption Fees........... none none none none none none none none
Exchange Fees............. none none none none none none none none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily
net assets)
Management Fees (after ap-
plicable limita-
tions)/2/................ 0.40% 0.50% 0.40% 0.65% 0.55% 0.40% 0.59% 0.65%
Service Fees/3/........... 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
Other Expenses (after ap-
plicable limita-
tions)/4/,/5/............ 0.13% 0.05% 0.05% 0.00% 0.05% 0.05% 0.06% 0.18%
---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES (AFTER FEE AND
EXPENSE LIMITA-
TIONS)/5/............... 1.03% 1.05% 0.95% 1.15% 1.10% 0.95% 1.15% 1.33%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government...................... $11 $33 $57 $126
Short Duration Government....................... $11 $33 $58 $128
Short Duration Tax-Free......................... $10 $30 $53 $117
Government Income............................... $12 $37 $63 $140
Municipal Income................................ $11 $35 $61 $134
Core Fixed Income............................... $10 $30 $53 $117
Global Income................................... $12 $37 $63 $140
High Yield...................................... $14 $42 N/A N/A
</TABLE>
- --------
/1/. Based on estimated amounts for the current fiscal year.
/2/. The Investment Advisers have voluntarily agreed that a portion of the
management fee would not be imposed on the Global Income and High Yield
Funds equal to .31% and .05%, respectively. Without such limitations,
management fees would be .90% and .70%, respectively, of each Fund's
average daily net assets.
/3/. Service Organizations may charge other fees to their customers who are
beneficial owners of Service Shares in connection with their customer
accounts.
/4/. The Investment Advisers voluntarily have agreed to reduce or limit
certain other expenses (excluding management fees, service fees, taxes,
interest and brokerage fees and litigation, indemnification and other
7
<PAGE>
extraordinary expenses (and transfer agency fees in the case of the Global
Income and High Yield Funds)) to the extent such expenses exceed .05%, .05%,
.00%, .05%, .05%, .06% and .14% of the average daily net assets of the Short
Duration Government, Short Duration Tax-Free, Government Income, Municipal
Income, Core Fixed Income, Global Income and High Yield Funds, respectively.
/5/. Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds (with the exception of the High Yield
Fund which is estimated for the current fiscal year) for the fiscal year
ended October 31, 1997 would have been as follows:
<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Short Duration Government........................... .32% 1.32%
Short Duration Tax-Free............................. .83% 1.73%
Government Income................................... .67% 1.82%
Municipal Income.................................... .57% 1.62%
Core Fixed Income................................... .43% 1.33%
Global Income....................................... .14% 1.54%
High Yield.......................................... .37% 1.57%
</TABLE>
In addition, for the year ended October 31, 1997, the Investment Adviser
waived and reimbursed certain fees and expenses such that the "Other
Expenses" and "Total Operating Expenses" actually incurred by the
Adjustable Rate Government Fund were 0.15% and 1.05%, respectively.
Without such limitations, "Other Expenses" and "Total Operating Expenses"
of the Fund would have been 0.18% and 1.08%, respectively. For the year
ended October 31, 1997, the Investment Adviser voluntarily agreed that a
portion of the management fee would not be imposed on the Short Duration
Government and Government Income Funds equal to 0.10% and 0.40%,
respectively. Without such limitations, management fees would have been
0.50% and 0.65% of each Fund's average daily net assets, respectively. In
addition, the Investment Adviser reimbursed certain expenses such that
"Other Expenses" actually incurred by the Short Duration Government and
Government Income Funds for Service Shares were 0.05% and 0.00%,
respectively, and "Total Operating Expenses" were 0.95% and 0.75%,
respectively. Without such limitations, "Other Expenses" would have been
0.32% and 0.67%, respectively, and "Total Operating Expenses" would have
been 1.32% and 1.82%, respectively.
The Investment Advisers have no current intention of modifying or
discontinuing any of the limitations set forth above but may do so in the
future at their discretion. The information set forth in the foregoing table
and hypothetical example relates only to Service Shares of the Funds. Each fund
also offers Institutional and Class A Shares and, with the exception of the
Adjustable Rate Government Fund, Class B and Class C Shares. The Adjustable
Rate Government, Short Duration Government, Short Duration Tax-Free and Core
Fixed Income Funds also offer Administration Shares. The other classes of the
Funds are subject to different fees and expenses (which affect performance),
have different minimum investment requirements and are entitled to different
services. Information regarding any other class of the Funds may be obtained
from your sales representative or from Goldman Sachs by calling the number on
the back cover page of this Prospectus.
In addition to the compensation itemized above, certain Service Organizations
may receive other compensation in connection with the sale and distribution of
Service Shares or for service to their customers' accounts and/or the Funds.
For additional information regarding such compensation, see "Purchase of
Service Shares" in this Prospectus and the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or less
than 5%. See "Management--Investment Advisers" and "Additional Services."
8
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data has been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders of the
Funds for the year ended October 31, 1997 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
--------------------------------------------------- ---------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... $ 9.83 $0.5914(a) $ 0.0494 (a) -- $0.6408 $(0.5908)
1997-
Administration
Shares.......... 9.83 0.5665(a) 0.0497 (a) -- 0.6162 (0.5662)
1997-Service
Shares(m)....... 9.84 0.3298(a) 0.0400 (a) -- 0.3698 (0.3298)
1997-Class A
Shares.......... 9.83 0.5662(a) 0.0500 (a) -- 0.6162 (0.5662)
1996-
Institutional
Shares.......... 9.77 0.5759(a) 0.0772 (a) -- 0.6531 (0.5725)
1996-
Administration
Shares.......... 9.77 0.5489(a) 0.0797 (a) -- 0.6286 (0.5489)
1996-Class A
Shares.......... 9.77 0.5481(a) 0.0806 (a) -- 0.6287 (0.5489)
1995-
Institutional
Shares.......... 9.74 0.5630(a) 0.0717 (a) -- 0.6347 (0.5759)
1995-
Administration
Shares.......... 9.74 0.5366(a) 0.0737 (a) -- 0.6103 (0.5528)
1995-Class A
Shares(c)....... 9.79 0.2721(a) (0.0090)(a) -- 0.2631 (0.2697)
1994-
Institutional
Shares.......... 10.00 0.4341(a) (0.2455)(a) -- 0.1886 (0.4486)
1994-
Administration
Shares.......... 10.00 0.4211(a) (0.2572)(a) -- 0.1639 (0.4239)
1993-
Institutional
Shares.......... 10.04 0.4397 (0.0376)(d) -- 0.4021 (0.4397)
1993-
Administration
Shares(e)....... 10.02 0.2146 (0.0173)(d) -- 0.1973 (0.2146)
1992-
Institutional
Shares.......... 10.03 0.5599 (0.0029)(d) -- 0.5570 (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... 10.00 0.1531 0.0322(d) -- 0.1853 (0.1553)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
FUTURES INVESTMENT FUTURES IN TO
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
------------ ---------- ------------ ------- -------------
ADJUSTABLE RATE GOVERNMENT FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.5908)
1997-
Administration
Shares.......... -- -- -- -- (0.5662)
1997-Service
Shares(m)....... -- -- -- -- (0.3298)
1997-Class A
Shares.......... -- -- -- -- (0.5662)
1996-
Institutional
Shares.......... -- (0.0206) -- -- (0.5931)
1996-
Administration
Shares.......... -- (0.0198) -- -- (0.5687)
1996-Class A
Shares.......... -- (0.0198) -- -- (0.5687)
1995-
Institutional
Shares.......... -- (0.0287) -- -- (0.6046)
1995-
Administration
Shares.......... -- (0.0275) -- -- (0.5803)
1995-Class A
Shares(c)....... -- (0.0134) -- -- (0.2831)
1994-
Institutional
Shares.......... -- -- -- -- (0.4486)
1994-
Administration
Shares.......... -- -- -- -- (0.4239)
1993-
Institutional
Shares.......... -- (0.0024) -- -- (0.4421)
1993-
Administration
Shares(e)....... -- (0.0027) -- -- (0.2173)
1992-
Institutional
Shares.......... -- -- -- -- (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... -- -- -- -- (0.1553)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF
NET NET NET RATIO OF RATIO OF RATIO OF
INCREASE ASSET EXPENSES NET NET EXPENSES NET
(DECREASE) VALUE TO INVESTMENT ASSETS AT TO INVESTMENT
IN NET AT END AVERAGE INCOME TO PORTFOLIO END OF AVERAGE INCOME TO
ASSET OF TOTAL NET AVERAGE TURNOVER PERIOD NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) (IN 000S) ASSETS NET ASSETS
---------- ------ ---------- --------- ---------- ----------- --------- --------- ----------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS END
- -------------
1997-
Institutional
Shares.......... $ 0.0500 $ 9.88 6.70% 0.49% 5.99% 46.58% $ 463,511 0.52% 5.96%
1997-
Administration
Shares.......... 0.0500 9.88 6.43 0.74 5.73 46.58 2,793 0.77 5.70
1997-Service
Shares(m)....... 0.0400 9.88 3.81(f) 1.05(b) 5.64(b) 46.58(f) 346 1.08(b) 5.61(b)
1997-Class A
Shares.......... 0.0500 9.88 6.43 0.74 5.60 46.58 43,393 1.02 5.32
1996-
Institutional
Shares.......... 0.0600 9.83 6.86 0.45 5.85 52.36 613,149 0.51 5.79
1996-
Administration
Shares.......... 0.0600 9.83 6.60 0.70 5.59 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 0.0600 9.83 6.60 0.70 5.59 52.36 10,728 1.01 5.28
1995-
Institutional
Shares.......... 0.0301 9.77 6.75 0.46 5.77 24.12 657,358 0.53 5.70
1995-
Administration
Shares.......... 0.0300 9.77 6.48 0.71 5.50 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b) 24.12(f) 15,203 1.01(b) 5.55(b)
1994-
Institutional
Shares.......... (0.2600) 9.74 1.88 0.46 4.38 37.81 942,523 0.49 4.35
1994-
Administration
Shares.......... (0.2600) 9.74 1.63 0.71 4.27 37.81 6,960 0.74 4.24
1993-
Institutional
Shares.......... (0.0400) 10.00 4.13 0.45 4.36 103.74 2,760,871 0.48 4.33
1993-
Administration
Shares(e)....... (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b) 103.74(f) 5,326 0.73(b) 3.78(b)
1992-
Institutional
Shares.......... 0.0100 10.04 6.12 0.42 5.61 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- -------------------
1991-
Institutional
Shares.......... 0.0300 10.03 2.14(f) 0.20(b) 7.31(b) 145.67(f) 239,642 1.02(b) 6.49(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
---------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... $ 9.83 $0.6412(a) $ 0.0300(a) -- $ 0.6712 $(0.6412)
1997-
Administration
Shares.......... 9.85 0.6183(a) 0.0400(a) -- 0.6583 (0.6183)
1997-Service
Shares.......... 9.82 0.5904(a) 0.0401(a) -- 0.6305 (0.5904)
1997-Class A
Shares(o)....... 9.78 0.3121(a) 0.0883(a) -- 0.4004 (0.3004)
1997-Class B
Shares(o)....... 9.75 0.2787(a) 0.1011(a) -- 0.3798 (0.2698)
1997-Class C
Shares(p)....... 9.83 0.1185(a) 0.0225(a) -- 0.1410 (0.1110)
1996-
Institutional
Shares.......... 9.82 0.6290(a) 0.0136(a) -- 0.6426 (0.6326)
1996-
Administration
Shares(h)....... 9.86 0.3837(a) 0.0003(a) -- 0.3840 (0.3940)
1996-Service
Shares(i)....... 9.72 0.3134(a) 0.1018(a) -- 0.4152 (0.3152)
1995-
Institutional
Shares.......... 9.64 0.6652(a) 0.1666(a) -- 0.8318 (0.6518)
1995-
Administration
Shares.......... 9.64 0.2384(a) (0.0433)(a) -- 0.1951 (0.2051)
1994-
Institutional
Shares.......... 10.14 0.5628(a) (0.4592)(a) -- 0.1036 (0.5598)
1994-
Administration
Shares.......... 10.14 0.5329(a) (0.4539)(d) -- 0.0790 (0.5352)
1993-
Institutional
Shares.......... 10.16 0.5627 (0.0135)(d) -- 0.5492 (0.5627)
1993-
Administration
Shares(e)....... 10.23 0.2725 (0.0900)(d) -- 0.1825 (0.2725)
1992-
Institutional
Shares.......... 10.22 0.6703 (0.0600)(d) -- 0.6103 (0.6703)
1991-
Institutional
Shares.......... 10.00 0.8020 0.2200(d) -- 1.0220 (0.8020)
1990-
Institutional
Shares.......... 10.07 0.8300 (0.0700)(d) -- 0.7600 (0.8300)
1989-
Institutional
Shares.......... 10.10 0.8800 -- -- 0.8800 (0.8800)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------
1988-
Institutional
Shares.......... 10.00 0.1800 0.1000(d) -- 0.2800 (0.1800)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
IN EXCESS
FROM NET OF NET RATIO OF
REALIZED REALIZED NET NET NET RATIO OF
GAIN ON GAIN ON INCREASE ASSET EXPENSES NET
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) VALUE TO INVESTMENT
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET AT END AVERAGE INCOME TO
FUTURES INVESTMENT FUTURES IN TO ASSET OF TOTAL NET AVERAGE
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS
------------ ---------- ------------ -------- ------------- ---------- --------- ---------- --------- ----------
SHORT DURATION GOVERNMENT FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -----------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.6412) $ 0.0300 $ 9.86 7.07% 0.45% 6.43%
1997-
Administration
Shares.......... -- -- -- -- (0.6183) 0.0400 9.89 6.91 0.70 6.19
1997-Service
Shares.......... -- -- -- -- (0.5904) 0.0401 9.86 6.63 0.95 5.92
1997-Class A
Shares(o)....... -- -- -- -- (0.3004) 0.1000 9.88 4.14(f) 0.70(b) 6.05(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.2698) 0.1100 9.86 3.94(f) 1.30(b) 5.52(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.1110) 0.0300 9.86 1.44(f) 1.45(b) 5.52(b)
1996-
Institutional
Shares.......... -- -- -- -- (0.6326) 0.0100 9.83 6.75 0.45 6.44
1996-
Administration
Shares(h)....... -- -- -- -- (0.3940) (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b)
1996-Service
Shares(i)....... -- -- -- -- (0.3152) 0.1000 9.82 4.35(f) 0.95(b) 6.05(b)
1995-
Institutional
Shares.......... -- -- -- -- (0.6518) 0.1800 9.82 8.97 0.45 6.87
1995-
Administration
Shares.......... -- -- -- -- (0.2051) (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b)
1994-
Institutional
Shares.......... (0.0438) -- -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-
Administration
Shares.......... (0.0438) -- -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-
Institutional
Shares.......... -- (0.0065) -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-
Administration
Shares(e)....... -- -- -- -- (0.2725) (0.0900) 10.14 1.74(f) 0.70(b) 4.84(b)
1992-
Institutional
Shares.......... -- -- -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-
Institutional
Shares.......... -- -- -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-
Institutional
Shares.......... -- -- -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-
Institutional
Shares.......... -- -- -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -----------------------------
1988-
Institutional
Shares.......... -- -- -- -- (0.1800) 0.1000 10.10 3.30(f) 0.55(b) 8.55(b)
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
NET
ASSETS RATIO OF RATIO OF
AT END EXPENSES NET
OF TO INVESTMENT
PORTFOLIO PERIOD AVERAGE INCOME TO
TURNOVER (IN NET AVERAGE
RATE(D) 000S) ASSETS NET ASSETS
----------- -------- --------- ----------
- ------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ----------------
1997-
Institutional
Shares.......... 102.58% $103,729 0.82% 6.06%
1997-
Administration
Shares.......... 102.58 1,060 1.07 5.82
1997-Service
Shares.......... 102.58 3,337 1.32 5.55
1997-Class A
Shares(o)....... 102.58(f) 9,491 1.32(b) 5.43(b)
1997-Class B
Shares(o)....... 102.58(f) 747 1.82(b) 5.00(b)
1997-Class C
Shares(p)....... 102.58(f) 190 1.82(b) 5.15(b)
1996-
Institutional
Shares.......... 115.45 99,944 0.71 6.18
1996-
Administration
Shares(h)....... 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)....... 115.45 1,822 1.21(b) 5.79(b)
1995-
Institutional
Shares.......... 292.56 103,760 0.72 6.60
1995-
Administration
Shares.......... 292.56 -- 0.90(b) 7.71(b)
1994-
Institutional
Shares.......... 289.79 193,095 0.59 5.55
1994-
Administration
Shares.......... 289.79 730 0.84 5.24
1993-
Institutional
Shares.......... 411.66 359,708 0.64 5.31
1993-
Administration
Shares(e)....... 411.66 16,490 0.80(b) 4.74(b)
1992-
Institutional
Shares.......... 216.07 277,927 0.69 6.36
1991-
Institutional
Shares.......... 155.44 158,848 0.79 7.91
1990-
Institutional
Shares.......... 173.21 68,995 0.95 8.12
1989-
Institutional
Shares.......... 137.37 31,015 1.39 7.78
FOR THE PERIOD A
- ----------------
1988-
Institutional
Shares.......... 167.00(f) 39,052 1.42(b) 7.68(b)
- ------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
--------------------------------------------------- ---------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... $ 9.96 $0.4181(a) $ 0.1091(a) -- $ 0.5272 $(0.4172)
1997-
Administration
Shares.......... 9.96 0.3924(a) 0.1100(a) -- 0.5024 (0.3924)
1997-Service
Shares.......... 9.97 0.3675(a) 0.1000(a) -- 0.4675 (0.3675)
1997-Class A
Shares(o)....... 9.94 0.1950(a) 0.1400(a) -- 0.3350 (0.1950)
1997-Class B
Shares(o)....... 9.94 0.1663(a) 0.1368(a) -- 0.3031 (0.1631)
1997-Class C
Shares(p)....... 10.04 0.0670(a) 0.0300(a) -- 0.0970 (0.0670)
1996-
Institutional
Shares.......... 9.94 0.4192(a) 0.0200(a) -- 0.4392 (0.4192)
1996-
Administration
Shares.......... 9.94 0.3944(a) 0.0200(a) -- 0.4144 (0.3944)
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200(a) -- 0.3897 (0.3697)
1995-
Institutional
Shares.......... 9.79 0.4235(a) 0.1500(a) -- 0.5735 (0.4235)
1995-
Administration
Shares.......... 9.79 0.3989(a) 0.1500(a) -- 0.5489 (0.3989)
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600(a) -- 0.5344 (0.3744)
1994-
Institutional
Shares.......... 10.23 0.3787(a) (0.3575)(a) -- 0.0212 (0.3787)
1994-
Administration
Shares.......... 10.23 0.3537(a) (0.3575)(a) -- (0.0038) (0.3537)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) -- (0.0225) (0.0475)
1993-
Institutional
Shares.......... 9.93 0.3834 0.3000(d) -- 0.6834 (0.3834)
1993-
Administration
Shares(j)....... 10.16 0.1555 0.0720(d) -- 0.2275 (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... 10.00 0.0341 (0.0700)(d) -- (0.0359) (0.0341)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
FUTURES INVESTMENT FUTURES IN TO
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
------------ ---------- ------------ ------- -------------
SHORT DURATION TAX-FREE FUND
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
1997-
Institutional
Shares.......... -- -- -- -- $(0.4172)
1997-
Administration
Shares.......... -- -- -- -- (0.3924)
1997-Service
Shares.......... -- -- -- -- (0.3675)
1997-Class A
Shares(o)....... -- -- -- -- (0.1950)
1997-Class B
Shares(o)....... -- -- -- -- (0.1631)
1997-Class C
Shares(p)....... -- -- -- -- (0.0670)
1996-
Institutional
Shares.......... -- -- -- -- (0.4192)
1996-
Administration
Shares.......... -- -- -- -- (0.3944)
1996-Service
Shares.......... -- -- -- -- (0.3697)
1995-
Institutional
Shares.......... -- -- -- -- (0.4235)
1995-
Administration
Shares.......... -- -- -- -- (0.3989)
1995-Service
Shares.......... -- -- -- -- (0.3744)
1994-
Institutional
Shares.......... (0.0825) -- -- -- (0.4612)
1994-
Administration
Shares.......... (0.0825) -- -- -- (0.4362)
1994-Service
Shares(j)....... -- -- -- -- (0.0475)
1993-
Institutional
Shares.......... -- -- -- -- (0.3834)
1993-
Administration
Shares(j)....... -- -- -- -- (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... -- -- -- -- (0.0341)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF NET
NET NET NET RATIO OF ASSETS RATIO OF RATIO OF
INCREASE ASSET EXPENSES NET AT END EXPENSES NET
(DECREASE) VALUE TO INVESTMENT OF TO INVESTMENT
IN NET AT END AVERAGE INCOME TO PORTFOLIO PERIOD AVERAGE INCOME TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ ----------- --------- ---------- ----------- -------- --------- ----------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS END
1997-
Institutional
Shares.......... $ 0.1100 $10.07 5.40% 0.45% 4.18% 194.75% $ 28,821 1.23% 3.40%
1997-
Administration
Shares.......... 0.1100 10.07 5.14 0.70 3.91 194.75 77 1.48 3.13
1997-Service
Shares.......... 0.1000 10.07 4.77 0.95 3.66 194.75 2,051 1.73 2.88
1997-Class A
Shares(o)....... 0.1400 10.08 3.39(f) 0.70(b) 3.81(b) 194.75(f) 4,023 1.73(b) 2.78(b)
1997-Class B
Shares(o)....... 0.1400 10.08 3.07(f) 1.30(b) 3.31(b) 194.75(f) 106 2.23(b) 2.38(b)
1997-Class C
Shares(p)....... 0.0300 10.07 0.97(f) 1.45(b) 2.60(b) 194.75(f) 2 2.23(b) 1.82(b)
1996-
Institutional
Shares.......... 0.0300 9.96 4.50 0.45 4.21 231.65 34,814 1.01 3.65
1996-
Administration
Shares.......... 0.0300 9.96 4.24 0.70 3.96 231.65 48 1.26 3.40
1996-Service
Shares.......... 0.0200 9.97 3.98 0.95 3.74 231.65 695 1.51 3.18
1995-
Institutional
Shares.......... 0.1500 9.94 5.98 0.45 4.31 259.52 58,389 0.77 3.99
1995-
Administration
Shares.......... 0.1500 9.94 5.76 0.70 4.14 259.52 46 1.02 3.82
1995-Service
Shares.......... 0.1600 9.95 5.59 0.95 3.87 259.52 454 1.27 3.55
1994-
Institutional
Shares.......... (0.4400) 9.79 0.17 0.45 3.74 354.00 83,704 0.61 3.58
1994-
Administration
Shares.......... (0.4400) 9.79 (0.11) 0.70 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(j)....... (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-
Institutional
Shares.......... 0.3000 10.23 7.03 0.41 3.70 404.60 115,803 1.06 3.05
1993-
Administration
Shares(j)....... 0.0720 10.23 2.28(f) 0.70(b) 3.32(b) 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
1992-
Institutional
Shares.......... (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b) 31.19(f) 14,601 2.68(b) 1.95(b)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------- -------------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT, FROM
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND PAID
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES IN
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $14.36 $0.91 $0.29 -- $1.20 $(0.90) $(0.07) -- -- --
1997-Class B
Shares 14.37 0.80 0.30 -- 1.10 (0.79) (0.07) -- -- --
1997-Class C
Shares(p) 14.38 0.17 0.22 -- 0.39 (0.17) -- -- -- --
1997-
Institutional
Shares(p) 14.37 0.20 0.22 -- 0.42 (0.20) -- -- -- --
1997-Service
Shares(p) 14.37 0.20 0.21 -- 0.41 (0.19) -- -- -- --
1996-Class A
shares 14.47 0.92 (0.11) -- 0.81 (0.92) -- -- -- --
1996-Class B
shares(q) 14.11 0.41 0.26 -- 0.67 (0.41) -- -- -- --
1995-Class A
shares 13.47 0.94 1.00 -- 1.94 (0.94) -- -- -- --
1994-Class A
shares 14.90 0.85 (1.28) -- (0.43) (0.85) (0.12) (0.02) (0.01) --
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A
shares 14.32 0.56 0.58 -- 1.14 (0.56) -- -- -- --
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $14.37 $0.67 $0.62 -- $1.29 $(0.67) -- -- -- --
1997-Class B
Shares 14.37 0.56 0.63 -- 1.19 (0.56) -- -- -- --
1997-Class C
Shares(p) 14.85 0.12 0.14 -- 0.26 (0.12) -- -- -- --
1997-
Institutional
Shares(p) 14.84 0.15 0.16 -- 0.31 (0.15) -- -- -- --
1997-Service
Shares(p) 14.84 0.14 0.15 -- 0.29 (0.14) -- -- -- --
1996-Class A
shares 14.17 0.65 0.20 -- 0.85 (0.65) -- -- -- --
1996-Class B
shares(q) 14.03 0.27 0.34 -- 0.61 (0.27) -- -- -- --
1995-Class A
shares 13.08 0.67 1.09 -- 1.76 (0.67) -- -- -- --
1994-Class A
shares 14.64 0.73 (1.51) -- (0.78) (0.73) (0.05) -- -- --
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A
shares 14.32 0.22 0.32 -- 0.54 (0.22) -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
------------- ---------- ------ ---------- --------- ---------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GOVERNMENT INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $(0.97) $0.23 $14.59 8.72% 0.50% 6.38% 395.75% $68,859 1.82% 5.06%
1997-Class B
Shares (0.86) 0.24 14.61 7.96 1.25 5.59 395.75 8,041 2.32 4.52
1997-Class C
Shares(p) (0.17) 0.22 14.60 2.72(f) 1.25(b) 5.45(b) 395.75(f) 1,196 2.32(b) 4.38(b)
1997-
Institutional
Shares(p) (0.20) 0.22 14.59 2.94(f) 0.25(b) 7.03(b) 395.75(f) 1,894 1.32(b) 5.96(b)
1997-Service
Shares(p) (0.19) 0.22 14.59 2.85(f) 0.75(b) 6.49(b) 395.75(f) 2 1.82(b) 5.42(b)
1996-Class A
shares (0.92) (0.11) 14.36 5.80 0.75 6.42 485.09 30,603 1.89 5.03
1996-Class B
shares(q) (0.41) 0.26 14.37 4.85(f) 1.25(b) 5.65(b) 485.09 234 2.39(b) 4.51(b)
1995-Class A
shares (0.94) 1.00 14.47 14.90 0.47 6.67 449.53 29,503 2.34 4.80
1994-Class A
shares (1.00) (1.43) 13.47 (2.98) 0.11 6.06 654.90 14,452 2.86 3.31
FOR THE PERIOD FEBRUARY 10, 1993(G) THROUGH OCTOBER 31,
- ---------------------------------------
1993-Class A
shares (0.56) 0.58 14.90 8.03(f) 0.00(b) 4.87(e) 725.41(f) 12,860 4.00(b)
MUNICIPAL INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- ---------------------
1997-Class A
Shares $(0.67) $0.62 $14.99 9.23% 0.85% 4.60% 153.12% $64,553 1.62% 3.83%
1997-Class B
Shares (0.56) 0.63 15.00 8.48 1.60 3.74 153.12 1,750 2.12 3.22
1997-Class C
Shares(p) (0.12) 0.14 14.99 1.75(f) 1.60(b) 3.24(b) 153.12(f) 130 2.12(b) 2.72(b)
1997-
Institutional
Shares(p) (0.15) 0.16 15.00 2.10(f) 0.60(b) 4.41(b) 153.12(f) 351 1.12(b) 3.89(b)
1997-Service
Shares(p) (0.14) 0.15 14.99 1.93(f) 1.10(b) 4.24(b) 153.12(f) 2 1.62(b) 3.72(b)
1996-Class A
shares (0.65) 0.20 14.37 6.13 0.85 4.58 344.13 52,267 1.55 3.88
1996-Class B
shares(q) (0.27) 0.34 14.37 4.40(f) 1.60(b) 3.55(b) 344.13(f) 255 2.05(b) 3.10(b)
1995-Class A
shares (0.67) 1.09 14.17 13.79 0.76 4.93 335.55 53,797 1.49 4.20
1994-Class A
shares (0.78) (1.56) 13.08 (5.51) 0.45 5.28 357.54 47,373 1.55 4.18
FOR THE PERIOD JULY 20, 1993(G) THROUGH OCTOBER 31,
- ------------------------------------
1993-Class A
shares (0.22) 0.32 14.64 3.73(f) 0.00(b) 5.15(b) 99.99(f) 30,166 2.42(b) 2.73(b)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N)
-----------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares $ 9.85 $0.6431 $0.2282 $(0.0005) $ 0.8708 $(0.6408)
1997-
Administration
Shares 9.84 0.6182 0.2380 (0.0005) 0.8557 (0.6157)
1997-Service
Shares 9.86 0.5937 0.2287 (0.0005) 0.8219 (0.5919)
1997-Class A
Shares(o) 9.70 0.3059 0.3596 (0.0008) 0.6647 (0.3048)
1997-Class B
Shares(o) 9.72 0.2686 0.3695 (0.0008) 0.6373 (0.2673)
1997-Class C
Shares(p) 9.93 0.1118 0.1591 (0.0003) 0.2706 (0.1107)
1996-
Institutional
Shares 10.00 0.6448 (0.0704) -- 0.5744 (0.6438)
1996-
Administrative
Shares(/1/) 9.91 0.4083 (0.0703) -- 0.3380 (0.4080)
1996-Service
Shares(l) 9.77 0.3756 0.0898 -- 0.4654 (0.3754)
1995-
Institutional
Shares 9.24 0.6423 0.7610 -- 1.4033 (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares 10.00 0.4648 (0.7617) -- (0.2969) (0.4648)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares $14.53 $ 0.59 $ 0.50 $ 0.27 $ 1.36 $ (0.79)
1997-Class B
shares 14.53 0.72 0.36 0.20 1.28 (0.73)
1997-Class C
shares(p) 14.80 0.16 0.19 0.10 0.45 (0.19)
1997-
Institutional
Shares 14.52 0.88 0.37 0.19 1.44 (0.87)
1997-Service
Shares(s) 14.69 0.53 0.25 0.14 0.92 (0.52)
1996-Class A
shares 14.45 0.71 0.62 0.18 1.51 (1.43)
1996-Class B
shares(q) 14.03 0.34 0.41 0.11 0.86 (0.36)
1996-
Institutional
shares 14.45 1.15 0.32 0.10 1.57 (1.50)
1995-Class A
shares 13.43 0.89 0.92 0.15 1.96 (0.94)
1995-
Institutional
shares(r) 14.09 0.22 0.34 0.06 0.62 (0.26)
1994-Class A
shares 15.07 0.84 (1.37) (0.12) (0.65) (0.22)
1993-Class A
shares 14.69 0.85 1.07 (0.42) 1.50 (0.85)
1992-Class A
shares 14.60 1.14 0.45 (0.36) 1.23 (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares 14.55 0.25 0.23 (0.19) 0.29 (0.24)
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET
REALIZED REALIZED
GAIN ON GAIN ON
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS
FUTURES INVESTMENT FUTURES IN TO
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS
------------ ---------- ------------ ------- -------------
CORE FIXED INCOME FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares -- -- -- -- $(0.6408)
1997-
Administration
Shares -- -- -- -- (0.6157)
1997-Service
Shares -- -- -- -- (0.5919)
1997-Class A
Shares(o) -- -- -- -- (0.3048)
1997-Class B
Shares(o) -- -- -- -- (0.2673)
1997-Class C
Shares(p) -- -- -- -- (0.1107)
1996-
Institutional
Shares (0.0806) -- -- -- (0.7244)
1996-
Administrative
Shares(/1/) -- -- -- -- (0.4080)
1996-Service
Shares(l) -- -- -- -- (0.3754)
1995-
Institutional
Shares -- -- -- -- (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares -- -- -- -- (0.4648)
GLOBAL INCOME FUND
- -------------------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares -- -- -- -- $ (0.79)
1997-Class B
shares -- -- -- -- (0.73)
1997-Class C
shares(p) -- -- -- -- (0.19)
1997-
Institutional
Shares -- -- -- -- (0.87)
1997-Service
Shares(s) -- -- -- -- (0.52)
1996-Class A
shares -- -- -- -- (1.43)
1996-Class B
shares(q) -- -- -- -- (0.36)
1996-
Institutional
shares -- -- -- -- (1.50)
1995-Class A
shares -- -- -- -- (0.94)
1995-
Institutional
shares(r) -- -- -- -- (0.26)
1994-Class A
shares (0.16) -- -- (0.61) (0.99)
1993-Class A
shares (0.27) -- -- -- (1.12)
1992-Class A
shares -- -- -- -- (1.14)
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares -- -- -- -- (0.24)
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
(DECREASE) VALUE TO INCOME OF TO INCOME
IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ------ ---------- ----------- ------------ ----------- -------- --------- ----------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares $ 0.2300 $10.08 9.19% 0.45% 6.53% 361.27% $79,230 0.83% 6.15%
1997-
Administration
Shares 0.2300 10.07 8.92 0.70 6.27 361.27 6,176 1.08 5.89
1997-Service
Shares 0.2300 10.09 8.65 0.95 6.00 361.27 1,868 1.33 5.62
1997-Class A
Shares(o) 0.3599 10.06 6.94(f) 0.70(b) 6.13(b) 361.27(f) 9,336 1.33(b) 5.50(b)
1997-Class B
Shares(o) 0.3700 10.09 6.63(f) 1.45(b) 5.28(b) 361.27(f) 621 1.83(b) 4.90(b)
1997-Class C
Shares(p) 0.1599 10.09 2.74(f) 1.45(b) 4.84(b) 361.27(f) 272 1.83(b) 4.46(b)
1996-
Institutional
Shares (0.1500) 9.85 5.98 0.45 6.51 414.20 72,061 0.83 6.13
1996-
Administrative
Shares(/1/) (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b) 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(l) 0.0900 9.86 4.90(f) 0.95(b) 6.37(b) 414.20 381 1.33(b) 5.99(b)
1995-
Institutional
Shares 0.7600 10.00 15.72 0.45 6.56 382.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1994-
Institutional
Shares (0.7617) 9.24 (3.00) 0.45(b) 6.48(b) 285.25 24,508 1.46(b) 5.47(b)
- -------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-Class A
shares $ 0.57 $15.10 9.66% 1.17% 5.19% 383.72% $167,096 1.60% 4.76%
1997-Class B
shares 0.55 15.08 9.04 1.71 4.76 383.72 3,465 2.10 4.37
1997-Class C
shares(p) 0.26 15.06 3.03(f) 1.71(b) 4.98(b) 383.72(f) 496 2.10(b) 4.59(b)
1997-
Institutional
Shares 0.57 15.09 10.26 0.65 5.72 383.72 60,929 1.04 5.33
1997-Service
Shares(s) 0.40 15.09 6.42(f) 1.15(b) 5.33(b) 383.72(f) 151 1.54(b) 4.94(b)
1996-Class A
shares 0.08 14.53 11.05 1.16 5.81 232.15 198,665 1.64 5.33
1996-Class B
shares(q) 0.50 14.53 6.24(f) 1.70(b) 5.16(b) 232.15(f) 256 2.14(b) 4.72(b)
1996-
Institutional
shares 0.07 14.52 11.55 0.65 6.35 232.15 54,254 1.11 5.89
1995-Class A
shares 1.02 14.45 15.08 1.29 6.23 265.86 245,835 1.58 5.94
1995-
Institutional
shares(r) 0.36 14.45 4.42(f) 0.65(b) 6.01(b) 265.86(f) 31,619 1.08(b) 5.58(b)
1994-Class A
shares (1.64) 13.43 (4.49) 1.28 5.73 343.74 396,584 1.53 5.48
1993-Class A
shares 0.38 15.07 10.75 1.30 5.78 313.88 675,662 1.55 5.53
1992-Class A
shares 0.09 14.69 8.77 1.37 7.85 270.75 588,893 1.62 7.60
FOR THE PERIOD AUGUST 2, 1991(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1991-Class A
shares 0.05 14.60 2.00(f) 0.38(f) 1.72(f) 34.22(f) 388,744 0.44(f) 1.66(f)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(N) DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------- -------------------------------------------------------
NET REALIZED NET
AND REALIZED IN EXCESS
UNREALIZED AND FROM NET OF NET
GAIN (LOSS) UNREALIZED TOTAL REALIZED REALIZED
ON GAIN (LOSS) INCOME GAIN ON GAIN ON
NET ASSET INVESTMENT, ON FOREIGN (LOSS) INVESTMENT, IN EXCESS INVESTMENT, FROM
VALUE AT NET OPTION AND CURRENCY FROM FROM NET OPTION AND OF NET OPTION AND PAID
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT FUTURES INVESTMENT FUTURES IN
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME TRANSACTIONS INCOME TRANSACTIONS CAPITAL
--------- ---------- ------------ ------------ ---------- ---------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HIGH YIELD FUND
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares $10.00 $0.17 $(0.03) 0.01 $0.15 $(0.17) -- $(0.01) -- --
1997-Class B
Shares 10.00 0.15 (0.03) 0.01 0.13 (0.15) -- (0.01) -- --
1997-Class C
Shares(p) 9.97 0.14 -- 0.01 0.12 (0.14) -- (0.01) -- --
1997-
Institutional
Shares 10.00 0.18 (0.03) 0.01 0.16 (0.18) -- (0.01) -- --
1997-Service
Shares 10.00 0.17 (0.03) 0.01 0.15 (0.17) -- (0.01) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
----------------------
RATIO OF RATIO OF NET RATIO OF
NET NET NET NET ASSETS RATIO OF NET
INCREASE ASSET EXPENSES INVESTMENT AT END EXPENSES INVESTMENT
TOTAL (DECREASE) VALUE TO INCOME OF TO INCOME
DISTRIBUTIONS IN NET AT END AVERAGE (LOSS) TO PORTFOLIO PERIOD AVERAGE (LOSS) TO
TO ASSET OF TOTAL NET AVERAGE TURNOVER (IN NET AVERAGE
SHAREHOLDERS VALUE PERIOD RETURN(K) ASSETS NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
------------- ---------- ------ ----------- ---------- ----------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 1, 1997(G) THROUGH OCTOBER 31,
- ----------------------------------------------------
1997-Class A
Shares $(0.18) $(0.03) $9.97 1.50%(f) 0.95%(b) 7.06%(b) 44.80%(f) $325,911 1.57%(b) 6.44%(b)
1997-Class B
Shares (0.16) (0.03) 9.97 1.31(f) 1.70(b) 6.28(e) 44.80(f) 10.308 2.07(b) 5.91(b)
1997-Class C
Shares(p) (0.15) (0.03) 9.97 1.46(f) 1.70(b) 6.17(b) 44.80(f) 1,791 2.07(b) 5.80(b)
1997-
Institutional
Shares (0.19) (0.03) 9.97 1.58(f) 0.70(b) 7.16(b) 44.80(f) 2 1.07(b) 6.79(b)
1997-Service
Shares (0.18) (0.03) 9.97 1.46(f) 1.20(b) 6.69(b) 44.80(f) 2 1.57(b) 6.32(b)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Short Duration Government Fund Administration shares were redeemed in full
on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge for Class A
shares or a contingent deferred sales charge for Class B and Class C
shares were taken into account.
(l) Administration and Service share activity commenced on February 28, 1996
and March 13, 1996, respectively.
(m) Service share activity commenced on March 27, 1997.
(n) Includes the balancing effect of calculating per share amounts.
(o) Class A and Class B share activity commenced on May 1, 1997.
(p) Commenced operations on August 15, 1997.
(q) Class B shares commenced operations on May 1, 1996.
(r) Institutional shares commenced operations on June 1, 1995.
(s) Service Class shares commenced operations on March 12, 1997.
- -------------------------------------------------------------------------------
14
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks, are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one nationally recognized statistical rating organization ("NRSRO") including,
but not limited to, Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's") even though it has been rated below the
minimum rating by one or more other NRSROs or, if unrated, is determined by
the Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will usually have access to the research of, and
certain proprietary technical models developed by, Goldman Sachs and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a nine-month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other mortgage securities with periodic
interest rate resets. The remainder of the Fund's assets (up to 35%) may be
invested in other U.S. Government Securities, including fixed rate mortgage
pass-through securities, other securities representing an interest in or
collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-
Backed Securities") and repurchase agreements collateralized by U.S.
Government Securities. Substantially all of the Fund's assets
15
<PAGE>
will be invested in U.S. Government Securities. 100% of the Fund's portfolio
will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a two-year bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a three-year bond.
16
<PAGE>
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed-income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and the political subdivisions, agencies and instrumentalities
thereof ("Municipal Securities"), the interest on which is exempt from regular
federal income tax (i.e., excluded from gross income for federal income tax
purposes), and is not a tax preference item under the federal alternative
minimum tax. Under normal circumstances, the Fund's investments in private
activity bonds and taxable investments will not exceed, in the aggregate, 20%
of the Fund's net assets. The interest from certain private activity bonds
(including the Fund's distributions of such interest) may be a preference item
for purposes of the federal alternative minimum tax. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB or Baa by an NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. Municipal Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities may
reflect the existence of guarantees, letters of credit or other credit
enhancement features available to the issuers or holders of such Municipal
Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
GOVERNMENT INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with safety of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
17
<PAGE>
CREDIT QUALITY. The Fund's non-U.S. Government Securities will be rated, at
the time of investment, AAA or Aaa by an NRSRO or, if unrated, will be
determined by the Investment Adviser to be of comparable quality.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
MUNICIPAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income that is exempt from regular federal income tax,
consistent with preservation of capital.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
fifteen-year Municipal Bond Index, plus or minus one year. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
twelve years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a fifteen-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
80% of its net assets in Municipal Securities, the interest on which is exempt
from regular federal income tax (i.e., excluded from gross income for federal
income tax purposes). The Fund may invest up to 100% of its net assets in
private activity bonds, the interest from certain of which (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. Under normal market conditions, the weighted average credit
quality of the Fund's portfolio will be equivalent to that of securities rated
AA or Aa by an NRSRO. All securities purchased by the Fund will be rated, at
the time of investment, at least BBB or Baa by an NRSRO or, if unrated, will
be determined by the Investment Adviser to be of comparable quality. Fixed-
income securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal. The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement
features available to the issuers or holders of such Municipal Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, interest rate floors, caps and collars. The Fund may also employ other
investment techniques to seek to enhance returns, such as lending portfolio
securities and entering into repurchase agreements and other investment
practices described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
18
<PAGE>
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is expected to be
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed-income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa by an NRSRO. The securities currently included in the Index
have at least one year remaining to maturity; have an outstanding principal
amount of at least $100 million; and are issued by the following types of
issuers, with each category receiving a different weighting in the Index: U.S.
Treasury; agencies, authorities or instrumentalities of the U.S. government;
issuers of Mortgage-Backed Securities; utilities; industrial issuers;
financial institutions; foreign issuers; and issuers of Asset-Backed
Securities. The Index is a trademark of Lehman Brothers. Inclusion of a
security in the Index does not imply an opinion by Lehman Brothers as to its
attractiveness or appropriateness for investment. Although Lehman Brothers
obtains factual information used in connection with the Index from sources
which it considers reliable, Lehman Brothers claims no responsibility for the
accuracy, completeness or timeliness of such information and has no liability
to any person for any loss arising from results obtained from the use of the
Index data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
or Baa by an NRSRO. The non-U.S. dollar-denominated fixed-income securities in
which the Fund may invest will be rated, at the time of investment, at least
AA or Aa by an NRSRO or, if unrated, will be determined by the Investment
Adviser to be of comparable quality. Fixed-income securities rated BBB or Baa
are considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
19
<PAGE>
exchange rate fluctuations or to seek to increase total return. The Fund may
invest in custodial receipts, Municipal Securities and convertible securities.
The Fund may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices, described
under "Investment Techniques."
GLOBAL INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high total return, emphasizing current income, and, to a lesser extent,
providing opportunities for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
7.5 years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a six-year bond.
INVESTMENT SECTOR. The Fund invests primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect
of currency positions, denominated in U.S. dollars and (ii) invest in
securities of issuers in at least three countries. The Fund may also invest up
to 10% of its total assets in issuers in countries with emerging markets and
economies. The Fund seeks to meet its investment objective by pursuing
investment opportunities in foreign and domestic fixed-income securities
markets and by engaging in currency transactions to seek to enhance returns
and to seek to hedge its portfolio against currency exchange rate
fluctuations.
The fixed-income securities in which the Fund may invest include: (i) U.S.
Government Securities and custodial receipts therefor; (ii) securities issued
or guaranteed by a foreign government or any of its political subdivisions,
authorities, agencies, instrumentalities or by supranational entities (i.e.,
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, such as the World Bank);
(iii) corporate debt securities; (iv) certificates of deposit and bankers'
acceptances issued or guaranteed by, or time deposits maintained at, U.S. or
foreign banks (and their branches wherever located) having total assets of
more than $1 billion; (v) commercial paper; and (vi) Mortgage-Backed and
Asset-Backed Securities.
CREDIT QUALITY. All securities purchased by the Fund will be rated, at the
time of investment, at least BBB or Baa by an NRSRO. However, the Fund will
invest at least 50% of its total assets in securities rated, at the time of
investment, AAA or Aaa by an NRSRO. Unrated securities will be determined by
the Investment Adviser to be of comparable quality. Fixed-income securities
rated BBB or Baa are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken their issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S.
20
<PAGE>
issuers. It is expected that the Fund will use certain currency techniques to
seek to hedge against currency exchange rate fluctuations or to seek to
increase total return. While the Fund will have both long and short currency
positions, its net long and short foreign currency exposure will not exceed
the value of the Fund's total assets. To the extent that the Fund is fully
invested in foreign securities while also maintaining currency positions, it
may be exposed to greater combined risk. The Fund's net currency positions may
expose it to risks independent of its securities positions. The Fund may also
employ other investment techniques to seek to enhance returns, such as lending
portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices described under "Investment
Techniques."
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan,
and the United Kingdom as well as in the securities of U.S. issuers.
Concentration of the Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. Not more than 25% of the Fund's
total assets will be invested in securities of issuers in any other single
foreign country.
HIGH YIELD FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income. Secondarily, the Fund may, in seeking current
income, also consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers High
Yield Bond Index, plus or minus 2.5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed 7.5 years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a 6-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in high yield, fixed-income securities rated, at the
time of investment, below investment grade. Non-investment grade securities
are securities rated BB, Ba or below by an NRSRO, or, if unrated, determined
by the Investment Adviser to be of comparable quality. The Fund may invest in
all types of fixed-income securities, including senior and subordinated
corporate debt obligations (such as bonds, debentures, notes and commercial
paper), convertible and non-convertible corporate debt obligations, loan
participations, custodial receipts, municipal securities and preferred stock.
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers (including securities of issuers located in countries with
emerging markets and economies) which are denominated in currencies other than
the U.S. dollar. Under normal market conditions, the Fund may invest up to 35%
of its total assets in investment grade fixed-income securities, including
U.S. Government Securities, Asset-Backed and Mortgage-Backed Securities and
corporate securities. The Fund may also invest in common stocks, warrants,
rights and other equity securities, but will generally hold such equity
investments only when debt or preferred stock of the issuer of such equity
securities is held by the Fund. A number of investment strategies are used to
seek to achieve the Fund's investment objective, including market sector
selection, determination of yield curve exposure, and issuer selection. In
addition, the Investment Adviser will attempt to take advantage of pricing
inefficiencies in the fixed-income markets.
CREDIT QUALITY. The Fund invests primarily in high yield, fixed income
securities rated below investment grade, including securities of issuers in
default. Non-investment grade securities (commonly known as "junk bonds") tend
to offer higher yields than higher rated securities with similar maturities.
Non-investment grade
21
<PAGE>
securities are, however, considered speculative and generally involve greater
price volatility and greater risk of loss of principal and interest than
higher rated securities. See "Description of Securities." A description of the
corporate bond and preferred stock ratings is contained in Appendix B to the
Additional Statement.
For your information, set forth below is the average distribution of ratings
for the portfolio securities (including commercial paper and nonconvertible
bonds) held by Fund during the most recent fiscal year:
CREDIT QUALITY
<TABLE>
<CAPTION>
PERCENTAG OF
FUND'S ASSETS
-------------
<S> <C>
AAA/Aaa...................................................... 1.3%
AA/Aa........................................................ 0%
A............................................................ 0%
BBB/Baa...................................................... 0.3%
BB/Ba........................................................ 13.1%
Below Ba..................................................... 85.3%
Not rated.................................................... 0%
Comparable to A............................................. 0%
Comparable to BBB/Baa....................................... 0%
Comparable to BB/Ba or lower................................ 0%
Comparable to Below Ba...................................... 0%
-----
100.0%
=====
</TABLE>
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
securities and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps, and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
exchange rate fluctuations or to seek to increase total return. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into repurchase agreements and other
investment practices described under "Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
22
<PAGE>
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
FIXED RATE MORTGAGE LOANS. Generally, fixed-rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to amortize fully principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, Global Income and High Yield Funds may, invest in ARMs, which
are pass-through mortgage securities collateralized by mortgages with
adjustable rather than fixed coupon rates. ARMs generally provide for a fixed
initial mortgage interest rate for a set period. Thereafter, the interest
rates are subject to periodic adjustments based on changes to a designated
benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
23
<PAGE>
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Government Income, Core
Fixed Income, Global Income and High Yield Funds may invest in Mortgage-Backed
Securities issued or sponsored by non-governmental entities. Privately issued
Mortgage-Backed Securities are generally backed by pools of conventional
(i.e., non-government guaranteed or insured) mortgage loans. Since such
Mortgage-Backed Securities normally are not guaranteed by an entity having the
credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to receive
a high quality rating from the rating organizations (i.e., S&P or Moody's),
they normally are structured with one or more types of "credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
also invest in multiple class securities, including collateralized mortgage
obligations ("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates. CMOs provide an investor with a
specified interest in the cash flow from a pool of underlying mortgages or of
other Mortgage-Backed Securities. CMOs are issued in multiple classes, each
with a specified fixed or floating interest rate and a final scheduled
distribution date. In most cases, payments of principal are applied to the CMO
classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having
an earlier stated maturity date are paid in full. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue Code of 1986,
as amended (the "Code"), and invests in certain mortgages principally secured
by interests in real property and other permitted investments. The Funds do
not intend to purchase residual interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government, Government Income, Core Fixed Income, Global Income and
High Yield Funds may invest in Stripped Mortgage-Backed Securities ("SMBS"),
which are derivative multiple class Mortgage-Backed Securities. SMBS are
usually structured with two different classes: one that receives 100% of the
interest payments and the other that receives 100% of the principal payments
from a pool of mortgage loans. If the underlying mortgage loans experience
different than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The market value of the
class consisting entirely of principal payments generally is unusually
volatile in response to changes in interest rates. The yields on a class of
SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. A Fund's
investments in SMBS may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements.
ASSET-BACKED SECURITIES
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in Asset-Backed Securities. The principal and interest payments on
Asset-Backed Securities are collateralized by pools of assets such as auto
loans, credit card receivables, leases, installment contracts and personal
property. Such asset pools are securitized through the use of special purpose
trusts or corporations. Principal and interest payments may be credit enhanced
by a letter of credit, a pool insurance policy or a senior/subordinated
structure.
LOAN PARTICIPATIONS
The High Yield Fund may invest in loan participations. Such loans must be to
issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan
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syndication, a number of lenders, usually banks (co-lenders), lend a corporate
borrower a specified sum pursuant to the terms and conditions of a loan
agreement. One of the co-lenders usually agrees to act as the agent bank with
respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of
a direct or co-lending relationship with the corporate borrower, an assignment
of an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High
Yield Fund acquires certain participation interests, the High Yield Fund will
have direct recourse against the borrower if the borrower fails to pay
scheduled principal and interest. In cases where the High Yield Fund lacks
direct recourse, it will look to the agent bank to enforce appropriate credit
remedies against the borrower. In these cases, the High Yield Fund may be
subject to delays, expenses and risks that are greater than those that would
have been involved if the Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the
bankruptcy or insolvency of the corporate borrower, a loan participation may
be subject to certain defenses by the borrower as a result of improper conduct
by the agent bank. Moreover, under the terms of the loan participation, the
High Yield Fund may be regarded as a creditor of the agent bank (rather than
of the underlying corporate borrower), so that the High Yield Fund may also be
subject to the risk that the agent bank may become insolvent. The secondary
market, if any, for these loan participations is limited and any loan
participations purchased by the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds and, to a limited extent, the Core Fixed Income and
High Yield Funds invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal
alternative minimum tax or from state or local taxes). Such securities may pay
fixed, variable or floating rates of interest. Municipal Securities are often
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which Municipal Securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses, and obtaining funds to lend to other public institutions and
facilities. The Core Fixed Income and High Yield Funds may also invest in
taxable Municipal Securities.
PRIVATE ACTIVITY BONDS. Municipal Securities include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free and Municipal
Income Funds'
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distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such leases, the credit
quality rating and risk of cancellation of such unrated leases will be
monitored on an ongoing basis. Certain municipal lease obligations and
certificates of participation may be deemed illiquid for the purpose of a
Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may invest in corporate debt obligations. In addition to obligations of
corporations, corporate debt obligations include securities issued by banks
and other financial institutions. Corporate debt obligations are subject to
the risk of an issuer's inability to meet principal and interest payments on
the obligations.
The Government Income, Core Fixed Income, Global Income and High Yield Funds
may also invest in trust preferred securities. A trust preferred or capital
security is a long dated bond (for example, 30 years) with preferred features.
The preferred features are that payment of interest can be deferred for a
specified period without initiating a default event. From a bondholder's
viewpoint, the securities are senior in claim to standard preferred stock but
junior to other bondholders. From the issuer's viewpoint, the securities are
attractive because their interest is deductible for tax purposes like other
types of debt instruments.
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CONVERTIBLE SECURITIES
The Core Fixed Income and High Yield Funds may invest in convertible
securities, including debt obligations, and for High Yield Fund preferred
stock, of an issuer convertible at a stated exchange rate into common stock of
the issuer. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. As with all debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a
convertible security exceeds the conversion price, the price of the
convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not depreciate to the same extent as the underlying common stock.
Convertible securities in which a Fund invests are subject to the same rating
criteria as its other investments in fixed-income securities.
PREFERRED STOCK, WARRANTS AND RIGHTS
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of
the preferred stock. Often, however, on the occurrence of any such event of
default or non-compliance by the issuer, preferred stockholders will be
entitled to gain representation on the issuer's board of directors or increase
their existing board representation. In addition, preferred stockholders may
be granted voting rights with respect to certain issues on the occurrence of
any event of default.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Global Income Fund will, and the Core Fixed Income
and High Yield Funds may, invest in fixed-income securities of foreign issuers
denominated in any currency. However, the Core Fixed Income and High Yield
Funds will limit their investments in non-U.S. dollar-denominated fixed-income
securities to 25% of their total assets. Investment in foreign securities may
offer potential benefits that are not available from investing exclusively in
U.S. dollar-denominated domestic issues. Foreign countries may have economic
policies or business cycles different from those of the U.S. and markets for
foreign fixed-income securities do not necessarily move in a manner parallel
to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which a Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain
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sufficient cash to pay such dividends. In addition, clearance and settlement
procedures may be different in foreign countries and, in certain markets, such
procedures have been unable to keep pace with the volume of securities
transactions, making it more difficult to conduct such transactions.
The Core Fixed Income, Global Income and High Yield Funds may invest in an
issuer domiciled in one country yet issuing the security in the currency of
another country. The Funds may also invest in debt securities denominated in
the European Currency Unit ("ECU"), which is a "basket" consisting of
specified amounts in the currencies of certain of the twelve member states of
the European Community. The specific amounts of currencies comprising the ECU
may be adjusted by the Council of Ministers of the European Community from
time to time to reflect changes in relative values of the underlying
currencies. In addition, the Funds may invest in securities denominated in
other currency "baskets."
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
a Fund, political or social instability or diplomatic developments which could
affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income, Global Income and High
Yield Funds may invest in debt obligations of foreign governments and
governmental agencies, including those of emerging countries. Investment in
sovereign debt obligations involves special risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling
to repay principal or interest when due in accordance with the terms of such
debt, and a Fund may have limited recourse in the event of a default. Periods
of economic uncertainty may result in volatility of market prices of sovereign
debt, and in turn a Fund's net asset value, to a greater extent than the
volatility inherent in debt obligations of U.S. issuers. A sovereign debtor's
willingness or ability to repay principal and pay interest in a timely manner
may be affected by, among other factors, its cash flow situation, the extent
of its foreign currency reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt service
burden to the economy as a whole, the sovereign debtor's policy toward
international lenders and the political constraints to which a sovereign
debtor may be subject.
EMERGING MARKETS. The Core Fixed Income and Global Income Funds may invest
up to 10% and the High Yield Fund may invest up to 25% of their total assets
in securities of issuers located in countries with emerging economies or
securities markets ("emerging markets"). Political and economic structures in
many emerging markets may be undergoing significant evolution and rapid
development, and emerging markets may lack the social, political and economic
stability characteristic of more developed countries. As a result, the risks
relating to investments in foreign securities described above, including the
possibility of nationalization, expropriation and confiscatory taxation, may
be heightened. In addition, unanticipated political and social developments
may affect the value of a Fund's investments in emerging markets and the
availability to the Fund of additional investments in such countries. The
small size and inexperience of the securities markets in certain emerging
markets and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets
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(such as the U.S., Japan and most Western European countries). See the
Additional Statement for further information regarding a Fund's investments in
emerging markets.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income, Global Income and High Yield Funds will usually involve
currencies of foreign countries, and because the Funds may have currency
exposure independent of their securities positions, the value of the assets of
a Fund as measured in U.S. dollars will be affected by changes in foreign
currency exchange rates. A Fund may, to the extent it invests in foreign
securities, purchase or sell foreign currencies on a spot basis and may also
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, a Fund also may enter into such
contracts to seek to increase total return when the Investment Adviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated or quoted in that currency do not present
attractive investment opportunities and are not held in the Fund's portfolio.
When entered into to seek to increase total return, forward foreign currency
exchange contracts are considered speculative. The Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency for any purpose or to sell foreign currency to seek to
increase total return, the Fund will be required to place cash or liquid
assets in a segregated account with the Fund's custodian in an amount equal to
the value of the Fund's total assets committed to the consummation of the
forward contract, or to otherwise cover its position in a manner permitted by
the SEC. A Fund will incur costs in connection with conversions between
various currencies. A Fund may hold foreign currency received in connection
with investments in foreign securities when, in the judgment of the Investment
Adviser, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments
in different countries, actual or anticipated changes in interest rates and
other complex factors, as seen from an international perspective. Currency
exchange rates also can be affected unpredictably by the intervention of U.S.
or foreign governments or central banks, or the failure to intervene, or by
currency controls or political developments in the U.S. or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive a Fund of unrealized profits, transaction
costs or the benefits of a currency hedge or force the Fund to cover its
purchase or sale commitments, if any, at the current market price. A Fund will
not enter into forward foreign currency exchange contracts, currency swaps or
other privately negotiated currency instruments unless the credit quality of
the unsecured senior debt or the claims-paying ability of the counterparty is
considered to be investment grade by the Investment Adviser.
The Core Fixed Income, Global Income and High Yield Funds' use of foreign
currency management techniques in emerging markets may be limited. Due to the
limited market for these instruments in emerging
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markets, the Investment Adviser does not currently anticipate that a
significant portion of the Funds' currency exposure in emerging markets, if
any, will be covered by such instruments. For a discussion of such instruments
and the risks associated with their use, see "Investment Objectives and
Policies" in the Additional Statement.
STRUCTURED SECURITIES
The Core Fixed Income, Global Income and High Yield Funds may invest in
structured securities. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption may
be increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of a Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed-
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
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CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. Call risk typically results when
interest rates have declined. Under such circumstances, a Fund may be unable
to recoup all of its initial investment and will also suffer from having to
reinvest in lower yielding securities. Extension risk (i.e., where the issuer
exercises its right to pay principal on an obligation later than scheduled)
causes cash flows to be returned later than expected. Extension risk typically
results when interest rates have increased. Under such circumstances, a Fund
will suffer from the inability to invest in higher yielding securities.
Certain types of U.S. Government, Asset-Backed, corporate, foreign, Mortgage-
Backed and Municipal Securities have this call and/or extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest rates on new mortgage loans fall sufficiently below
the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to increase. Conversely, if mortgage loan
interest rates rise above the interest rates on existing outstanding mortgage
loans, the rate of prepayment would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay more slowly. As with fixed-
rate mortgages, ARM prepayment rates vary in both stable and changing interest
rate environments. There are certain ARMs where the homeowner's payments do
not fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from margin requirements and related leverage
factors associated with such transactions. The use of these management
techniques to seek to increase total return may be regarded as a
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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.
TAX RISK OF MUNICIPAL SECURITIES. The yields and market values of Municipal
Securities may be more adversely impacted by changes in tax rates and policies
than taxable fixed-income securities. Because interest income from Municipal
Securities is normally not subject to regular federal income taxation, the
attractiveness of Municipal Securities in relation to other investment
alternatives is affected by changes in federal income tax rates applicable to,
or the continuing federal income tax-exempt status of, such interest income.
Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of
Municipal Securities, which could in turn affect a Fund's ability to acquire
and dispose of Municipal Securities at desirable yield and price levels.
RISKS OF INVESTING IN NON-INVESTMENT GRADE FIXED-INCOME SECURITIES. Non-
investment grade fixed-income securities are considered predominantly
speculative by traditional investment standards. In some cases, these
obligations may be highly speculative and have poor prospects for reaching
investment grade standing. Non-investment grade fixed-income securities and
unrated securities of comparable credit quality (commonly known as "junk
bonds") are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities, may be subject to greater price volatility due to such
factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the junk bond markets generally and less secondary
market liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less
established companies seeking to expand. Such issuers are often highly
leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest in the event of
adverse developments or business conditions.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate developments to a greater extent than that of
higher rated securities which react primarily to fluctuations in the general
level of interest rates. As a result, a Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's judgment concerning the creditworthiness of issuers than funds which
invest in higher-rated securities. Issuers of non-investment grade fixed-
income securities may not be able to make use of more traditional methods of
financing and their ability to service debt obligations may be more adversely
affected than issuers of higher-rated securities by economic downturns,
specific corporate developments or the issuer's inability to meet specific
projected business forecasts. Negative publicity about the junk bond market
and investor perceptions regarding lower rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of other
debt securities because such non-investment grade securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by a Fund in defaulted securities poses
additional risk of loss should nonpayment of principal and interest continue
in respect of such securities. Even if such securities are held to maturity,
recovery by a Fund of its initial investment and any anticipated income or
appreciation is uncertain.
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The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as, and is more volatile than, the secondary market for higher-rated
securities. In addition, market trading volume for high yield fixed-income
securities is generally lower and the secondary market for such securities
could contract under adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. These
factors may have an adverse effect on the market price and a Fund's ability to
dispose of particular portfolio investments. A less liquid secondary market
also may make it more difficult for a Fund to obtain precise valuations of the
high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings are
used only as a preliminary indicator of investment quality. Investments in
non-investment grade and comparable unrated obligations will be more dependent
on the Investment Adviser's credit analysis than would be the case with
investments in investment-grade debt obligations. The Investment Adviser
employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Investment Adviser continually
monitors the investments in a Fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.
OTHER RISKS. Floating-rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government, Government Income, Core Fixed Income and Global Income Funds may
enter into mortgage "dollar rolls" in which a Fund sells securities for
delivery in the current month and simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During the
roll period, the Fund loses the right to receive principal and interest paid
on the securities sold.
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<PAGE>
However, the Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase or fee income plus the interest earned on the cash proceeds of
the securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. Successful use of mortgage dollar rolls
depends upon the Investment Adviser's ability to predict correctly interest
rates and mortgage prepayments. There is no assurance that mortgage dollar
rolls can be successfully employed. The Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. For financial reporting and tax
purposes, each Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving
a sale. The Funds do not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index comprised of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income, Global Income and High
Yield Funds may, to the extent they invest in foreign securities, purchase and
sell (write) put and call options on foreign currencies for the purpose of
protecting against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the Core Fixed Income, Global Income and High
Yield Funds may use options on currency to cross-hedge, which involves writing
or purchasing options on one currency to hedge against changes in exchange
rates for a different currency, if there is a pattern of correlation between
the two currencies. As with other kinds of option transactions, however, the
writing of an option on foreign currency will constitute only a partial hedge,
up to the amount of the premium received. If an option that a Fund has written
is exercised, the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against exchange rate fluctuations; however, in the event of exchange rate
movements adverse to a Fund's position, the Fund may forfeit the entire amount
of the premium plus related transaction costs. In addition to purchasing put
and call options for hedging purposes, a Fund may purchase call or put options
on currency to seek to increase total return when the Investment Adviser
anticipates that the currency will appreciate or depreciate in value, but the
securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio. When
purchased or sold to seek to increase total return, options on currencies are
considered speculative. Options on foreign currencies to be written or
purchased by the Funds will be traded on U.S. and foreign exchanges or over-
the-counter.
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<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
or in the case of the Core Fixed Income, Global Income and High Yield Funds,
currency exchange rates, a Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on any of such futures
contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any such contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
Securities), foreign currencies, in the case of the Core Fixed Income, Global
Income and High Yield Funds, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on a Fund's outstanding positions in futures and related options entered into
for the purpose of seeking to increase total return would exceed 5% of the
market value of a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate and maintain cash or liquid assets with a value equal to the amount
of the Fund's obligations or to otherwise cover the obligations in a manner
permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
CURRENCY SWAPS. The Core Fixed Income, Global Income and High Yield Funds
may enter into currency swaps for hedging purposes or to seek to increase
total return. Currency swaps involve the exchange by a Fund with another party
of their respective rights to make or receive payments in specified
currencies. Currency swaps usually involve the delivery of a gross payment
stream in one designated currency in exchange for the gross payment stream in
another designated currency. Therefore, the entire payment stream under a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. A Fund will not enter into
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated either AA or A-1 or
better by S&P or Aa or P-1 or better by Moody's, or, if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The use of currency swaps is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Investment Adviser is
incorrect in its forecasts of currency exchange rates, the investment
performance of a Fund would be less favorable than it would have been if this
investment technique were not used.
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<PAGE>
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which include securities (both foreign
and domestic) that are not readily marketable, certain SMBS, certain municipal
leases and participation interests, repurchase agreements maturing in more
than seven days, time deposits with a notice or demand period of more than
seven days, certain over-the-counter options, and certain restricted
securities, unless it is determined, based upon the continuing review of the
trading markets for a specific restricted security, that such restricted
security is eligible for resale under Rule 144A under the Securities Act of
1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. The
purchase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. The Core Fixed Income, Global Income
and High Yield Funds may also enter into repurchase agreements involving
certain foreign government securities. If the other party or "seller"
defaults, a Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Fund in
connection with the related repurchase agreement are less than the repurchase
price. In addition, in the event of bankruptcy of the seller or failure of the
seller to repurchase the securities as agreed, a Fund could suffer losses,
including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. The
Trustees have reviewed and approved certain counterparties whom they believe
to be creditworthy and have authorized the Funds to enter into repurchase
agreements with such counterparties. In addition, each Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (i) U. S. Government Securities or
(ii) repurchase agreements collateralized by U.S. Government
36
<PAGE>
Securities. The Short Duration Tax-Free and Municipal Income Funds may for
temporary defensive purposes depart from their stated investment objectives
and invest more than 20% of their respective net assets in taxable
investments. The High Yield Fund may for temporary defensive purposes invest
in investment grade securities.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free and Municipal Income Funds)
and interest rate swaps, caps, floors and collars, (iii) inverse floating-rate
securities, (iv) yield curve options, (v) other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free and
Municipal Income Funds, tender option bonds and standby commitments.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund, as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund still
remains an appropriate investment in light of their then current financial
positions and needs.
The Short Duration Tax-Free and Municipal Income Funds' policy to invest,
under normal market conditions, at least 80% of their respective net assets in
Municipal Securities, the interest on which is exempt from regular federal
income tax, is fundamental and may not be changed without shareholder
approval. For more information on a Fund's investment restrictions, an
investor should obtain the Additional Statement.
NON-DIVERSIFIED STATUS. Since the Global Income Fund is "non-diversified"
under the Act, it is subject only to certain federal tax diversification
requirements. Under federal tax laws, the Global Income Fund may, with respect
to 50% of its total assets, invest up to 25% of its total assets in the
securities of any issuer (except that this limitation does not apply to U.S.
Government Securities). With respect to the remaining 50% of the Fund's total
assets, (1) the Fund may not invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. government), and (2) the
Fund may not acquire more than 10% of the outstanding voting securities of any
one issuer. These tests apply at the end of each quarter of its taxable year
and are subject to certain conditions and limitations under the Code. Since
the Global Income Fund is not diversified under the Act, it will be more
susceptible to adverse developments affecting any single issuer. The
Adjustable Rate Government, Short Duration Government, Short Duration Tax-
Free, Government Income, Municipal Income, Core Fixed Income and High Yield
Funds are, in addition to these tax diversification requirements, also subject
to the diversification requirements arising out of their diversified status
under the Act.
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<PAGE>
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year. The
portfolio turnover rate is computed by dividing the lesser of the dollar
amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by a Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for a
Fund consistent with the Fund's investment objectives and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to a Fund. The portfolio turnover rate includes the effect of entering
into mortgage dollar rolls. See "Financial Highlights" for a statement of each
Fund's historical portfolio turnover rates.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as investment adviser to the Adjustable
Rate Government and Short Duration Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as the investment adviser to the
Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income and High Yield Funds. Goldman Sachs registered as an investment adviser
in 1981. Goldman Sachs Asset Management International, 133 Peterborough Court,
London EC4A 2BB, England, an affiliate of Goldman Sachs, serves as investment
adviser to the Global Income Fund. Goldman Sachs Asset Management
International became a member of the Investment Management Regulatory
Organization Limited in 1990 and registered as an investment adviser in 1991.
As of January 26, 1998, GSAM, GSFM and GSAMI, together with their affiliates,
acted as investment adviser or distributor for assets in excess of $140
billion.
Under a Management Agreement with each Fund, the applicable Investment
Adviser, subject to the general supervision of the Trustees, provides day-to-
day advice as to the Fund's portfolio transactions. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset
38
<PAGE>
management affiliates for portfolio decisions and management with respect to
certain portfolio securities. In addition, the Investment Advisers will have
access to the research of, and certain proprietary technical models developed
by, Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to existing
shareholders, (c) the periodic updating of prospectuses and statements of
additional information and (d) the preparation of reports to be filed with the
SEC and other regulatory authorities; (iv) maintains each Fund's records; and
(v) provides the Funds with office space and all necessary office equipment
and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio managers are Jonathan A. Beinner, Richard C. Lucy, James B. Clark,
Peter D. Dion and James P. McCarthy. Their responsibilities include investing
in the particular types of securities the Funds may hold. Mr. Beinner is a
Managing Director of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Beinner joined the Investment Adviser in 1990. Mr. Lucy is a
Vice President of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Lucy joined the Investment Adviser in 1992. Mr. Clark joined
GSAM in 1994 after working as a senior trader at the Federal Home Loan
Mortgage Corporation. Prior to that, he was an investment manager at Travelers
Insurance Company. Mr. Dion is a Vice President of Goldman Sachs and joined
GSAM in 1992. Mr. McCarthy is a Vice President of Goldman Sachs. Mr. McCarthy
joined GSAM in 1995 after working as a bond trader at Nomura Securities.
GOVERNMENT INCOME AND CORE FIXED INCOME FUNDS. The Funds' portfolio managers
are Jonathan A. Beinner and Richard C. Lucy. See above for information about
Mr. Beinner and Mr. Lucy. Messrs. Beinner and Lucy each specialize in
investing in a particular type of security the Fund may hold. James Clark is
also a portfolio manager for the Government Income Fund. See above for
information about Mr. Clark.
SHORT DURATION TAX-FREE AND MUNICIPAL INCOME FUNDS. The Funds' portfolio
managers are Benjamin S. Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson
and Ms. Lonsdale each specialize in municipal securities. Mr. Thompson's
responsibilities include developing investment strategy and structuring
portfolios. Ms. Lonsdale is also responsible for GSAM's municipal credit
research. Mr. Thompson worked in the institutional sales and marketing group
at GSAM until he joined the fixed-income team in 1993. Prior to joining GSAM
in early 1992, Mr. Thompson worked in the Structured Finance Group of the
Chase Manhattan Bank. Before rejoining Goldman Sachs in 1995, Ms. Lonsdale was
a Director of Fitch Investors Service evaluating the credit ratings of tax-
backed issues. Prior to that, she worked for ten years in the Goldman Sachs
Municipal Finance Department.
GLOBAL INCOME FUND. The Fund's portfolio managers are Stephen Fitzgerald and
Andrew Wilson. Mr. Fitzgerald joined GSAMI in 1992 and is an Executive
Director and Chief Investment Officer for international fixed income. Mr.
Wilson joined GSAMI in 1995 and is Executive Director and Portfolio Manager
for international fixed income. Prior to joining GSAMI, he spent three years
as an Assistant Director at Rothschild Asset Management where he was
responsible for managing global and international bond portfolios, with
specific focus on the U.S., Canadian, Australian and Japanese economies.
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<PAGE>
HIGH YIELD FUND. The Fund's portfolio managers are Richard Buckholz,
Christopher Testa, Michael L. Pasternak and Andrew Jessop. Mr. Buckholz is a
Vice President of Goldman Sachs and is responsible for emerging markets fixed
income portfolio management. Mr. Buckholz joined GSAM in 1994. Prior to
joining GSAM, Mr. Buckholz was Head of Emerging Market Fixed Income Research
at Bear Stearns & Company and previously in a similar position at Citibank.
Mr. Testa is a Vice President of Goldman Sachs and Director of Credit Research
responsible for corporate bond research. Mr. Testa joined GSAM in 1994. Prior
to joining GSAM, Mr. Testa was a credit analyst with CS First Boston and prior
to that he was an analyst for Metropolitan Life Insurance Company investing in
private placements and public debt. Mr. Pasternak is a Vice President of
Goldman Sachs and is responsible for managing high yield assets. Mr. Pasternak
joined GSAM in 1997. Prior to joining GSAM, Mr. Pasternak spent eight years
managing high yield corporate bond and loan portfolios at Saudi International
Bank (an affiliate of JP Morgan) in London. Prior to that, he was an officer
of the bank in Eurocurrency Lending and Syndications and served as an
investment analyst in New York. Mr. Jessop is a Vice President of Goldman
Sachs and is responsible for managing high yield assets. Mr. Jessup joined
GSAM in 1997. Prior to joining GSAM, Mr. Jessop spent six years managing high
yield portfolios at Saudi International Bank in London. Prior to that, he
worked for the bank on the interest rate swap desk and served as an investment
analyst in New York.
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for a Fund's
portfolio transactions in U.S. and foreign markets. Such orders may be
directed to any broker including, to the extent and in the manner permitted by
applicable law, Goldman Sachs or its affiliates. In effecting purchases and
sales of portfolio securities for the Funds, the Investment Advisers will seek
the best price and execution of a Fund's orders. In doing so, where two or
more brokers or dealers offer comparable prices and execution for a particular
trade, consideration may be given to whether the broker or dealer provides
investment research or brokerage services or sells shares of any Goldman Sachs
Fund. See the Additional Statement for a further description of the Investment
Advisers' brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM, GSFM and GSAMI are entitled
to the following fees, computed daily and payable monthly at the annual rates
listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
CONTRACTUAL YEAR OR PERIOD ENDED
RATE* OCTOBER 31, 1997*
----------- --------------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free...................... 0.40% 0.40%
Government Income............................ 0.65% 0.25%
Municipal Income............................. 0.55% 0.55%
Core Fixed Income............................ 0.40% 0.40%
High Yield................................... 0.70% 0.65%
GSFM
- ----
Adjustable Rate Government................... 0.40% 0.40%
Short Duration Government.................... 0.50% 0.40%
GSAMI
- -----
Global Income................................ 0.90% 0.59%
</TABLE>
40
<PAGE>
- --------
* 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 for the
year ended October 31, 1997. Effective March 1, 1998, the management fee
for the Short Duration Government Fund and Government Income Fund will
equal 0.50% and 0.65%, respectively. The Investment Advisers may
discontinue or modify such limitations in the future at their discretion,
although they have no current intention to do so.
The Investment Advisers to the Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income and High Yield Funds have voluntarily agreed to reduce or limit certain
"Other Expenses" of such Funds (excluding management fees, taxes, interest and
brokerage fees and litigation, indemnification and other extraordinary
expenses (and transfer agency fees in the case of the Global Income and High
Yield Funds), to the extent such expenses exceed 0.05%, 0.05%, 0.00%, 0.05%,
0.05%, 0.06% and 0.14% per annum of such Funds' average daily net assets,
respectively. Such reductions or limits, if any, are calculated monthly on a
cumulative basis and may be discontinued or modified by the applicable
Investment Adviser in its discretion at any time.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the
Funds. 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. In addition, the Funds may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. From time to time, a Fund's activities may be limited
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management -- Activities of Goldman Sachs and its
Affiliates and Other Accounts Managed by Goldman Sachs" in the Additional
Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. Goldman Sachs is
not entitled to receive a fee from the Global Income Fund with respect to the
Institutional and Service Shares for transfer agency services. The Adjustable
Rate Government, Short Duration Government, Short Duration Tax-Free,
Government Income, Municipal Income and Core Fixed Income Funds pay Goldman
Sachs transfer agency fees and expenses with respect to Institutional and
Service Shares equal to that class's proportionate share of the total transfer
agency costs borne by the Fund. Those costs are equal to a fixed per account
charge of $12,000 per year plus $7.50 per account, together with out-of-pocket
and transaction related expenses applicable to Class A, Class B and Class C
shares where applicable plus 0.04% of the average daily net assets of the
other classes of the Funds. Goldman Sachs is entitled to receive a fee from
the High Yield Fund equal to .04% of the average
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daily net assets of Institutional and Service Shares. In each case,
Institutional Shares of a Fund may bear fees paid to Service Organizations or
other persons providing sub-transfer agency and similar services.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
DIVIDENDS
Each Fund (other than the Global Income Fund) will declare a daily dividend
which will be paid monthly. The Global Income Fund will declare and pay
dividends monthly. Over the course of the fiscal year, dividends accrued and
paid will constitute all or substantially all of the Funds' net investment
income. From time to time a portion of such dividends may constitute a return
of capital. In the case of Core Fixed Income, Global Income and High Yield
Funds, net loss, if any, from certain foreign currency transactions or
instruments that is otherwise taken into account in calculating net investment
income or net realized capital gains for accounting purposes may not be taken
into account in determining the amount of dividends to be declared and paid,
with the result that a portion of the Fund's dividends may be treated as a
return of capital, nontaxable to the extent of a shareholder's tax basis in
his shares. The Funds also intend that all net realized capital gains will be
declared as a dividend at least annually. In determining amounts of capital
gains to be distributed, capital losses, including any available capital loss
carryovers from prior years will be offset against capital gains.
A Fund's net investment income is determined on a daily basis (monthly in
the case of the Global Income Fund). On days on which net asset value is
calculated, such determination is made immediately prior to the calculation of
a Fund's net asset value. On days on which net asset value is not calculated,
such determination is made as of 3:00 p.m. Chicago time.
Payment of dividends (other than the Global Income Fund) from net investment
income will be made on the last calendar day of each month in additional
shares of a Fund at the net asset value on such day, unless cash distributions
are elected, in which case, cash payment will be made on the first Business
Day of the succeeding month. In the case of Global Income Fund, reinvestment
of dividends from net investment income in additional shares of the Fund will
be made on the second to last Business Day of each month. Cash dividends will
be paid on or about the last Business Day of the month. Payment of dividends
with respect to capital gains, if any, when declared will be made in
additional shares of the Fund at the net asset value on the payment date,
unless cash distributions are elected. This election to receive dividends in
cash is initially made on the Account Information Form and may be changed upon
written notice to the Transfer Agent at any time prior to the record date for
a particular dividend or distribution. If cash dividends are elected with
respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long-term capital gains
component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of a Fund, a portion of the
net asset value per share may be represented by undistributed income (in the
case of the Global Income Fund) or realized or unrealized appreciation of any
Fund's portfolio securities. Therefore, subsequent distributions on such
shares from such income or realized appreciation may be taxable to the
investor even if the net asset value of the shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
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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, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time) on each Business Day (as such term is defined under "Additional
Information") immediately after the determination, if any, of the income to be
declared as a dividend (except in the case of the Global Income Fund). Net
asset value per share of each class is calculated by determining the net
assets of each class and dividing by the number of outstanding shares of that
class.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free and Municipal Income Funds
may publish their tax equivalent yields in advertisements and communications
to shareholders or prospective investors. Average annual total return is
determined by computing the average annual percentage change in value of
$1,000 invested at the maximum public offering price for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value. The total return calculation
assumes a complete redemption of the investment at the end of the relevant
period. Each Fund may also from time to time advertise total return on a
cumulative, average, year-by-year or other basis for various specified periods
by means of quotations, charts, graphs or schedules. In addition to the above,
each Fund may from time to time advertise its performance relative to certain
averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the
maximum offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semiannual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free and Municipal Income Funds'
tax-free yield. Tax equivalent yield is calculated by dividing a Fund's tax-
exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
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Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of shares
into one or more classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
As of February 1, 1998, the shareholders listed below owned beneficially and
of record 25% or more of the outstanding shares of the following Funds: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (29.64%); Core Fixed Income Fund--Vinson and Elkins
Lawyers, Retirement Plan, Texas Commerce Bank N.A., P.O. Box 2550, Houston, TX
77252-2558 (25.48%).
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TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected to
be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
The Short Duration Tax-Free and Municipal Income Funds intend to satisfy
certain requirements of the Code so that they may distribute the tax-exempt
interest they receive as "exempt-interest dividends," as defined in the Code.
If such requirements are satisfied, distributions of the Short Duration Tax-
Free and Municipal Income Funds that are attributable to interest on tax-
exempt obligations and that the Funds properly designate as exempt-interest
dividends will be exempt from regular federal income tax, although all or a
portion of these distributions may be subject to the federal alternative
minimum tax and may be includable in the tax base for determining taxability
of social security or railroad retirement benefits. Persons who are
"substantial users" (or related persons to such substantial users) of
facilities financed by industrial development or certain private activity
bonds should consult their own tax advisers before purchasing shares of the
Short Duration Tax-Free and Municipal Income Funds. Interest on indebtedness
incurred or continued to purchase or carry shares of the Short Duration Tax-
Free and Municipal Income Funds is not deductible to the extent attributable
to the Funds' distributions that are exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free and Municipal Income Funds,
as described above. Distributions out of the net capital gain (the excess of
net long-term capital gain over net short-term capital loss), if any, of a
Fund, will be taxed to shareholders as long-term capital gains, regardless of
the length of time a shareholder has held his or her shares or whether such
gain was reflected in the price paid for the shares. Such long-term capital
gain will constitute 20% or 28% rate gain, depending upon the Fund's holding
period for the assets the sale of which generated the gain. These tax
consequences will apply whether distributions are received in cash or
reinvested in shares. Certain distributions paid by a Fund in January of a
given year may be taxable to shareholders as if received the prior December
31. Shareholders will be informed annually about the amount and character of
distributions received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to
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furnish their correct taxpayer identification number and certain
certifications required by the Internal Revenue Service or if they are
otherwise subject to backup withholding. Individuals, corporations and other
shareholders that are not U.S. persons under the Code are subject to different
tax rules and may be subject to nonresident alien withholding at the rate of
30% (or a lower rate provided by an applicable tax treaty) on amounts treated
as ordinary dividends from the Funds.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, a Fund may deduct these taxes in computing its
taxable income, if any. As an alternative, if more than 50% of the value of
the total assets of the Global Income Fund is comprised of securities of
foreign corporations at the end of its taxable year and the Fund so elects,
the Fund's shareholders will include in their gross incomes (in addition to
dividends and distributions they receive) their pro rata shares of qualified
foreign taxes paid by the Fund and may be entitled under the Code to claim
foreign tax credits or deductions with respect to such taxes.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed
on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day (observed), Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
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ADDITIONAL SERVICES
The Trust, on behalf of the Funds, has adopted a Service Plan with respect
to the Service Shares which authorizes a Fund to compensate certain
institutions ("Service Organizations") for providing account administration
and personal and account maintenance services to their customers who are
beneficial owners of such Shares. The Trust, on behalf of the Funds, enters
into agreements with Service Organizations which purchase Service Shares on
behalf of their customers ("Service Agreements"). The Service Agreements
provide for compensation to the Service Organizations in an amount up to 0.50%
(on an annualized basis) of the average daily net assets of the Service Shares
of the Fund attributable to or held in the name of the Service Organization
for its customers; provided, however, that the fee paid for personal and
account maintenance services shall not exceed 0.25% of such average daily net
assets. The services provided by the Service Organizations may include acting,
directly or through an agent, as the sole shareholder of record, maintaining
account records for customers, processing orders to purchase, redeem or
exchange Service Shares for customers, responding to inquiries from
prospective and existing shareholders and assisting customers with investment
procedures.
Normally, purchase, exchange and redemption orders processed by a Service
Organization on behalf of its customers will not be effective until received
by Goldman Sachs as described herein. The Trust may, however, authorize
certain Service Organizations, to accept on the Trust's behalf orders placed
by their customers and, if approved by the Trust, to designate other
intermediaries to accept such orders. In these cases, a Fund will be deemed to
have received an order in proper form when the order is accepted by the
authorized Service Organization or intermediary on a Business Day, and the
order will be priced at 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. A customer may contact its Service Organization to learn
whether the Service Organization is authorized to accept orders. Service
Organizations that are authorized to accept orders for the Trust may receive
payments from the Funds or Goldman Sachs that are in addition to the payments
payable to the Trust under the Service Plan.
Holders of Service Shares of a Fund bear all expenses and fees paid to
Service Organizations under the Service Plan as well as any other expenses
which are directly attributable to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Shares in connection with their customer
accounts. These fees would be in addition to any amounts received by the
Service Organization under a Service Agreement and may affect the return
earned on an investment in the Fund. The Trust, on behalf of the Funds,
accrues payments made pursuant to a Service Agreement daily. All inquiries of
beneficial owners of Service Shares should be directed to the owners' Service
Organization.
For the fiscal year ended October 31, 1997, the Trust, on behalf of each
Fund, paid the Service Organizations fees at the annual rate of 0.50% of each
Fund's average daily net assets attributable to Service Shares.
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
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confirmation for each transaction in its account and a monthly account
statement (quarterly in the case of Global Income Fund). A year-to-date
statement for any account will be provided to a Service Organization upon
request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each
transaction.
PURCHASE OF SERVICE SHARES
Customers of Service Organizations may invest in Service Shares only through
their Service Organizations. Service Shares may be purchased on any Business
Day at the net asset value per share next determined after receipt of an order
by Goldman Sachs from a Service Organization. (See "Additional Services" for a
description of limited situations where a Service Organization or other
intermediary may be authorized to accept orders for the Funds.) No sales load
will be charged. Currently, net asset value is determined as of the close of
regular trading on the New York Stock Exchange (normally, but not always, 3:00
p.m. Chicago time, 4:00 p.m. New York time), as described under "Net Asset
Value." Purchases of Service Shares of the Funds must be settled within three
(3) Business Days of the receipt of a complete purchase order. Payment of the
proceeds of redemption of shares purchased by check may be delayed for a
period of time as described under "Redemption of Service Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to Northern, State Street or
Goldman Sachs. In order to facilitate timely transmittal, the Service
Organizations have established times by which purchase orders and payments
must be received by them.
PURCHASE PROCEDURES APPLICABLE TO EACH FUND OTHER THAN THE GLOBAL INCOME FUND
Purchases of Service Shares by a Service Organization may be made by placing
an order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
the Northern Trust Company ("Northern") as subcustodian for State Street Bank
and Trust Company ("State Street") on the next Business Day or initiating an
ACH transfer to ensure receipt by Northern on the next Business Day. Purchases
may also be made by a Service Organization by check (except that the Trust
will not accept a check drawn on a foreign bank or a third-party check) or
Federal Reserve draft made payable to Goldman Sachs Fixed Income Funds--Name
of Fund and Class of shares and should be directed to Goldman Sachs Fixed
Income Funds--Name of Fund and Class of shares c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606.
PURCHASE PROCEDURES APPLICABLE TO THE GLOBAL INCOME FUND
Purchases of Service Shares may be made by a Service Organization placing an
order with Goldman Sachs at 800-621-2550 and either wiring federal funds to
State Street or initiating an ACH transfer. Purchases may also be made by a
Service Organization by check (except that the Trust will not accept a check
drawn on a foreign bank or a third-party check) or Federal Reserve draft made
payable to Goldman Sachs Fixed Income Funds--Name of Fund and Class of shares
and should be directed to Goldman Sachs Fixed Income Funds--Name of Fund and
Class of shares c/o National Financial Data Services, Inc., P.O. Box 419711,
Kansas City, MO 64141-6711.
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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 Organizations for further information concerning such
requirements and charges.
Service Shares of the Global Income Fund will be issued and dividends will
begin to be paid with respect to dividends which accrue on or after the
purchase of Service Shares. For the other Funds, the following applies:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received with a specified settlement date from a Service Organization in
proper form before the determination of net asset value that day and
payment is made by wire transfer or ACH transfer, shares will be issued and
dividends will begin to accrue on the purchased shares on the later of (i)
the Business Day after receipt of the purchase order or (ii) the day of
receipt of a federal funds wire or an ACH transfer by State Street. For
purchases without a specified settlement date, shares will be issued and
dividends declared with respect to such shares will begin to accrue on the
Business Day after payment is so received.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is
received with a specified settlement date from a Service Organization in
proper form before the determination of net asset value that day and
payment is made by check or Federal Reserve draft, shares will be issued
and dividends will begin to accrue on the purchased shares on the Business
Day after the date payment is received. For purchases without a specified
settlement date, shares will be issued and dividends declared with respect
to such shares will begin to accrue on the Business Day after payment is so
received.
The Funds reserve the right to redeem Service Shares of any Service
Organization whose account balance is less than $50 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of a
recordholder's account falls below the minimum account balance solely as a
result of market conditions. A Fund will give sixty (60) days' prior written
notice to Service Organizations whose Service Shares are being redeemed to
allow them to purchase sufficient additional Service Shares to avoid such
redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or a group of purchasers' pattern of frequent
purchases, sales or exchanges of Service Shares of a Fund is evident, or if
purchases, sales or exchanges are, or a subsequent abrupt redemption might be,
of a size that would disrupt management of a Fund.
In the sole discretion of Goldman Sachs, a Fund may accept securities
instead of cash for the purchase of shares of the Fund. Such purchases will be
permitted only if the Investment Adviser determines that any securities
acquired in this manner are consistent with the Fund's investment objectives,
restrictions and policies and are desirable investments for the Fund.
The Investment Advisers, Distributor, and/or their affiliates, also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale of shares of the Funds and other
investment portfolios of the Trust (such as additional payments based on new
sales amounts exceeding pre-established thresholds, or the length of time
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customer assets have remained in the Trust) and, 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 can vary among Service
Organizations depending upon such factors as the amounts their customers have
invested (or may invest) in particular investment portfolios of the Trust, 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
the Additional Statement.
EXCHANGE PRIVILEGE
Service Shares of the Funds may be exchanged by a Service Organization for
(i) Service Shares of any other mutual fund sponsored by Goldman Sachs and
designated as an eligible fund for this purpose and (ii) the corresponding
class of any Goldman Sachs Money Market Fund at the net asset value next
determined either by writing to Goldman Sachs, Attention: Goldman Sachs Fixed
Income Funds--Name of Fund and Class of shares, c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago, Illinois 60606 or, if previously elected in the
Fund's Account Information Form, by telephone at 800-621-2550 (7:00 a.m. to
5:30 p.m. Chicago time). A shareholder should obtain and read the prospectus
relating to any other fund and its shares and consider its investment
objective, policies and applicable fees before making an exchange. Service
Shares acquired by telephone exchange must be registered in the same name(s)
and have the same address as Service Shares of the Fund for which the exchange
is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Service Shares" to confirm that such instructions are genuine. In times of
drastic economic or market changes, the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is
treated as a redemption of the Service Shares surrendered in the exchange, on
which an investor may be subject to tax, followed by a purchase of Service
Shares, or the corresponding class of any Goldman Sachs Money Market Funds
received in the exchange. Shareholders should consult their own tax advisers
concerning the tax consequences of an exchange. Exchanges are available only
in states where exchanges may legally be made. The exchange privilege may be
materially modified or withdrawn at any time on sixty (60) days' written
notice to recordholders of Service Shares and is subject to certain
limitations. See "Purchase of Service Shares."
REDEMPTION OF SERVICE SHARES
The Funds will redeem their Service Shares upon request of a recordholder of
such Shares on any Business Day at the net asset value next determined after
receipt of a request in proper form by Goldman Sachs. (See "Additional
Services" for a description of limited situations where a Service Organization
or other intermediary may be authorized to accept requests for the Funds.) If
Service Shares to be redeemed were recently purchased by check, a Fund may
delay transmittal of redemption proceeds until such time as it has assured
itself that good funds have been collected for the purchase of such Service
Shares. This may take up to fifteen (15) days.
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Redemption requests may be made by a Service Organization by writing to or
calling the Transfer Agent at the address or telephone number set forth on the
back cover page of this Prospectus. A Service Organization may request
redemptions by telephone if the optional telephone redemption privilege is
elected on the Account Information Form. It may be difficult to implement
redemptions by telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges among accounts with different names, addresses and
social security or other taxpayer identification numbers must be in writing
and signed by an authorized person designated on the Account Information Form.
Other procedures may be implemented from time to time concerning telephone
redemptions and exchanges. If reasonable procedures are not implemented, the
Trust may be liable for any loss due to unauthorized or fraudulent
transactions. In all other cases, neither the Funds, the Trust nor Goldman
Sachs will be responsible for the authenticity of redemption or exchange
instructions received by telephone. Service Shares of each Fund (other than
Global Income Fund) to be redeemed earn dividends declared on the day the
shares are redeemed.
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.
----------------
51
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could apply to payments relating to
your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
133 PETERBOROUGH COURT
LONDON, ENGLAND EC4A 2BB
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIPROSVC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
SERVICE SHARES
[LOGO] GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
This Prospectus provides information about Goldman Sachs Trust (the "Trust")
and the Funds that a prospective investor should understand before investing.
This Prospectus should be retained for future reference. A Statement of
Additional Information (the "Additional Statement"), dated March 1, 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.
ADMINISTRATION SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION,
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(continued on next page)
PROSPECTUS
GOLDMAN SACHS FIXED INCOME FUNDS
March 1, 1998 ADMINISTRATION SHARES
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Seeks a high level of current income, consistent with low volatility of
principal. The Fund invests primarily in adjustable rate mortgage pass-
through securities and other mortgage securities with periodic interest rate
resets, which are issued or guaranteed by the U.S. government, its agencies,
instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Seeks a high level of current income and secondarily, in seeking current in-
come, may also consider the potential for capital appreciation. The Fund in-
vests primarily in securities issued or guaranteed by the U.S. government,
its agencies, instrumentalities or sponsored enterprises.
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low vola-
tility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.
GOLDMAN SACHS CORE FIXED INCOME FUND
Seeks a total return consisting of capital appreciation and income that ex-
ceeds the total return of the Lehman Brothers Aggregate Bond Index. The Fund
invests primarily in fixed-income securities, including securities issued or
guaranteed by the U.S. government, its agencies, instrumentalities or spon-
sored enterprises, corporate securities, mortgage-backed securities and as-
set-backed securities.
<PAGE>
(cover continued)
THE ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS' NET
ASSET VALUES AND YIELDS ARE NOT GUARANTEED BY THE U.S. GOVERNMENT OR BY ITS
AGENCIES, INSTRUMENTALITIES OR SPONSORED ENTERPRISES.
THE CORE FIXED INCOME FUND MAY INVEST IN SECURITIES OF FOREIGN ISSUERS AND
FOREIGN CURRENCIES THAT ENTAIL CERTAIN RISKS NOT CUSTOMARILY ASSOCIATED WITH
INVESTING IN U.S. DOLLAR-DENOMINATED FIXED-INCOME SECURITIES. IN PARTICULAR,
THE SECURITIES MARKETS OF EMERGING MARKET COUNTRIES ARE LESS LIQUID, ARE
SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET CAPITALIZATIONS, HAVE
LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS EXTENSIVE AND FREQUENT
ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS AS THE SECURITIES
MARKETS OF MORE DEVELOPED COUNTRIES. INVESTORS SHOULD CONSIDER THE RISKS
ASSOCIATED WITH INVESTMENT IN A FUND INVESTING IN FOREIGN SECURITIES. THE FUND
MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "DESCRIPTION OF SECURITIES" AND
"RISK FACTORS."
Goldman Sachs Funds Management, L.P. ("GSFM"), New York, New York, an
affiliate of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Adjustable Rate Government and Short Duration Government Funds.
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman Sachs, serves as investment adviser to the Short
Duration Tax-Free and Core Fixed Income Funds. GSAM and GSFM are each referred
to in this Prospectus as the "Investment Adviser." Goldman Sachs serves as
each Fund's distributor and transfer agent.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights..................... 1
Fees and Expenses................... 5
Financial Highlights................ 7
Investment Objectives and Policies.. 11
Description of Securities........... 14
Risk Factors........................ 21
Investment Techniques............... 23
Investment Restrictions............. 26
Portfolio Turnover.................. 26
Management.......................... 27
Dividends........................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Net Asset Value....................................................... 31
Performance Information............................................... 31
Shares of the Trust................................................... 32
Taxation.............................................................. 33
Additional Information................................................ 34
Administration Plan................................................... 35
Reports to Shareholders............................................... 35
Purchase of Administration Shares..................................... 36
Exchange Privilege.................................................... 37
Redemption of Administration Shares................................... 38
Appendix.............................................................. A-1
</TABLE>
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in this
Prospectus.
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 further
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies," "Description of Securities" and
"Investment Techniques."
WHO MANAGES THE FUNDS?
Goldman Sachs Funds Management, L.P., serves as Investment Adviser to the
Adjustable Rate Government and Short Duration Government Funds. Goldman
Sachs Asset Management serves as Investment Adviser to the Short Duration
Tax-Free and Core Fixed Income Funds. As of January 26, 1998, the Investment
Advisers, together with their affiliates, acted as Investment Adviser or
distributor for assets in excess of $140 billion.
WHO DISTRIBUTES THE FUNDS' SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
1
<PAGE>
<TABLE>
<CAPTION>
EXPECTED
APPROXIMATE
INTEREST
INVESTMENT RATE
FUND NAME OBJECTIVES DURATION SENSITIVITY INVESTMENT SECTOR CREDIT QUALITY OTHER INVESTMENTS
- -------------- ------------------ ------------------- ------------ ---------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
ADJUSTABLE A high level of Target = 6-month 9-month note At least 65% of U.S. Government Fixed-rate
RATE current income, to 1-year total assets in Securities mortgage
GOVERNMENT consistent with U.S. Treasury securities issued or pass-through
FUND low volatility Security guaranteed by the securities and
of principal. Maximum = 2 years U.S. government, repurchase
its agencies, agreements
instrumentalities collateralized by
or sponsored U.S. Government
enterprises Securities.
("U.S. Government
Securities'')
that are adjustable
rate mortgage
pass-through
securities and
other mortgage
securities with
periodic interest
rate resets.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = 2-year 2-year bond At least 65% of U.S. Government Mortgage pass-
GOVERNMENT current income, U.S. Treasury total assets in Securities through
FUND and secondarily, Security plus U.S. Government securities and
in seeking current or minus .5 years Securities other securities
income, may Maximum = 3 years and repurchase representing an
also consider the agreements interest in or
potential for collateralized collateralized
capital by such securities. by mortgage loans.
appreciation.
--------------------------------------------------------------------------------------------
SHORT DURATION A high level of Target = Lehman 3-year bond At least 80% of Minimum = BBB/Baa U.S. Government
TAX-FREE current income, Brothers net assets in Securities
FUND consistent with 3-year Municipal municipal securities. and repurchase
low volatility Bond Index agreements
of principal, plus or minus collateralized
that is exempt .5 years by such securities.
from regular Maximum = 4 years
federal
income tax.
--------------------------------------------------------------------------------------------
CORE FIXED Total return Target = Lehman 5-year bond At least 65% of Minimum = BBB/Baa Foreign fixed-
INCOME FUND consisting Brothers assets in fixed-income Minimum for income,
of capital Aggregate Bond securities, including non-dollar municipal and
appreciation Index plus or U.S. Government securities = AA/Aa convertible
and income that minus 1 year Securities, corporate, securities,
exceeds the total Maximum = 6 years mortgage-backed foreign currencies
return of the and asset-backed and repurchase
Lehman Brothers securities. agreements
Aggregate Bond collateralized
Index. by U.S.
Government
Securities.
<CAPTION>
FUND NAME BENCHMARK
- --------------- -----------------
<S> <C>
ADJUSTABLE 6-month and
RATE 1-Year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION 2-Year U.S.
GOVERNMENT Treasury Security
FUND
--------------------------------------------------------------------------------------------
SHORT DURATION Lehman Brothers
TAX-FREE 3-Year Municipal
FUND Bond Index
--------------------------------------------------------------------------------------------
CORE FIXED Lehman Brothers
INCOME FUND Aggregate Bond
Index
</TABLE>
2
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, with
respect to the Core Fixed Income Fund, foreign exchange conditions, so that
an investment in any of the Funds may be worth more or less when redeemed
than when purchased. None of the Funds should be relied upon as a complete
investment program. There can be no assurance that a Fund's investment
objectives will be achieved. See "Risk Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations, and a
Fund could sustain losses on such investments. A default could impact both
interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. Call risk
typically results when interest rates have declined. Under such
circumstances, a Fund may be unable to recoup all of its initial investment
and will also suffer from having to reinvest in lower yielding securities.
Extension risk (i.e., where the issuer exercises its right to pay principal
on an obligation later than scheduled) causes cash flows to be returned
later than expected. Extension risk typically results when interest rates
have increased. Under such circumstances, a Fund will suffer from the
inability to invest in higher yielding securities. The investment
characteristics of Mortgage-Backed Securities (including adjustable rate
mortgage securities) and Asset-Backed Securities differ from those of
traditional fixed-income securities because they generally have both call
risk (also known as prepayment risk) and extension risk.
Tax Risk of Municipal Securities. Because of their tax-exempt status, the
yields and market values of municipal securities may be more adversely
impacted by changes in tax rates and policies than taxable fixed-income
securities.
Foreign Risks. Investments in securities of foreign issuers and currencies
involve risks that are different from those associated with investments in
domestic securities. The risks associated with foreign investments and
currencies include changes in relative currency exchange rates, political
and economic developments, the imposition of exchange controls, confiscation
and other governmental restrictions. In addition, the securities markets of
foreign countries are generally less liquid and subject to greater price
volatility. To the extent that the Core Fixed Income Fund invests in
emerging markets and countries, these risks may be heightened.
Other. A Fund's use of certain investment techniques, including
derivatives, forward contracts, options, futures and swap transactions, will
subject the Fund to greater risk than funds that do not employ such
techniques.
3
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The Funds do not have any minimum purchase or account requirements with
respect to Administration Shares. A Service Organization may, however,
impose a minimum amount for initial and subsequent investments in
Administration Shares, and may establish other requirements such as a
minimum account balance.
HOW DO I PURCHASE ADMINISTRATION SHARES?
Customers of Service Organizations may invest in Administration Shares
only through their Service Organizations. Administration Shares of a Fund
are purchased at the current net asset value without any sales load. See
"Purchase of Administration Shares."
ADMINISTRATION PLAN. The Trust, on behalf of the Funds, has adopted an
Administration Plan with respect to the Administration Shares which
authorizes a Fund to compensate Service Organizations for providing account
administration services to their customers who are the beneficial owners of
such Shares. The Trust, on behalf of the Funds, will enter into agreements
with each Service Organization which will provide for compensation to the
Service Organization in an amount up to 0.25% (on an annualized basis) of
the average daily net assets of the Administration Shares of the Funds
attributable to or held in the name of the Service Organization for its
customers. See "Administration Plan."
HOW DO I SELL MY ADMINISTRATION SHARES?
You may redeem Administration Shares upon request on any Business Day, as
defined under "Additional Information," at the net asset value next
determined after receipt of such request in proper form. See "Redemption of
Administration Shares."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
<TABLE>
<CAPTION>
INVESTMENT
INCOME
DIVIDENDS
---------------- CAPITAL GAINS
FUND DECLARED PAID DISTRIBUTIONS
---- -------- ------- -------------
<S> <C> <C> <C>
Adjustable Rate Government .................... Daily Monthly Annually
Short Duration Government ..................... Daily Monthly Annually
Short Duration Tax-Free ....................... Daily Monthly Annually
Core Fixed Income ............................. Daily Monthly Annually
</TABLE>
Recordholders of Administration Shares may receive dividends in additional
Administration Shares of the Fund in which they have invested or may elect
to receive cash. For further information concerning dividends, see
"Dividends."
4
<PAGE>
FEES AND EXPENSES
(ADMINISTRATION SHARES)
<TABLE>
<CAPTION>
ADJUSTABLE SHORT SHORT
RATE DURATION DURATION
GOVERNMENT GOVERNMENT TAX- CORE FIXED
FUND/1/ FUND/1/ FREE FUND INCOME FUND
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on
Purchases........................ none none none none
Maximum Sales Charge Imposed on
Reinvested Dividends............. none none none none
Redemption Fees................... none none none none
Exchange Fees..................... none none none none
ANNUAL FUND OPERATING EXPENSES: (as
a percentage of average daily
net assets)
Management Fees .................. 0.40% 0.50% 0.40% 0.40%
Administration Fees*.............. 0.25% 0.25% 0.25% 0.25%
Other Expenses (after applicable
limitations)/2/ ................. 0.13% 0.05% 0.05% 0.05%
---- ---- ---- ----
TOTAL FUND OPERATING EXPENSES
(after fee and expense limita-
tions)/3/........................ 0.78% 0.80% 0.70% 0.70%
==== ==== ==== ====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Adjustable Rate Government..................... $8 $25 $43 $97
Short Duration Government...................... $8 $26 $44 $99
Short Duration Tax-Free........................ $7 $22 $39 $87
Core Fixed Income.............................. $7 $22 $39 $87
</TABLE>
- --------
/1/. Based on estimated amounts for the current fiscal year.
/2/. The Investment Advisers voluntarily have agreed to reduce or limit
certain other expenses (excluding management fees, administration fees,
taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed .05% of
a Fund's average daily net assets (other than the Adjustable Rate
Government Fund).
/3/. Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Funds for the fiscal year ended October 31,
1997 would have been as follows:
<TABLE>
<CAPTION>
OTHER TOTAL OPERATING
EXPENSES EXPENSES
-------- ---------------
<S> <C> <C>
Short Duration Government......................... .32% 1.07%
Short Duration Tax-Free........................... .83% 1.48%
Core Fixed Income................................. .43% 1.08%
</TABLE>
In addition, for the year ended October 31, 1997, the Investment Adviser
waived and reimbursed certain fees and expenses such that the "Other
Expenses" and "Total Operating Expenses" actually incurred by the Adjustable
Rate Government Fund were 0.09% and 0.74%, respectively. Without such
limitations, "Other Expenses" and "Total Operating Expenses" of the Fund
would have been 0.12% and 0.77%, respectively. For the year ended October 31,
1997, the Investment Adviser voluntarily agreed that a portion of the
management fee would not be imposed on the Short Duration Government Fund
equal to 0.10%. Without such limitations, management fees would have been
0.50% of the Fund's average daily net assets. In addition, the Investment
Adviser reimbursed certain expenses such that "Other Expenses" actually
incurred by the Short Duration Government Fund for Administration Shares were
0.05% and "Total Operating Expenses" were 0.70%. Without such limitations,
"Other Expenses" would have been 0.32% and "Total Operating Expenses" would
have been 1.07%.
5
<PAGE>
* Service Organizations may charge other fees to their customers who are
beneficial owners of Administration Shares in connection with their customer
accounts. See "Administration Plan."
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 Administration Shares of the Funds.
Short Duration Government Fund, Short Duration Tax-Free Fund and Core Fixed
Income Fund also offer Institutional Shares, Service Shares, Class A Shares,
Class B Shares and Class C Shares; Adjustable Rate Government Fund also offers
Institutional Shares, Service Shares and Class A Shares. The other classes of
the Funds are subject to different fees and expenses (which affect
performance), have different minimum investment requirements and are entitled
to different services. Information regarding any other class of the Funds may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover page of this Prospectus.
In addition to the compensation itemized above, certain Service
Organizations may receive other compensation in connection with the sale and
distribution of Administration Shares or for services to their customers'
accounts and/or the Funds. For additional information regarding such
compensation, see "Purchase of Administration Shares" in this Prospectus and
the Additional Statement.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
the hypothetical example above are based on each Fund's fees and expenses
(actual or estimated) and should not be considered as representative of past
or future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management--Investment Advisers" and "Administration Plan."
6
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report incorporated by reference
into the Additional Statement from the Annual Report to shareholders for the
Funds for the year ended October 31, 1997 (the "Annual Report"). This
information should be read in conjunction with the financial statements and
related notes incorporated by reference and attached to the Additional
Statement. The Annual Report also contains performance information and is
available upon request and without charge by calling the telephone number or
writing to one of the addresses on the back cover of this Prospectus.
<TABLE>
<CAPTION>
Income (loss) from investment operations(n)
------------------------------------------------------
Net realized Net realized
and unrealized and unrealized Total
gain (loss) gain (loss) income
Net asset on investment, on foreign (loss)
value at Net option and currency from From net
beginning investment futures related investment investment
of period income transactions transactions operations income
--------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... $ 9.83 $0.5914(a) $ 0.0494(a) -- $0.6408 $(0.5908)
1997-
Administration
Shares.......... 9.83 0.5665(a) 0.0497(a) -- 0.6162 (0.5662)
1997-Service
Shares(m)....... 9.84 0.3298(a) 0.0400(a) -- 0.3698 (0.3298)
1997-Class A
Shares.......... 9.83 0.5662(a) 0.0500(a) -- 0.6162 (0.5662)
1996-
Institutional
Shares.......... 9.77 0.5759(a) 0.0772(a) -- 0.6531 (0.5725)
1996-
Administration
Shares.......... 9.77 0.5489(a) 0.0797(a) -- 0.6286 (0.5489)
1996-Class A
Shares.......... 9.77 0.5481(a) 0.0806(a) -- 0.6287 (0.5489)
1995-
Institutional
Shares.......... 9.74 0.5630(a) 0.0717(a) -- 0.6347 (0.5759)
1995-
Administration
Shares.......... 9.74 0.5366(a) 0.0737(a) -- 0.6103 (0.5528)
1995-Class A
Shares(c)....... 9.79 0.2721(a) (0.0090)(a) -- 0.2631 (0.2697)
1994-
Institutional
Shares.......... 10.00 0.4341(a) (0.2455)(a) -- 0.1886 (0.4486)
1994-
Administration
Shares.......... 10.00 0.4211(a) (0.2572)(a) -- 0.1639 (0.4239)
1993-
Institutional
Shares.......... 10.04 0.4397 (0.0376)(d) -- 0.4021 (0.4397)
1993-
Administration
Shares(e)....... 10.02 0.2146 (0.0173)(d) -- 0.1973 (0.2146)
1992-
Institutional
Shares.......... 10.03 0.5599 (0.0029)(d) -- 0.5570 (0.5470)
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------
1991-
Institutional
Shares.......... 10.00 0.1531 0.0322(d) -- 0.1853 (0.1553)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Distributions to shareholders
------------------------------------------------------------
In excess of
From net net realized Net Ratio of
realized gain gain on increase Ratio of net
on investment, In excess investment, From Total (decrease) Net asset net investment
option of net option and paid distributions in net value at expenses income
and futures investment futures in to asset end of Total to average to average
transactions income transactions capital shareholders value period return(k) net assets net assets
--------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.5908) $ 0.0500 $ 9.88 6.70% 0.49% 5.99%
1997-
Administration
Shares.......... -- -- -- -- (0.5662) 0.0500 9.88 6.43 0.74 5.73
1997-Service
Shares(m)....... -- -- -- -- (0.3298) 0.0400 9.88 3.81(f) 1.05(b) 5.64(b)
1997-Class A
Shares.......... -- -- -- -- (0.5662) 0.0500 9.88 6.43 0.74 5.60
1996-
Institutional
Shares.......... -- (0.0206) -- -- (0.5931) 0.0600 9.83 6.86 0.45 5.85
1996-
Administration
Shares.......... -- (0.0198) -- -- (0.5687) 0.0600 9.83 6.60 0.70 5.59
1996-Class A
Shares.......... -- (0.0198) -- -- (0.5687) 0.0600 9.83 6.60 0.70 5.59
1995-
Institutional
Shares.......... -- (0.0287) -- -- (0.6046) 0.0301 9.77 6.75 0.46 5.77
1995-
Administration
Shares.......... -- (0.0275) -- -- (0.5803) 0.0300 9.77 6.48 0.71 5.50
1995-Class A
Shares(c)....... -- (0.0134) -- -- (0.2831) (0.0200) 9.77 2.74(f) 0.69(b) 5.87(b)
1994-
Institutional
Shares.......... -- -- -- -- (0.4486) (0.2600) 9.74 1.88 0.46 4.38
1994-
Administration
Shares.......... -- -- -- -- (0.4239) (0.2600) 9.74 1.63 0.71 4.27
1993-
Institutional
Shares.......... -- (0.0024) -- -- (0.4421) (0.0400) 10.00 4.13 0.45 4.36
1993-
Administration
Shares(e)....... -- (0.0027) -- -- (0.2173) (0.0200) 10.00 2.01(f) 0.70(b) 3.81(b)
1992-
Institutional
Shares.......... -- -- -- -- (0.5470) 0.0100 10.04 6.12 0.42 5.61
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------
1991-
Institutional
Shares.......... -- -- -- -- (0.1553) 0.0300 10.03 2.14(f) 0.20(b) 7.31(b)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Net Ratio of
assets net
at end Ratio of investment
Portfolio of expenses income
turnover period to average to average
rate(d) (in 000s) net assets net assets
--------------------------------------------------------------------------------------------------------------------------
ADJUSTABLE RATE GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------
1997-
Institutional
Shares.......... 46.58% $ 463,511 0.52% 5.96%
1997-
Administration
Shares.......... 46.58 2,793 0.77 5.70
1997-Service
Shares(m)....... 46.58(f) 346 1.08(b) 5.61(b)
1997-Class A
Shares.......... 46.58 43,393 1.02 5.32
1996-
Institutional
Shares.......... 52.36 613,149 0.51 5.79
1996-
Administration
Shares.......... 52.36 3,792 0.76 5.53
1996-Class A
Shares.......... 52.36 10,728 1.01 5.28
1995-
Institutional
Shares.......... 24.12 657,358 0.53 5.70
1995-
Administration
Shares.......... 24.12 3,572 0.78 5.43
1995-Class A
Shares(c)....... 24.12(f) 15,203 1.01(b) 5.55(b)
1994-
Institutional
Shares.......... 37.81 942,523 0.49 4.35
1994-
Administration
Shares.......... 37.81 6,960 0.74 4.24
1993-
Institutional
Shares.......... 103.74 2,760,871 0.48 4.33
1993-
Administration
Shares(e)....... 103.74(f) 5,326 0.73(b) 3.78(b)
1992-
Institutional
Shares.......... 286.40 2,145,064 0.55 5.48
FOR THE PERIOD JULY 17, 1991(G) THROUGH OCTOBER 31,
- ---------------------
1991-
Institutional
Shares.......... 145.67(f) 239,642 1.02(b) 6.49(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Income (loss) from investment operations(n)
------------------------------------------------------
Net realized Net realized
and unrealized and unrealized Total
gain (loss) gain (loss) income
Net asset on investment, on foreign (loss)
value at Net option and currency from From net
beginning investment futures related investment investment
of period income transactions transactions operations income
-----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ------------------
1997-
Institutional
Shares.......... $ 9.83 $0.6412(a) $ 0.0300(a) -- $ 0.6712 $(0.6412)
1997-
Administration
Shares.......... 9.85 0.6183(a) 0.0400(a) -- 0.6583 (0.6183)
1997-Service
Shares.......... 9.82 0.5904(a) 0.0401(a) -- 0.6305 (0.5904)
1997-Class A
Shares(o)....... 9.78 0.3121(a) 0.0883(a) -- 0.4004 (0.3004)
1997-Class B
Shares(o)....... 9.75 0.2787(a) 0.1011(a) -- 0.3798 (0.2698)
1997-Class C
Shares(p)....... 9.83 0.1185(a) 0.0225(a) -- 0.1410 (0.1110)
1996-
Institutional
Shares.......... 9.82 0.6290(a) 0.0136(a) -- 0.6426 (0.6326)
1996-
Administration
Shares(h)....... 9.86 0.3837(a) 0.0003(a) -- 0.3840 (0.3940)
1996-Service
Shares(i)....... 9.72 0.3134(a) 0.1018(a) -- 0.4152 (0.3152)
1995-
Institutional
Shares.......... 9.64 0.6652(a) 0.1666(a) -- 0.8318 (0.6518)
1995-
Administration
Shares.......... 9.64 0.2384(a) (0.0433)(a) -- 0.1951 (0.2051)
1994-
Institutional
Shares.......... 10.14 0.5628(a) (0.4592)(a) -- 0.1036 (0.5598)
1994-
Administration
Shares.......... 10.14 0.5329(a) (0.4539)(d) -- 0.0790 (0.5352)
1993-
Institutional
Shares.......... 10.16 0.5627 (0.0135)(d) -- 0.5492 (0.5627)
1993-
Administration
Shares(e)....... 10.23 0.2725 (0.0900)(d) -- 0.1825 (0.2725)
1992-
Institutional
Shares.......... 10.22 0.6703 (0.0600)(d) -- 0.6103 (0.6703)
1991-
Institutional
Shares.......... 10.00 0.8020 0.2200(d) -- 1.0220 (0.8020)
1990-
Institutional
Shares.......... 10.07 0.8300 (0.0700)(d) -- 0.7600 (0.8300)
1989-
Institutional
Shares.......... 10.10 0.8800 -- -- 0.8800 (0.8800)
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -------------------------------
1988-
Institutional
Shares.......... 10.00 0.1800 0.1000(d) -- 0.2800 (0.1800)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Distributions to shareholders
-------------------------------------------------------------
In excess of
From net net realized Net Ratio of
realized gain gain on increase Ratio of net
on investment, In excess investment, From Total (decrease) Net asset net investment
option of net option and paid distributions in net value at expenses income
and futures investment futures in to asset end of Total to average to average
transactions income transactions capital shareholders value period return(k) net assets net assets
-----------------------------------------------------------------------------------------------------------------------
SHORT DURATION GOVERNMENT FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ------------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.6412) $ 0.0300 $ 9.86 7.07% 0.45% 6.43%
1997-
Administration
Shares.......... -- -- -- -- (0.6183) 0.0400 9.89 6.91 0.70 6.19
1997-Service
Shares.......... -- -- -- -- (0.5904) 0.0401 9.86 6.63 0.95 5.92
1997-Class A
Shares(o)....... -- -- -- -- (0.3004) 0.1000 9.88 4.14(f) 0.70(b) 6.05(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.2698) 0.1100 9.86 3.94(f) 1.30(b) 5.52(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.1110) 0.0300 9.86 1.44(f) 1.45(b) 5.52(b)
1996-
Institutional
Shares.......... -- -- -- -- (0.6326) 0.0100 9.83 6.75 0.45 6.44
1996-
Administration
Shares(h)....... -- -- -- -- (0.3940) (0.0100) 9.85 4.00(f) 0.70(b) 5.97(b)
1996-Service
Shares(i)....... -- -- -- -- (0.3152) 0.1000 9.82 4.35(f) 0.95(b) 6.05(b)
1995-
Institutional
Shares.......... -- -- -- -- (0.6518) 0.1800 9.82 8.97 0.45 6.87
1995-
Administration
Shares.......... -- -- -- -- (0.2051) (0.0100) 9.63(h) 2.10 0.70(b) 7.91(b)
1994-
Institutional
Shares.......... (0.0438) -- -- -- (0.6036) (0.5000) 9.64 0.99 0.45 5.69
1994-
Administration
Shares.......... (0.0438) -- -- -- (0.5790) (0.5000) 9.64 0.73 0.70 5.38
1993-
Institutional
Shares.......... -- (0.0065) -- -- (0.5692) (0.0200) 10.14 5.55 0.45 5.46
1993-
Administration
Shares(e)....... -- -- -- -- (0.2725) (0.0900) 10.14 1.74(f) 0.70(b) 4.84(b)
1992-
Institutional
Shares.......... -- -- -- -- (0.6703) (0.0600) 10.16 6.24 0.45 6.60
1991-
Institutional
Shares.......... -- -- -- -- (0.8020) 0.2200 10.22 10.93 0.45 8.25
1990-
Institutional
Shares.......... -- -- -- -- (0.8300) (0.0700) 10.00 8.23 0.45 8.62
1989-
Institutional
Shares.......... -- -- -- (0.0300) (0.9100) (0.0300) 10.07 9.08 0.46 8.71
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -------------------------------
1988-
Institutional
Shares.......... -- -- -- -- (0.1800) 0.1000 10.10 3.30(f) 0.55(b) 8.55(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Net Ratio of
assets net
at end Ratio of investment
Portfolio of expenses income
turnover period to average to average
rate(d) (in 000s) net assets net assets
-----------------------------------------------------------------------------------------------------------------------
SHORT DURATION GOVERNMENT FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- ------------------
1997-
Institutional
Shares.......... 102.58% $103,729 0.82% 6.06%
1997-
Administration
Shares.......... 102.58 1,060 1.07 5.82
1997-Service
Shares.......... 102.58 3,337 1.32 5.55
1997-Class A
Shares(o)....... 102.58(f) 9,491 1.32(b) 5.43(b)
1997-Class B
Shares(o)....... 102.58(f) 747 1.82(b) 5.00(b)
1997-Class C
Shares(p)....... 102.58(f) 190 1.82(b) 5.15(b)
1996-
Institutional
Shares.......... 115.45 99,944 0.71 6.18
1996-
Administration
Shares(h)....... 115.45 252 0.96(b) 5.71(b)
1996-Service
Shares(i)....... 115.45 1,822 1.21(b) 5.79(b)
1995-
Institutional
Shares.......... 292.56 103,760 0.72 6.60
1995-
Administration
Shares.......... 292.56 -- 0.90(b) 7.71(b)
1994-
Institutional
Shares.......... 289.79 193,095 0.59 5.55
1994-
Administration
Shares.......... 289.79 730 0.84 5.24
1993-
Institutional
Shares.......... 411.66 359,708 0.64 5.31
1993-
Administration
Shares(e)....... 411.66 16,490 0.80(b) 4.74(b)
1992-
Institutional
Shares.......... 216.07 277,927 0.69 6.36
1991-
Institutional
Shares.......... 155.44 158,848 0.79 7.91
1990-
Institutional
Shares.......... 173.21 68,995 0.95 8.12
1989-
Institutional
Shares.......... 137.37 31,015 1.39 7.78
FOR THE PERIOD AUGUST 15, 1988(G) THROUGH OCTOBER 31,
- -------------------------------
1988-
Institutional
Shares.......... 167.00(f) 39,052 1.42(b) 7.68(b)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Income (loss) from investment operations(n)
------------------------------------------------------ ----------
Net realized Net realized
and unrealized and unrealized Total
gain (loss) gain (loss) income
Net asset on investment, on foreign (loss)
value at Net option and currency from From net
beginning investment futures related investment investment
of period income transactions transactions operations income
----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... $ 9.96 $0.4181(a) $ 0.1091(a) -- $ 0.5272 $(0.4172)
1997-
Administration
Shares.......... 9.96 0.3924(a) 0.1100(a) -- 0.5024 (0.3924)
1997-Service
Shares.......... 9.97 0.3675(a) 0.1000(a) -- 0.4675 (0.3675)
1997-Class A
Shares(o)....... 9.94 0.1950(a) 0.1400(a) -- 0.3350 (0.1950)
1997-Class B
Shares(o)....... 9.94 0.1663(a) 0.1368(a) -- 0.3031 (0.1631)
1997-Class C
Shares(p)....... 10.04 0.0670(a) 0.0300(a) -- 0.0970 (0.0670)
1996-
Institutional
Shares.......... 9.94 0.4192(a) 0.0200(a) -- 0.4392 (0.4192)
1996-
Administration
Shares.......... 9.94 0.3944(a) 0.0200(a) -- 0.4144 (0.3944)
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200(a) -- 0.3897 (0.3697)
1995-
Institutional
Shares.......... 9.79 0.4235(a) 0.1500(a) -- 0.5735 (0.4235)
1995-
Administration
Shares.......... 9.79 0.3989(a) 0.1500(a) -- 0.5489 (0.3989)
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600(a) -- 0.5344 (0.3744)
1994-
Institutional
Shares.......... 10.23 0.3787(a) (0.3575)(a) -- 0.0212 (0.3787)
1994-
Administration
Shares.......... 10.23 0.3537(a) (0.3575)(a) -- (0.0038) (0.3537)
1994-Service
Shares(j)....... 9.86 0.0475(a) (0.0700)(a) -- (0.0225) (0.0475)
1993-
Institutional
Shares.......... 9.93 0.3834 0.3000(d) -- 0.6834 (0.3834)
1993-
Administration
Shares(j)....... 10.16 0.1555 0.0720(d) -- 0.2275 (0.1555)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-
Institutional
Shares.......... 10.00 0.0341 (0.0700)(d) -- (0.0359) (0.0341)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Distributions to shareholders
-----------------------------------------------------------
In excess of
From net net realized Net Ratio of
realized gain gain on increase Ratio of net
on investment, In excess investment, From Total (decrease) Net asset net investment
option of net option and paid distributions in net value at expenses income
and futures investment futures in to asset end of Total to average to average
transactions income transactions capital shareholders value period return(k) net assets net assets
----------------------------------------------------------------------------------------------------------------------------
SHORT DURATION TAX-FREE FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.4172) $ 0.1100 $10.07 5.40% 0.45% 4.18%
1997-
Administration
Shares.......... -- -- -- -- (0.3924) 0.1100 10.07 5.14 0.70 3.91
1997-Service
Shares.......... -- -- -- -- (0.3675) 0.1000 10.07 4.77 0.95 3.66
1997-Class A
Shares(o)....... -- -- -- -- (0.1950) 0.1400 10.08 3.39(f) 0.70(b) 3.81(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.1631) 0.1400 10.08 3.07(f) 1.30(b) 3.31(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.0670) 0.0300 10.07 0.97(f) 1.45(b) 2.60(b)
1996-
Institutional
Shares.......... -- -- -- -- (0.4192) 0.0300 9.96 4.50 0.45 4.21
1996-
Administration
Shares.......... -- -- -- -- (0.3944) 0.0300 9.96 4.24 0.70 3.96
1996-Service
Shares.......... -- -- -- -- (0.3697) 0.0200 9.97 3.98 0.95 3.74
1995-
Institutional
Shares.......... -- -- -- -- (0.4235) 0.1500 9.94 5.98 0.45 4.31
1995-
Administration
Shares.......... -- -- -- -- (0.3989) 0.1500 9.94 5.76 0.70 4.14
1995-Service
Shares.......... -- -- -- -- (0.3744) 0.1600 9.95 5.59 0.95 3.87
1994-
Institutional
Shares.......... (0.0825) -- -- -- (0.4612) (0.4400) 9.79 0.17 0.45 3.74
1994-
Administration
Shares.......... (0.0825) -- -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70 3.51
1994-Service
Shares(j)....... -- -- -- -- (0.0475) (0.0700) 9.79 (0.32)(f) 0.95(b) 4.30(b)
1993-
Institutional
Shares.......... -- -- -- -- (0.3834) 0.3000 10.23 7.03 0.41 3.70
1993-
Administration
Shares(j)....... -- -- -- -- (0.1555) 0.0720 10.23 2.28(f) 0.70(b) 3.32(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-
Institutional
Shares.......... -- -- -- -- (0.0341) (0.0700) 9.93 (0.34)(f) 0.05(b) 4.58(b)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Net Ratio of
assets net
at end Ratio of investment
Portfolio of expenses income
turnover period to average to average
rate(d) (in 000s) net assets net assets
----------------------------------------------------------------------------------------------------------------------
SHORT DURATION TAX-FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... 194.75% $ 28,821 1.23% 3.40%
1997-
Administration
Shares.......... 194.75 77 1.48 3.13
1997-Service
Shares.......... 194.75 2,051 1.73 2.88
1997-Class A
Shares(o)....... 194.75(f) 4,023 1.73(b) 2.78(b)
1997-Class B
Shares(o)....... 194.75(f) 106 2.23(b) 2.38(b)
1997-Class C
Shares(p)....... 194.75(f) 2 2.23(b) 1.82(b)
1996-
Institutional
Shares.......... 231.65 34,814 1.01 3.65
1996-
Administration
Shares.......... 231.65 48 1.26 3.40
1996-Service
Shares.......... 231.65 695 1.51 3.18
1995-
Institutional
Shares.......... 259.52 58,389 0.77 3.99
1995-
Administration
Shares.......... 259.52 46 1.02 3.82
1995-Service
Shares.......... 259.52 454 1.27 3.55
1994-
Institutional
Shares.......... 354.00 83,704 0.61 3.58
1994-
Administration
Shares.......... 354.00 3,866 0.86 3.35
1994-Service
Shares(j)....... 354.00 440 1.11(b) 4.14(b)
1993-
Institutional
Shares.......... 404.60 115,803 1.06 3.05
1993-
Administration
Shares(j)....... 404.60 911 1.07(b) 2.95(b)
FOR THE PERIOD OCTOBER 1, 1992(G) THROUGH OCTOBER 31,
- -----------------------------------------------------
1992-
Institutional
Shares.......... 31.19(f) 14,601 2.68(b) 1.95(b)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Income (loss) from investment operations(n)
---------------------------------------------------
Net realized Net realized
and unrealized and unrealized Total
gain (loss) gain (loss) income
Net asset on investment, on foreign (loss)
value at Net option and currency from From net
beginning investment futures related investment investment
of period income transactions transactions operations income
--------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... $ 9.85 $0.6431 $0.2282 $(0.0005) $ 0.8708 $(0.6408)
1997-
Administration
Shares.......... 9.84 0.6182 0.2380 (0.0005) 0.8557 (0.6157)
1997-Service
Shares.......... 9.86 0.5937 0.2287 (0.0005) 0.8219 (0.5919)
1997-Class A
Shares(o)....... 9.70 0.3059 0.3596 (0.0008) 0.6647 (0.3048)
1997-Class B
Shares(o)....... 9.72 0.2686 0.3695 (0.0008) 0.6373 (0.2673)
1997-Class C
Shares(p)....... 9.93 0.1118 0.1591 (0.0003) 0.2706 (0.1107)
1996-
Institutional
Shares.......... 10.00 0.6448 (0.0704) -- 0.5744 (0.6438)
1996-
Administrative
Shares(/1/)..... 9.91 0.4083 (0.0703) -- 0.3380 (0.4080)
1996-Service
Shares(l)....... 9.77 0.3756 0.0898 -- 0.4654 (0.3754)
1995-
Institutional
Shares.......... 9.24 0.6423 0.7610 -- 1.4033 (0.6433)
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -------------------------------------------------------------
1994-
Institutional
Shares.......... 10.00 0.4648 (0.7617) -- (0.2969) (0.4648)
<CAPTION>
Distributions to shareholders
------------------------------------------------------------
In excess of
From net net realized Net Ratio of
realized gain gain on increase Ratio of net
on investment, In excess investment, From Total (decrease) Net asset net investment
option of net option and paid distributions in net value at expenses income
and futures investment futures in to asset end of Total to average to average
transactions income transactions capital shareholders value period return(k) net assets net assets
----------------------------------------------------------------------------------------------------------------------------
CORE FIXED INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... -- -- -- -- $(0.6408) $ 0.2300 $10.08 9.19% 0.45% 6.53%
1997-
Administration
Shares.......... -- -- -- -- (0.6157) 0.2300 10.07 8.92 0.70 6.27
1997-Service
Shares.......... -- -- -- -- (0.5919) 0.2300 10.09 8.65 0.95 6.00
1997-Class A
Shares(o)....... -- -- -- -- (0.3048) 0.3599 10.06 6.94(f) 0.70(b) 6.13(b)
1997-Class B
Shares(o)....... -- -- -- -- (0.2673) 0.3700 10.09 6.63(f) 1.45(b) 5.28(b)
1997-Class C
Shares(p)....... -- -- -- -- (0.1107) 0.1599 10.09 2.74(f) 1.45(b) 4.84(b)
1996-
Institutional
Shares.......... (0.0806) -- -- -- (0.7244) (0.1500) 9.85 5.98 0.45 6.51
1996-
Administrative
Shares(/1/)..... -- -- -- -- (0.4080) (0.0700) 9.84 3.56(f) 0.70(b) 6.41(b)
1996-Service
Shares(l)....... -- -- -- -- (0.3754) 0.0900 9.86 4.90(f) 0.95(b) 6.37(b)
1995-
Institutional
Shares.......... -- -- -- -- (0.6433) 0.7600 10.00 15.72 0.45 6.56
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -------------------------------------------------------------------
1994-
Institutional
Shares.......... -- -- -- -- (0.4648) (0.7617) 9.24 (3.00) 0.45(b) 6.48(b)
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Net Ratio of
assets net
at end Ratio of investment
Portfolio of expenses income
turnover period to average to average
rate(d) (in 000s) net assets net assets
--------------------------------------------------------------------------------------------------------------------------
CORE FIXED INCOME FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED OCTOBER 31,
- -------------------------------
1997-
Institutional
Shares.......... 361.27% $79,230 0.83% 6.15%
1997-
Administration
Shares.......... 361.27 6,176 1.08 5.89
1997-Service
Shares.......... 361.27 1,868 1.33 5.62
1997-Class A
Shares(o)....... 361.27(f) 9,336 1.33(b) 5.50(b)
1997-Class B
Shares(o)....... 361.27(f) 621 1.83(b) 4.90(b)
1997-Class C
Shares(p)....... 361.27(f) 272 1.83(b) 4.46(b)
1996-
Institutional
Shares.......... 414.20 72,061 0.83 6.13
1996-
Administrative
Shares(/1/)..... 414.20 702 1.08(b) 6.03(b)
1996-Service
Shares(l)....... 414.20 381 1.33(b) 5.99(b)
1995-
Institutional
Shares.......... 382.26 55,502 0.96 6.05
FOR THE PERIOD JANUARY 5, 1994(G) THROUGH OCTOBER 31,
- -------------------------------------------------------------------
1994-
Institutional
Shares.......... 285.25 24,508 1.46(b) 5.47(b)
</TABLE>
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Class A share activity commenced on May 15, 1995.
(d) Includes the effect of mortgage dollar roll transactions.
(e) Administration share activity commenced on April 15, 1993.
(f) Not annualized.
(g) Commencement of operations.
(h) Short Duration Government Fund Administration shares were redeemed in full
on February 23, 1995 and re-commenced on February 28, 1996 at $9.86.
(i) Service share activity commenced on April 10, 1996.
(j) Administration and Service share activity commenced on May 20, 1993 and
September 20, 1994, respectively.
(k) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge for Class A
shares or a contingent deferred sales charge for Class B and Class C
shares were taken into account.
(l) Administration and Service share activity commenced on February 28, 1996
and March 13, 1996, respectively.
(m) Service share activity commenced on March 27, 1997.
(n) Includes the balancing effect of calculating per share amounts.
(o) Class A and Class B share activity commenced on May 1, 1997.
(p) Class C share activity commenced on August 15, 1997.
- -------------------------------------------------------------------------------
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment policies of each Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that a Fund's
investment objectives will be achieved.
A Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that are
subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration. A Fund will not be
limited as to its maximum weighted average portfolio maturity or the maximum
stated maturity with respect to individual securities unless otherwise noted.
A Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one nationally recognized statistical rating organization ("NRSRO") including,
but not limited to, Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's") even though it has been rated below the
minimum rating by one or more other NRSROs, or, if unrated, is determined by
the Investment Adviser to be of comparable quality. If a security satisfies a
Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of a Fund
and its shareholders.
The Investment Adviser will usually have access to the research of, and
certain proprietary technical models developed by, Goldman Sachs and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
ADJUSTABLE RATE GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with low volatility of principal.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a nine-month note.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in U.S. Government Securities that are adjustable rate
mortgage pass-through securities and other mortgage securities with periodic
interest rate results. The remainder of the Fund's assets (up to 35%) may be
invested in other U.S. Government Securities, including fixed rate mortgage
pass-through securities, other securities representing an interest in or
collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-
Backed Securities") and repurchase agreements collateralized by U.S.
Government Securities. Substantially all of the Fund's assets will be invested
in U.S. Government Securities. 100% of the Fund's portfolio will be invested
in U.S. dollar-denominated securities.
11
<PAGE>
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION GOVERNMENT FUND
OBJECTIVE. The Fund's investment objective is to provide a high level of
current income. Secondarily, the Fund may, in seeking current income, also
consider the potential for capital appreciation.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a two-year bond.
INVESTMENT SECTOR. The Fund invests, under normal market conditions, at
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Fund invests in U.S. Government Securities and
repurchase agreements collateralized by such securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices described under
"Investment Techniques."
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
four years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a three-year bond.
12
<PAGE>
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed- income securities issued by or on behalf of
states, territories and possessions of the United States (including the
District of Columbia) and the political subdivisions, agencies and
instrumentalities thereof ("Municipal Securities"), the interest on which is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes), and is not a tax preference item under the
federal alternative minimum tax. Under normal circumstances, the Fund's
investments in private activity bonds and taxable investments will not exceed,
in the aggregate, 20% of the Fund's net assets. The interest from certain
private activity bonds (including the Fund's distributions of such interest)
may be a preference item for purposes of the federal alternative minimum tax.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB or Baa by an NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. Municipal Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities may
reflect the existence of guarantees, letters of credit or other credit
enhancement features available to the issuers or holders of such Municipal
Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
shareholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
CORE FIXED INCOME FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
total return consisting of capital appreciation and income that exceeds the
total return of the Lehman Brothers Aggregate Bond Index (the "Index").
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed six
years. The approximate interest rate sensitivity of the Fund is expected to be
comparable to a five-year bond.
INVESTMENT SECTOR. The Fund invests, under normal circumstances, at least
65% of its total assets in fixed- income securities, including U.S. Government
Securities, corporate debt securities, Mortgage-Backed Securities, and Asset-
Backed Securities. The Fund may invest up to 25% of its total assets in
obligations of domestic and
13
<PAGE>
foreign issuers which are denominated in currencies other than the U.S.
dollar, 10% of which may be invested in issuers in countries with emerging
markets and economies. A number of investment strategies will be used to
achieve the Fund's investment objective, including market sector selection,
determination of yield curve exposure, and issuer selection. In addition, the
Investment Adviser will attempt to take advantage of pricing inefficiencies in
the fixed income markets.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa by an NRSRO. The securities currently included in the Index
have at least one year remaining to maturity; have an outstanding principal
amount of at least $100 million; and are issued by the following types of
issuers, with each category receiving a different weighting in the Index: U.S.
Treasury; agencies, authorities or instrumentalities of the U.S. government;
issuers of Mortgage-Backed Securities; utilities; industrial issuers;
financial institutions; foreign issuers; and issuers of Asset-Backed
Securities. The Index is a trademark of Lehman Brothers. Inclusion of a
security in the Index does not imply an opinion by Lehman Brothers as to its
attractiveness or appropriateness for investment. Although Lehman Brothers
obtains factual information used in connection with the Index from sources
which it considers reliable, Lehman Brothers claims no responsibility for the
accuracy, completeness or timeliness of such information and has no liability
to any person for any loss arising from results obtained from the use of the
Index data.
CREDIT QUALITY. All U.S. dollar-denominated fixed-income securities
purchased by the Fund will be rated, at the time of investment, at least BBB
or Baa by an NRSRO. The non-U.S. dollar-denominated fixed-income securities in
which the Fund may invest will be rated, at the time of investment, at least
AA or Aa by an NRSRO or, if unrated, will be determined by the Investment
Adviser to be of comparable quality. Fixed-income securities rated BBB or Baa
are considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capability to pay interest and repay principal.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, mortgage and interest rate swaps and
interest rate floors, caps and collars. Currency management techniques involve
risks different from those associated with investing solely in U.S. dollar-
denominated fixed-income securities of U.S. issuers. It is expected that the
Fund will use certain currency techniques to seek to hedge against currency
exchange rate fluctuations or to seek to increase total return. The Fund may
invest in custodial receipts, Municipal Securities and convertible securities.
The Fund may also employ other investment techniques to seek to enhance
returns, such as lending portfolio securities and entering into mortgage
dollar rolls, repurchase agreements and other investment practices, described
under "Investment Techniques."
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government Securities. Generally, these
securities include U.S. Treasury obligations and obligations issued or
guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
14
<PAGE>
securities of the Student Loan Marketing Association), (c) the discretionary
authority of the U.S. government to purchase certain obligations of the issuer
(such as the Federal National Mortgage Association ("Fannie Mae") and Federal
Home Loan Mortgage Corporation ("Freddie Mac")), or (d) only the credit of the
issuer. No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies, instrumentalities or sponsored
enterprises in the future.
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MORTGAGE-BACKED SECURITIES
CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES. Mortgage-Backed Securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage whenever they choose.
Therefore, Mortgage-Backed Securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of
principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. During periods of declining interest
rates, prepayments can be expected to accelerate, and thus impair a Fund's
ability to reinvest the returns of principal at comparable yields. Conversely,
in a rising interest rate environment, a declining prepayment rate will extend
the average life of many Mortgage-Backed Securities and prevent a Fund from
taking advantage of such higher yields.
FIXED RATE MORTGAGE LOANS. Generally, fixed rate mortgage loans pay interest
at fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-rate mortgage loans typically provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to amortize fully principal by maturity,
although certain fixed-rate mortgage loans provide for a large final "balloon"
payment upon maturity.
ADJUSTABLE RATE MORTGAGE LOANS ("ARMS"). The Adjustable Rate Government Fund
will primarily, and the Short Duration Government and Core Fixed Income Funds
may, invest in ARMs, which are pass-through mortgage securities collateralized
by mortgages with adjustable rather than fixed coupon rates. ARMs generally
provide for a fixed initial mortgage interest rate for a set period.
Thereafter, the interest rates are subject to periodic adjustments based on
changes to a designated benchmark index.
ARMs allow a Fund to participate in increases in interest rates through
periodic increases in the securities' coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in
lower yields to a Fund. Therefore, the value of an ARM is unlikely to rise
during periods of declining interest rates to the same extent as fixed-rate
securities. Interest rate declines may result in accelerated prepayment of
mortgages with the result that proceeds from prepayments will be reinvested at
lower interest rates. During periods of rising interest rates, changes in the
coupon rate will lag behind changes in the market rate. ARMs are also
typically subject to maximum increases and decreases in the interest rate
adjustment which can be made on any one adjustment date, in any one year, or
during the life of the security. In the event of dramatic increases or
decreases in prevailing market interest rates, the value of a Fund's
investments in ARMs may fluctuate more substantially since these limits may
prevent the security from fully adjusting its interest rate to the prevailing
market rates.
U.S. GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Certain Mortgage-
Backed Securities are issued or guaranteed by the U.S. government, its
agencies, instrumentalities or sponsored enterprises. Such issuers include,
but are not limited to, Ginnie Mae, Fannie Mae and Freddie Mac. See "U.S.
Government Securities."
15
<PAGE>
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. The Core Fixed Income Fund may
invest in Mortgage-Backed Securities issued or sponsored by non-governmental
entities. Privately issued Mortgage-Backed Securities are generally backed by
pools of conventional (i.e., non-government guaranteed or insured) mortgage
loans. Since such Mortgage-Backed Securities normally are not guaranteed by an
entity having the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in
order to receive a high quality rating from the rating organizations (i.e.,
S&P or Moody's), they normally are structured with one or more types of
"credit enhancement."
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Adjustable Rate Government, Short Duration Government and
Core Fixed Income Funds may also invest in multiple class securities,
including collateralized mortgage obligations ("CMOs") and Real Estate
Mortgage Investment Conduit ("REMIC") pass-through or participation
certificates. CMOs provide an investor with a specified interest in the cash
flow from a pool of underlying mortgages or of other Mortgage-Backed
Securities. CMOs are issued in multiple classes, each with a specified fixed
or floating interest rate and a final scheduled distribution date. In most
cases, payments of principal are applied to the CMO classes in the order of
their respective stated maturities, so that no principal payments will be made
on a CMO class until all other classes having an earlier stated maturity date
are paid in full. A REMIC is a CMO that qualifies for special tax treatment
under the Internal Revenue Code of 1986, as amended (the "Code"), and invests
in certain mortgages principally secured by interests in real property and
other permitted investments. The Funds do not intend to purchase residual
interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The Adjustable Rate Government, Short
Duration Government and Core Fixed Income Funds may invest in Stripped
Mortgage-Backed Securities ("SMBS"), which are derivative multiple class
Mortgage-Backed Securities. SMBS are usually structured with two different
classes: one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience different than anticipated prepayments of
principal, a Fund may fail to recoup fully its initial investment in these
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage loans are generally higher than prevailing market yields on
other Mortgage-Backed Securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped. A Fund's investments in SMBS may require the Fund to sell
certain of its portfolio securities to generate sufficient cash to satisfy
certain income distribution requirements.
ASSET-BACKED SECURITIES
The Core Fixed Income Fund may invest in Asset-Backed Securities. The
principal and interest payments on Asset-Backed Securities are collateralized
by pools of assets such as auto loans, credit card receivables, leases,
installment contracts and personal property. Such asset pools are securitized
through the use of special purpose trusts or corporations. Principal and
interest payments may be credit enhanced by a letter of credit, a pool
insurance policy or a senior/subordinated structure.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Short Duration Tax-Free Fund and,
to a limited extent, the Core Fixed Income Fund invest consist of bonds,
notes, commercial paper and other instruments (including participation
interests in such securities) issued by or on behalf of states, territories
and possessions of the United States (including the District of Columbia) and
their political subdivisions, agencies or instrumentalities, the interest on
which in the opinion of bond counsel for the issuers or counsel selected by
the Investment Adviser, is exempt from regular federal income tax (i.e.,
excluded from gross income for federal income tax purposes but
16
<PAGE>
not necessarily exempt from federal alternative minimum tax or from state or
local taxes). Such securities may pay fixed, variable or floating rates of
interest. Municipal Securities are often issued to obtain funds for various
public purposes, including the construction of a wide range of public
facilities such as bridges, highways, housing, hospitals, mass transportation,
schools, streets and water and sewer works. Other public purposes for which
Municipal Securities may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses, and obtaining funds to lend to
other public institutions and facilities. The Core Fixed Income Fund may also
invest in taxable Municipal Securities.
PRIVATE ACTIVITY BONDS. Municipal Securities include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Short Duration Tax-Free Fund's
distributions attributable to the interest income from private activity bonds
may subject certain investors to the federal alternative minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that a Fund
invests in unrated municipal leases or participates in such leases, the credit
quality rating and risk of cancellation of such unrated leases will be
monitored on an ongoing basis. Certain municipal lease obligations and
certificates of participation may be deemed illiquid for the purpose of a
Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles a Fund to receive only
the face or par value of the securities held by the Fund. The insurance does
not guarantee the market value of the Municipal Securities or the net asset
value of a Fund's shares.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the risk that an auction will fail due to insufficient
demand for the securities. A Fund will take the time remaining until the next
scheduled auction date into account for purposes of determining the
securities' duration.
CORPORATE DEBT OBLIGATIONS
The Core Fixed Income Fund may invest in corporate debt obligations. In
addition to obligations of corporations, corporate debt obligations include
securities issued by banks and other financial institutions. Corporate debt
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations.
17
<PAGE>
The Core Fixed Income Fund may also invest in trust preferred securities. A
trust preferred or capital security is a long dated bond (for example, 30
years) with preferred features. The preferred features are that payment of
interest can be deferred for a specified period without initiating a default
event. From a bondholder's viewpoint, the securities are senior in claim to
standard preferred stock but junior to other bondholders. From the issuer's
viewpoint, the securities are attractive because their interest is deductible
for tax purposes like other types of debt instruments.
CONVERTIBLE SECURITIES
The Core Fixed Income Fund may invest in convertible debt obligations of an
issuer convertible at a stated exchange rate into common stock of the issuer.
Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar quality. As with all debt securities,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. However, when
the market price of the common stock underlying a convertible security exceeds
the conversion price, the price of the convertible security tends to reflect
the market price of the underlying common stock. As the market price of the
underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent
as the underlying common stock. Convertible securities in which the Core Fixed
Income Fund invests are subject to the same rating criteria as its other
investments in fixed-income securities.
FOREIGN INVESTMENTS
FOREIGN SECURITIES. The Core Fixed Income Fund may invest in fixed-income
securities of foreign issuers denominated in any currency but will limit its
investments in non-U.S. dollar-denominated fixed-income securities to 25% of
its total assets. This may offer potential benefits that are not available
from investing exclusively in U.S. dollar-denominated domestic issues. Foreign
countries may have economic policies or business cycles different from those
of the U.S. and markets for foreign fixed-income securities do not necessarily
move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in fixed-income securities of domestic
issuers quoted in U.S. dollars. Such investments may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. In addition, if the currency in which the Fund receives
dividends, interest or other payments declines in value against the U.S.
dollar before such income is distributed as dividends to shareholders or
converted to U.S. dollars, the Fund may have to sell portfolio securities to
obtain sufficient cash to pay such dividends. In addition, clearance and
settlement procedures may be different in foreign countries and, in certain
markets, such procedures have been unable to keep pace with the volume of
securities transactions, making it more difficult to conduct such
transactions.
The Core Fixed Income Fund may invest in an issuer domiciled in one country
yet issuing the security in the currency of another country. The Fund may also
invest in debt securities denominated in the European Currency Unit ("ECU"),
which is a "basket" consisting of specified amounts in the currencies of
certain of the twelve member states of the European Community. The specific
amounts of currencies comprising the ECU may be adjusted by the Council of
Ministers of the European Community from time to time to reflect changes in
relative values of the underlying currencies. In addition, the Fund may invest
in securities denominated in other currency "baskets."
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
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issuer than about a U.S. issuer. In addition, there is generally less
government regulation of foreign markets, companies and securities dealers
than in the U.S. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers may be
less liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets of
the Fund, political or social instability or diplomatic developments which
could affect investments in those countries.
FOREIGN GOVERNMENT SECURITIES. The Core Fixed Income Fund may invest in debt
obligations of foreign governments and governmental agencies, including those
of emerging countries. Investment in sovereign debt obligations involves
special risks not present in debt obligations of corporate issuers. The issuer
of the debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt, and the 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 the Fund's net
asset value, to a greater extent than the volatility inherent in debt
obligations of U.S. issuers. A sovereign debtor's willingness or ability to
repay principal and pay interest in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign currency
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the sovereign debtor's policy toward international lenders and the
political constraints to which a sovereign debtor may be subject.
EMERGING MARKETS. The Core Fixed Income Fund may invest up to 10% of its
total assets in securities of issuers located in countries with emerging
economies or securities markets ("emerging markets"). Political and economic
structures in many emerging markets may be undergoing significant evolution
and rapid development, and emerging markets may lack the social, political and
economic stability characteristic of more developed countries. As a result,
the risks relating to investments in foreign securities described above,
including the possibility of nationalization, expropriation and confiscatory
taxation, may be heightened. In addition, unanticipated political and social
developments may affect the value of the Fund's investments in emerging
markets and the availability to the Fund of additional investments in such
countries. The small size and inexperience of the securities markets in
certain emerging markets and the limited volume of trading in securities in
those countries may make the Fund's investments in such countries less liquid
and more volatile than investments in countries with more developed securities
markets (such as the U.S., Japan and most Western European countries). See the
Additional Statement for further information regarding the Fund's investments
in emerging markets.
FOREIGN CURRENCY TRANSACTIONS. Because investment in foreign issuers by the
Core Fixed Income Fund will usually involve currencies of foreign countries,
and because the Fund may have currency exposure independent of its securities
position, the value of a Fund's assets as measured in U.S. dollars will be
affected by changes in foreign currency exchange rates. The Fund may, to the
extent it invests in foreign securities, purchase or sell foreign currencies
on a spot basis and may also purchase or sell forward foreign currency
exchange contracts for hedging purposes and to seek to protect against
anticipated changes in future foreign currency exchange rates. In addition,
the Fund also may enter into such contracts to seek to increase total return
when the Investment Adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities denominated or quoted in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When entered into to seek to increase total
return, forward foreign currency exchange contracts are considered
speculative. The Fund may also engage in cross-hedging by using forward
contracts in a currency
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different from that in which the hedged security is denominated or quoted if
the Investment Adviser determines that there is a pattern of correlation
between the two currencies. If the Fund enters into a forward foreign currency
exchange contract to buy foreign currency for any purpose or to sell foreign
currency to seek to increase total returns, 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, or to otherwise cover its position in a
manner permitted by the SEC. The Fund will incur costs in connection with
conversions between various currencies. The Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency in U.S. dollars at a later date, based on anticipated changes in the
relevant exchange rate.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, the Fund's net asset value to
fluctuate. Currency exchange rates generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by the intervention
of U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the U.S. or abroad. To
the extent that a substantial portion of the Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available for
currency instruments traded on an exchange. Such contracts are subject to the
risk that the counterparty to the contract will default on its obligations.
Since these contracts are not guaranteed by an exchange or clearinghouse, a
default on a contract would deprive the Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Fund to
cover its purchase or sale commitments, if any, at the current market price.
The Fund will not enter into forward foreign currency exchange contracts,
currency swaps or other privately negotiated instruments unless the credit
quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by the Investment Adviser.
The Core Fixed Income Fund's use of foreign currency management techniques
in emerging markets may be limited. Due to the limited market for these
instruments in emerging markets, the Investment Adviser does not currently
anticipate that a significant portion of the Fund's currency exposure in
emerging markets, if any, will be covered by such instruments. For a
discussion of such instruments and the risks associated with their use, see
"Investment Objectives and Policies" in the Additional Statement.
STRUCTURED SECURITIES
The Core Fixed Income Fund may invest in structured securities. The value of
the principal of and/or interest on such securities is determined by reference
to changes in the value of specific currencies, interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon
changes in the applicable Reference. The terms of the structured securities
may provide that in certain circumstances no principal is due at maturity and,
therefore, result in the loss of the Fund's investment. Structured securities
may be positively or negatively indexed, so that appreciation of the Reference
may produce an increase or decrease in the interest rate or value of the
security at maturity. In addition, changes in the interest rates or the value
of the security at maturity may be a multiple of changes in the value of the
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Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed-income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
Each Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. Each Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. A Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and a Fund could
sustain losses on such investments. A default could impact both interest and
principal payments.
CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. Call risk typically results when
interest rates have declined. Under such circumstances, a Fund may be unable
to recoup all of its initial investment and will also suffer from having to
reinvest in lower yielding securities. Extension risk (i.e., where the issuer
exercises its right to pay principal on an obligation later than scheduled)
causes cash flows to be returned later than expected. Extension risk typically
results when interest rates have increased. Under such circumstances, a Fund
will suffer from the inability to invest in higher yielding securities.
Certain types of U.S. Government, Asset-Backed, corporate, foreign, Mortgage-
Backed and Municipal Securities have this call and/or extension risk.
The investment characteristics of Mortgage-Backed Securities and Asset-
Backed Securities differ from those of traditional fixed-income securities
because they generally have both call risk (also known as prepayment risk) and
extension risk. Homeowners have the option to prepay their mortgage.
Therefore, the duration of a security backed by home mortgages can either
shorten (call risk) or lengthen (extension risk). Investors are exposed to the
fluctuating principal and interest payments associated with such securities.
In general, if interest
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rates on new mortgage loans fall sufficiently below the interest rates on
existing outstanding mortgage loans, the rate of prepayment would be expected
to increase. Conversely, if mortgage loan interest rates rise above the
interest rates on existing outstanding mortgage loans, the rate of prepayment
would be expected to decrease.
ARMs also have the risk of prepayments, which will have a greater impact on
the Adjustable Rate Government Fund. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates (than if
prevailing interest rates remain constant or increase) because the
availability of low fixed-rate mortgages may encourage mortgagors to refinance
their ARMs to "lock-in" a fixed-rate mortgage. Conversely, if prevailing
interest rates rise significantly, ARMs may prepay more slowly. As with fixed-
rate mortgages, ARM prepayment rates vary in both stable and changing interest
rate environments. There are certain ARMs where the homeowner's payments do
not fully cover interest, so the principal balance increases over time. These
"negative amortizing" ARMs may be subject to greater default risk.
DERIVATIVE MORTGAGE-BACKED SECURITIES. Because derivative Mortgage-Backed
Securities (such as principal-only (POs), interest-only (IOs) or inverse
floating rate securities) are more exposed to mortgage prepayments, they
generally involve a greater amount of risk. Small changes in prepayments can
significantly impact the cash flow and the market value of these securities.
The risk of faster than anticipated prepayments generally adversely affects
IOs, super floaters and premium priced Mortgage-Backed Securities. The risk of
slower than anticipated prepayments generally adversely affects POs, floating-
rate securities subject to interest rate caps, support tranches and discount
priced Mortgage-Backed Securities. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risk is magnified.
RISKS OF DERIVATIVE TRANSACTIONS. A Fund's transactions, if any, in options,
futures, options on futures, swaps, interest rate caps, floors and collars,
structured securities, inverse floating-rate securities and currency
transactions involve certain risks, including a possible lack of correlation
between changes in the value of hedging instruments and the portfolio assets
being hedged, the potential illiquidity of the markets for derivative
instruments, the risks arising from the margin requirements and related
leverage factors associated with such transactions. The use of these
management techniques to seek to increase total return may be regarded as a
speculative practice and involves the risk of loss if the Investment Adviser
is incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. A Fund's 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.
TAX RISK OF MUNICIPAL SECURITIES. The yields and market values of Municipal
Securities may be more adversely impacted by changes in tax rates and policies
than taxable fixed-income securities. Because interest income from Municipal
Securities is normally not subject to regular federal income taxation, the
attractiveness of Municipal Securities in relation to other investment
alternatives is affected by changes in federal income tax rates applicable to,
or the continuing federal income tax-exempt status of, such interest income.
Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of
Municipal Securities, which could in turn affect the Fund's ability to acquire
and dispose of Municipal Securities at desirable yield and price levels.
OTHER RISKS. Floating-rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
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Asset-Backed Securities present certain credit risks that are not presented
by Mortgage-Backed Securities because Asset-Backed Securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN RISKS. See "Foreign Securities" for a description of the risks of
investing in foreign securities and currencies.
INVESTMENT TECHNIQUES
MORTGAGE DOLLAR ROLLS. The Adjustable Rate Government, Short Duration
Government and Core Fixed Income Funds may enter into mortgage "dollar rolls"
in which a Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase
substantially similar (same type, coupon and maturity) but not identical
securities on a specified future date. During the roll period, the Fund loses
the right to receive principal and interest paid on the securities sold.
However, the Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase or fee income plus the interest earned on the cash proceeds of
the securities sold until the settlement date for the forward purchase. Unless
such benefits exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the mortgage dollar roll, the use of this technique will diminish the
investment performance of the Fund. Successful use of mortgage dollar rolls
depends upon the Investment Adviser's ability to predict correctly interest
rates and mortgage prepayments. There is no assurance that mortgage dollar
rolls can be successfully employed. The Fund will hold and maintain in a
segregated account until the settlement date cash or liquid assets in an
amount equal to the forward purchase price. For financial reporting and tax
purposes, each Fund treats mortgage dollar rolls as two separate transactions;
one involving the purchase of a security and a separate transaction involving
a sale. The Funds do not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES. Each Fund may write (sell)
covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index comprised of
securities in which it may invest. The writing and purchase of options is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities
transactions. The use of options to seek to increase total return involves the
risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices or interest rates. The successful use of
options for hedging purposes also depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in securities prices or
determination of the correlation between the securities indices on which
options are written and purchased and the securities in a Fund's investment
portfolio, the investment performance of the Fund will be less favorable than
it would have been in the absence of such options transactions. The writing of
options could increase a Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads.
OPTIONS ON FOREIGN CURRENCIES. The Core Fixed Income Fund may, to the extent
it invests in foreign securities, purchase and sell (write) put and call
options on foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign portfolio securities and against increases
in the U.S. dollar cost of foreign securities to be acquired. In addition, the
Core Fixed Income Fund may use options on currency
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to cross-hedge, which involves writing or purchasing options on one currency
to hedge against changes in exchange rates for a different currency, if there
is a pattern of correlation between the two currencies. As with other kinds of
option transactions, however, the writing of an option on foreign currency
will constitute only a partial hedge, up to the amount of the premium
received. If an option that the Fund has written is exercised, the Fund could
be required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against exchange rate fluctuations; however,
in the event of exchange rate movements adverse to the Fund's position, the
Fund may forfeit the entire amount of the premium plus related transaction
costs. In addition to purchasing put and call options for hedging purposes,
the Fund may purchase call or put options on currency to seek to increase
total return when the Investment Adviser anticipates that the currency will
appreciate or depreciate in value, but the securities quoted or denominated in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When purchased or sold to seek to increase total
return, options on currencies are considered speculative. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S. and
foreign exchanges or over-the-counter.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return or to hedge against changes in interest rates or securities
prices or, in the case of the Core Fixed Income Fund, currency exchange rates,
a Fund may purchase and sell various kinds of futures contracts, and purchase
and write call and put options on any of such futures contracts. Each Fund may
also enter into closing purchase and sale transactions with respect to any
such contracts and options. The futures contracts may be based on various
securities (such as U.S. Government Securities), foreign currencies, in the
case of the Core Fixed Income Fund, securities indices and other financial
instruments and indices. A Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immediately
thereafter the sum of the amount of initial margin deposits and premiums paid
on a Fund's outstanding positions in futures and related options entered into
for the purpose of seeking to increase total return would exceed 5% of the
market value of a Fund's net assets. These transactions involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the 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 or to otherwise cover the obligations in a manner
permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while a Fund may benefit from the use of
futures and options on futures, unanticipated changes in interest rates,
securities prices or currency exchange rates may result in a poorer overall
performance than if the Fund had not entered into any futures contracts or
options transactions. Because perfect correlation between a futures position
and portfolio position that is intended to be protected is impossible to
achieve, the desired protection may not be obtained and a Fund may be exposed
to risk of loss. The loss incurred by a Fund in entering into futures
contracts and in writing call options on futures is potentially unlimited and
may exceed the amount of the premium received. Futures markets are highly
volatile and the use of futures may increase the volatility of a Fund's net
asset value. The profitability of a Fund's trading in futures to seek to
increase total return depends upon the ability of the Investment Adviser to
analyze correctly the futures markets. In addition, because of the low margin
deposits normally required in futures trading, a relatively small price
movement in a futures contract may result in substantial losses to a Fund.
Further, futures contracts and options on futures may be illiquid, and
exchanges may limit fluctuations in futures contract prices during a single
day.
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CURRENCY SWAPS. The Core Fixed Income Fund may enter into currency swaps for
hedging purposes or to seek to increase total return. Currency swaps involve
the exchange by a Fund with another party of their respective rights to make
or receive payments in specified currencies. Currency swaps usually involve
the delivery of a gross payment stream in one designated currency in exchange
for the gross payment stream in another designated currency. Therefore, the
entire payment stream under a currency swap is subject to the risk that the
other party to the swap will default on its contractual delivery obligations.
The Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims-paying ability of the other party thereto is
rated either AA or A-1 or better by S&P or Aa or P-1 or better by Moody's, or,
if unrated by such rating organizations, determined to be of comparable
quality by the Investment Adviser. The use of currency swaps is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. If the
Investment Adviser is incorrect in its forecasts of currency exchange rates,
the investment performance of the Fund would be less favorable than it would
have been if this investment technique were not used.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. Each Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by a Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. Each Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. A Fund is required to hold and maintain in a segregated
account with the Fund's custodian until three days prior to settlement date,
cash or liquid assets in an amount sufficient to meet the purchase price.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. The purchase of securities on a when-
issued or forward commitment basis involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Although a
Fund would generally purchase securities on a when-issued or forward
commitment basis with the intention of acquiring securities for its portfolio,
a Fund may dispose of when-issued securities or forward commitments prior to
settlement if the Investment Adviser deems it appropriate to do so.
ILLIQUID AND RESTRICTED SECURITIES. A Fund may not invest more than 15% of
its net assets in illiquid investments, which include securities (both foreign
and domestic) that are not readily marketable, certain SMBS, certain municipal
leases and participation interests, repurchase agreements maturing in more
than seven days, time deposits with a notice or demand period of more than
seven days, certain over-the-counter options, and certain restricted
securities, unless it is determined, based upon the continuing review of the
trading markets for a specific restricted security, that such restricted
security is eligible for resale under Rule 144A under the Securities Act of
1933 and, therefore, is liquid. The Trustees have adopted guidelines under
which the Investment Adviser determines and monitors the liquidity of
portfolio securities subject to the oversight of the Trustees. Investing in
restricted securities eligible for resale pursuant to Rule 144A may decrease
the liquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. The
purchase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. Core Fixed Income Fund may also enter
into repurchase agreements involving certain foreign government securities. If
the other party or "seller" defaults, a Fund might suffer a loss to the extent
that the proceeds from the sale of the underlying securities and
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other collateral held by the Fund in connection with the related repurchase
agreement are less than the repurchase price. In addition, in the event of
bankruptcy of the seller or failure of the seller to repurchase the securities
as agreed, a Fund could suffer losses, including loss of interest on or
principal of the security and costs associated with delay and enforcement of
the repurchase agreement. The Trustees have reviewed and approved certain
counterparties whom they believe to be creditworthy and have authorized the
Funds to enter into repurchase agreements with such counterparties. In
addition, each Fund, together with other registered investment companies
having management agreements with the Investment Adviser, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
TEMPORARY INVESTMENTS. Each Fund may, for temporary defensive purposes,
invest up to 100% of its total assets in (i) U. S. Government Securities or
(ii) repurchase agreements collateralized by U.S. Government Securities. The
Short Duration Tax-Free Fund may for temporary defensive purposes depart from
its stated investment objectives and invest more than 20% of its net assets in
taxable investments.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, each Fund
may, with respect to no more than 5% of its net assets, engage in the
following techniques and investments: (i) portfolio securities lending, (ii)
mortgage swaps (other than Short Duration Tax-Free Fund) and interest rate
swaps, caps, floors and collars, (iii) inverse floating rate securities, (iv)
yield curve options, (v) investments in other investment companies, (vi)
custodial receipts and (vii) with respect to the Short Duration Tax-Free Fund,
tender option bonds and standby commitments. For more information see the
Additional Statement.
In addition, each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings (excluding covered mortgage dollar rolls) exceed 5%
of its total assets. For more information, see the Additional Statement.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of a Fund cannot be changed without
approval of a majority of the outstanding shares of that Fund as defined in
the Additional Statement. Each Fund's investment objectives and all policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval. If there is a change in a Fund's
investment objectives, shareholders should consider whether that Fund still
remains an appropriate investment in light of their then current financial
positions and needs.
The Short Duration Tax-Free Fund's policy to invest, under normal market
conditions, at least 80% of its net assets in Municipal Securities, the
interest on which is exempt from regular federal income tax, is fundamental
and may not be changed without shareholder approval. For more information on a
Fund's investment restrictions, an investor should obtain the Additional
Statement.
PORTFOLIO TURNOVER
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
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portfolio turnover rate of each Fund will vary from year to year. The
portfolio turnover rate is computed by dividing the lesser of the dollar
amount of securities purchased or securities sold (excluding all securities
whose maturities at acquisition are one year or less) by the average monthly
value of such securities owned during the year. A 100% turnover rate would
occur, for example, if all of the securities held by a Fund were sold and
replaced within one year. The Investment Adviser will not consider the
portfolio turnover rate a limiting factor in making investment decisions for a
Fund consistent with the Fund's investment objectives and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to a Fund. The portfolio turnover rate includes the effect of entering
into mortgage dollar rolls. See "Financial Highlights" for a statement of each
Fund's historical portfolio turnover rates.
MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Advisers, distributor and transfer
agent. The officers of the Trust conduct and supervise each Fund's daily
business operations. The Additional Statement contains information as to the
identity of, and other information about, the Trustees and officers of the
Trust.
INVESTMENT ADVISERS
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York
Plaza, New York, New York 10004, a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as investment adviser to the Short Duration
Government and Adjustable Rate Government Funds. Goldman Sachs Funds
Management, L.P. registered as an investment adviser in 1990. Goldman Sachs
Asset Management, One New York Plaza, New York, New York 10004, a separate
operating division of Goldman Sachs, serves as the investment adviser to the
Short Duration Tax-Free and Core Fixed Income Funds. Goldman Sachs registered
as an investment adviser in 1981. As of January 26, 1998, GSAM and GSFM,
together with their affiliates, acted as investment adviser or distributor for
assets in excess of $140 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 Trust to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, is
able to draw upon the research and expertise of its asset management
affiliates for portfolio decisions and management with respect to certain
portfolio securities. In addition, the Investment Advisers will have access to
the research of, and certain proprietary technical models developed by,
Goldman Sachs and may apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
Under the Management Agreement, each Investment Adviser also: (i) supervises
all non-advisory operations of each Fund that it advises; (ii) provides
personnel to perform such executive, administrative and clerical services as
are reasonably necessary to provide effective administration of each Fund;
(iii) arranges for at each Fund's expense (a) the preparation of all required
tax returns, (b) the preparation and submission of reports to
27
<PAGE>
existing shareholders, (c) the periodic updating of prospectuses and
statements of additional information and (d) the preparation of reports to be
filed with the SEC and other regulatory authorities; (iv) maintains each
Fund's records; and (v) provides office space and all necessary office
equipment and services.
ADJUSTABLE RATE GOVERNMENT AND SHORT DURATION GOVERNMENT FUNDS. The Funds'
portfolio managers are Jonathan A. Beinner, Richard C. Lucy, James B. Clark,
Peter D. Dion and James P. McCarthy. Their responsibilities include investing
in the particular types of securities the Funds may hold. Mr. Beinner is a
Managing Director of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Beinner joined the Investment Adviser in 1990. Mr. Lucy is a
Vice President of Goldman Sachs and Co-Head of GSAM's U.S. Fixed Income
Department. Mr. Lucy joined the Investment Adviser in 1992. Mr. Clark joined
GSAM in 1994 after working as a senior trader at the Federal Home Loan
Mortgage Corporation. Prior to that, he was an investment manager at Travelers
Insurance Company. Mr. Dion is a Vice President of Goldman Sachs and joined
GSAM in 1992. Mr. McCarthy is a Vice President of Goldman Sachs. Mr. McCarthy
joined GSAM in 1995 after working as a bond trader at Nomura Securities.
CORE FIXED INCOME FUND. The Fund's portfolio managers are Jonathan A.
Beinner and Richard C. Lucy. See above for information about Mr. Beinner and
Mr. Lucy. Messrs. Beinner and Lucy each specialize in investing in a
particular type of security the Fund may hold.
SHORT DURATION TAX-FREE FUND. The Fund's portfolio managers are Benjamin S.
Thompson and Elisabeth Schupf Lonsdale. Mr. Thompson and Ms. Lonsdale each
specialize in municipal securities. Mr. Thompson's responsibilities include
developing investment strategy and structuring portfolios. Ms. Lonsdale is
also responsible for GSAM's municipal credit research. Mr. Thompson worked in
the institutional sales and marketing group at GSAM until he joined the fixed-
income team in 1993. Prior to joining GSAM in early 1992, Mr. Thompson worked
in the Structured Finance Group of the Chase Manhattan Bank. Before rejoining
Goldman Sachs in 1995, Ms. Lonsdale was a Director of Fitch Investors Service
evaluating the credit ratings of tax-backed issues. Prior to that, she worked
for ten years in Goldman Sachs's Municipal Finance Department.
It is the responsibility of the Investment Adviser to make the investment
decisions for a Fund and to place the purchase and sale orders for a Fund's
portfolio transactions in U.S. and foreign 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.
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As compensation for its services rendered and assumption of certain expenses
pursuant to separate Management Agreements, GSAM and GSFM are entitled to the
following fees, computed daily and payable monthly at the annual rates listed
below:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR OR PERIOD
CONTRACTUAL ENDED
RATE* OCTOBER 31, 1997*
----------- -----------------
<S> <C> <C>
GSAM
- ----
Short Duration Tax-Free......................... 0.40% 0.40%
Core Fixed Income............................... 0.40% 0.40%
GSFM
- ----
Short Duration Government....................... 0.50% 0.40%
Adjustable Rate Government...................... 0.40% 0.40%
</TABLE>
- --------
* 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 for the year
ended October 31, 1997. Effective March 1, 1998, the management fee for the
Short Duration Government Fund will equal 0.50%. The Investment Advisers may
discontinue or modify such limitations in the future at their discretion,
although they have no current intention to do so.
The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of each Fund, other than the Adjustable Rate Government Fund
(excluding management fees, fees under administration plans, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses), to the extent such expenses exceed 0.05% per annum of a Fund's
average daily net assets, respectively. Such reductions or limits, if any, are
calculated monthly on a cumulative basis and may be discontinued or modified
by the applicable Investment Adviser in its discretion at any time.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Service Organizations and other persons for providing
administrative services to their customers. These services include maintaining
account records, processing orders to purchase, redeem and exchange shares and
responding to certain customer inquiries. In addition, these services may also
include responding to certain inquiries from and providing written materials
to institutions and their customers about a Fund; furnishing advice about and
assisting 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 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 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. 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
29
<PAGE>
Goldman Sachs and its affiliates and other accounts achieve significant
profits on their trading for proprietary or other accounts. In addition, the
Funds may, from time to time, enter into transactions in which other clients
of Goldman Sachs have an adverse interest. From time to time, a Fund's
activities may be limited because of regulatory restrictions applicable to
Goldman Sachs and its affiliates, and/or their internal policies designed to
comply with such restrictions. See "Management -- Activities of Goldman Sachs
and its Affiliates and Other Accounts Managed by Goldman Sachs" in the
Additional Statement for further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606 also serves as each Fund's
transfer agent (the "Transfer Agent") and as such performs various shareholder
servicing functions. Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus. The Adjustable
Rate Government, Short Duration Government, Short Duration Tax-Free and Core
Fixed Income Funds pay Goldman Sachs transfer agency fees and expenses with
respect to, Administration Shares equal to that class's proportionate share of
the total transfer agency costs borne by the Fund. Those costs are equal to a
fixed per account charge of $12,000 per year plus $7.50 per account, together
with out-of-pocket and transaction related expenses applicable to Class A,
Class B and Class C shares where applicable plus 0.04% of the average daily
net assets of the other classes of the Funds.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
DIVIDENDS
Each Fund will declare a daily dividend which will be paid monthly. Over the
course of the fiscal year, dividends accrued and paid will constitute all or
substantially all of the Funds' net investment income. From time to time a
portion of such dividends may constitute a return of capital. In the case of
Core Fixed Income Fund, net loss, if any, from certain foreign currency
transactions or instruments that is otherwise taken into account in
calculating net investment income or net realized capital gains for accounting
purposes may not be taken into account in determining the amount of dividends
to be declared and paid, with the result that a portion of the Fund's
dividends may be treated as a return of capital, nontaxable to the extent of a
shareholder's tax basis in his shares. The Funds also intend that all net
realized capital gains will be declared as a dividend at least annually. In
determining amounts of capital gains to be distributed, capital losses,
including any available capital loss carryovers from prior years, will be
offset against capital gains.
A Fund's net investment income is determined on a daily basis. On days on
which net asset value is calculated, such determination is made immediately
prior to the calculation of a Fund's net asset value. On days on which net
asset value is not calculated, such determination is made as of 3:00 p.m.
Chicago time.
Payment of dividends from net investment income will be made on the last
calendar day of each month in additional shares of the Fund at the net asset
value on such day, unless cash distributions are elected, in which case, cash
payment will be made on the first Business Day of the succeeding month.
Payment of dividends with
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<PAGE>
respect to capital gains, if any, when declared will be made in additional
shares of the Fund at the net asset value on the payment date, unless cash
distributions are elected. This election to receive dividends in cash is
initially made on the Account Information Form and may be changed upon written
notice to the Transfer Agent at any time prior to the record date for a
particular dividend or distribution. If cash dividends are elected with
respect to the Fund's monthly net investment income dividends, then cash
dividends must also be elected with respect to the non-long-term capital gains
component, if any, of the Fund's annual dividend.
At the time of an investor's purchase of shares of a Fund, a portion of the
net asset value per share may be represented by realized or unrealized
appreciation of any Fund's portfolio securities. Therefore, subsequent
distributions on such shares from such income or realized appreciation may be
taxable to the investor even if the net asset value of the shares is, as a
result of the distributions, reduced below the cost of such shares and the
distributions (or portions thereof) represent a return of a portion of the
purchase price.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time) on each Business Day (as such term is defined under "Additional
Information") immediately after the determination, if any, of the income to be
declared as a dividend. Net asset value per share of each class is calculated
by determining the net assets of each class and dividing by the number of
outstanding shares of that class.
Each Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time each Fund may publish yield, distribution rate and average
annual total return and the Short Duration Tax-Free Fund may publish its tax
equivalent yield in advertisements and communications to shareholders or
prospective investors. Average annual total return is determined by computing
the average annual percentage change in value of $1,000 invested at the
maximum public offering price for specified periods ending with the most
recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Fund may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition to the above, each Fund
may from time to time advertise its performance relative to certain averages,
performance rankings, indices, other information prepared by recognized mutual
fund statistical services and investments for which reliable performance data
is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period
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<PAGE>
and the maximum offering price per share on the last day of the relevant
period. The results are compounded on a bond equivalent (semiannual) basis and
then annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Short Duration Tax-Free Fund's tax-free yield. Tax
equivalent yield is calculated by dividing the Short Duration Tax-Free Fund's
tax-exempt yield by one minus a stated federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. See "Shares of the Trust."
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE TRUST
Each Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Funds were formerly
series of Goldman Sachs Trust, a Massachusetts business trust, and were
reorganized into the Trust as of April 30, 1997. The Trustees have authority
under the Trust's Declaration of Trust to create and classify shares of
beneficial interest in separate series, without further action by
shareholders. Additional series may be added in the future. The Trustees also
have authority to classify or reclassify any series or portfolio of shares
into one or more classes.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares are freely transferable and have no preemptive, subscription or
conversion rights. Shareholders are entitled to one vote per share, provided
that at the option of the Trustees, shareholders will be entitled to a number
of votes based upon the net asset values represented by their shares.
The Trust does not intend to hold annual meetings of shareholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
shares outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of shareholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other shareholders in connection with requiring a special
meeting of shareholders. The Trustees will call a special meeting of
shareholders for the purpose of electing Trustees, if, at any time, less than
a majority of Trustees holding office at the time were elected by
shareholders.
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<PAGE>
In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder of record
receives confirmation of purchase and redemption orders from the Transfer
Agent. Fund shares and any dividends and distributions paid by the Funds are
reflected in account statements from the Transfer Agent.
As of February 1, 1998, the shareholder listed below owned beneficially and
of record 25% or more of the outstanding shares of the following Fund: Short
Duration Government Fund--State Street Bank and Trust Company, P.O. Box 1992,
Boston, MA 02105-1992 (29.64%).
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes, has elected to
be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
The Short Duration Tax-Free Fund intends to satisfy certain requirements of
the Code so that it may distribute the tax-exempt interest it receives as
"exempt-interest dividends," as defined in the Code. If such requirements are
satisfied, distributions of the Short Duration Tax-Free Fund that are
attributable to interest on tax-exempt obligations and that the Fund properly
designates as exempt-interest dividends will be exempt from regular federal
income tax, although all or a portion of these distributions may be subject to
the federal alternative minimum tax and may be includable in the tax base for
determining taxability of social security or railroad retirement benefits.
Persons who are "substantial users" (or related persons to such substantial
users) of facilities financed by industrial development or certain private
activity bonds should consult their own tax advisers before purchasing shares
of the Short Duration Tax-Free Fund. Interest on indebtedness incurred or
continued to purchase or carry shares of the Short Duration Tax-Free Fund is
not deductible to the extent attributable to the Short Duration Tax-Free
Fund's distributions that are exempt-interest dividends.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income, except for any exempt-
interest dividends paid by Short Duration Tax-Free Fund, as described above.
Distributions out of the net capital gain (the excess of net long-term capital
gain over net short-term capital loss), if any, of a Fund, will be taxed to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held his or her shares or whether such gain was reflected in
the price paid for the shares. Such long-term capital gain will constitute 20%
or 28% rate gain, depending upon the Fund's holding period for the assets the
sale of which generated the gain. These tax consequences will apply whether
distributions are received in cash or reinvested in shares. Certain
distributions paid by a Fund in January of a given year may be taxable to
shareholders as if received the prior December 31. Shareholders will be
informed annually about the amount and character of distributions received
from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution other than a daily dividend will pay a per
33
<PAGE>
share price that includes the value of the anticipated distribution and will
be taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of shares are taxable events.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not
U.S. persons under the Code are subject to different tax rules and may be
subject to non-resident alien withholding at the rate of 30% (or a lower rate
provided by an applicable tax treaty) on amounts treated as ordinary dividends
from the Funds.
The Core Fixed Income Fund may be subject to foreign withholding or other
foreign taxes on income or gain from certain foreign securities. In general,
the Fund may deduct these taxes in computing its taxable income, if any. As an
alternative, if more than 50% of the value of its total assets is comprised of
stock or securities of foreign corporations at the end of its taxable year and
the Fund so elects, the Fund's shareholders will include in their gross
incomes (in addition to dividends and distributions they receive) their pro
rata shares of qualified foreign taxes paid by the Fund and may be entitled
under the Code to claim foreign tax credits or deductions with respect to such
taxes.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds, including exempt-
interest dividends. A state income (and possibly local income and/or
intangible property) tax exemption is generally available to the extent (if
any) a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in shares of the Funds,
see "Taxation" in the Additional Statement. Shareholders are urged to consult
their own tax advisers regarding specific questions as to federal, state and
local taxes as well as to any foreign taxes.
ADDITIONAL INFORMATION
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
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ADMINISTRATION PLAN
The Trust, on behalf of the Funds, has adopted an Administration Plan with
respect to the Administration Shares which authorizes a Fund to compensate
certain institutions ("Service Organizations") for providing account
administration services to their customers who are beneficial owners of such
Shares. The Trust, on behalf of the Funds, enters into agreements with Service
Organizations which purchase Administration Shares on behalf of their
customers ("Service Agreements"). The Service Agreements provide for
compensation to the Service Organizations in an amount up to 0.25% (on an
annualized basis) of the average daily net assets of the Administration Shares
of the Fund attributable to or held in the name of the Service Organization
for its customers. The services provided by the Service Organizations may
include acting, directly or through an agent, as the sole shareholder of
record, maintaining account records for customers and processing orders to
purchase, redeem or exchange Administration Shares for customers.
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 to accept on the Trust's behalf orders placed by
their customers and, if approved by the Trust, to designate other
intermediaries to accept such orders. In these cases, a Fund will be deemed to
have received an order in proper form when the order is accepted by the
authorized Service Organization or intermediary on a Business Day, and the
order will be priced at 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. A customer may contact its Service Organization to learn
whether the Service Organization is authorized to accept orders. Service
Organizations that are authorized to accept orders for the Trust may receive
payments from the Funds or Goldman Sachs that are in addition to the payments
payable by the Trust under the Administration Plan.
Holders of Administration Shares of a Fund bear all expenses and fees paid
to Service Organizations under the Administration Plan as well as any other
expenses which are attributed to such Shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of Administration Shares in connection with their customer
accounts. These fees would be in addition to any amounts received by the
Service Organization under a Service Agreement and may affect the return
earned on an investment in the Fund. The Trust, on behalf of the Funds,
accrues payments made pursuant to a Service Agreement daily. All inquiries of
beneficial owners of Administration Shares should be directed to the owners'
Service Organizations.
For the fiscal year ended October 31, 1997, the Trust, on behalf of each
Fund, paid Service Organizations fees at the annual rate of 0.25% of each
Fund's average daily net assets attributable to Administration Shares.
REPORTS TO SHAREHOLDERS
Recordholders of Administration Shares of the Funds will receive an annual
report containing audited financial statements and a semi-annual report. Each
recordholder of Administration Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account
statement. A year-to-date statement for any account will be provided to a
Service Organization upon request made to Goldman Sachs.
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<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
transaction.
PURCHASE OF ADMINISTRATION SHARES
Customers of Service Organizations may invest in Administration Shares only
through their Service Organizations. Administration 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
"Administration Plan" for a description of limited situations where a Service
Organization or other intermediary may be authorized to accept orders for the
Funds.) No sales load will be charged. Currently, net asset value is
determined as of the close of regular trading on the New York Stock Exchange
(normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York time),
as described under "Net Asset Value." Purchases of Administration Shares of
the Funds must be settled within three (3) Business Days of the receipt of a
complete purchase order. Payment of the proceeds of redemption of shares
purchased by check may be delayed for a period of time as described under
"Redemption of Administration Shares."
The Service Organizations are responsible for the timely transmittal of
purchase orders to Goldman Sachs and payments to Northern or Goldman Sachs. In
order to facilitate timely transmittal, the Service Organizations have
established times by which purchase orders and payments must be received by
them.
PURCHASE PROCEDURES
Purchases of Administration Shares by a Service Organization may be made by
placing an order with Goldman Sachs at 800-621-2550 and either wiring federal
funds to the Northern Trust Company ("Northern") as subcustodian for State
Street Bank and Trust Company ("State Street") on the next Business Day or
initiating an ACH transfer to ensure receipt by Northern on the next Business
Day. Purchases may also be made by a Service Organization by check (except
that the Trust will not accept a check drawn on a foreign bank or a third-
party check) or Federal Reserve draft made payable to Goldman Sachs Fixed
Income Funds -- Name of Fund and Class of shares and should be directed to
Goldman Sachs Fixed Income Funds -- Name of Fund and Class of shares, c/o GSAM
Shareholder Services, 4900 Sears Tower, Chicago, Illinois 60606.
OTHER PURCHASE INFORMATION
The Funds do not have any minimum purchase or account requirements with
respect to Administration Shares. A Service Organization may, however, impose
a minimum amount for initial and subsequent investments in Administration
Shares, and may establish other requirements such as a minimum required
account balance. A Service Organization may effect redemptions of noncomplying
accounts, and may impose a charge for any special services rendered to its
customers. Customers should contact their Service Organizations for further
information concerning such requirements and charges.
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received with a specified settlement date from a Service Organization in
proper form before the determination of net asset value that day and
payment is made by wire transfer or ACH transfer, shares will be issued and
dividends will begin to accrue on the purchased shares on the later of (i)
the Business Day after receipt of the purchase order or
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<PAGE>
(ii) the day of receipt of a federal funds wire or an ACH transfer by
Northern. For purchases without a specified settlement date, shares will be
issued and dividends declared with respect to such shares will begin to
accrue on the Business Day after payment is so received.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is
received with a specified settlement date from a Service Organization in
proper form before the determination of net asset value that day and
payment is made by check or Federal Reserve draft, shares will be issued
and dividends will begin to accrue on the purchased shares on the Business
Day after the date payment is received. For purchases without a specified
settlement date, shares will be issued and dividends declared with respect
to such shares will begin to accrue on the Business Day after payment is so
received.
The Funds reserve the right to redeem Administration Shares of any Service
Organization whose account balance is less than $50 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of a
recordholder's account falls below the minimum account balance solely as a
result of market conditions. A Fund will give sixty (60) days' prior written
notice to Service Organizations whose Administration Shares are being redeemed
to allow them to purchase sufficient additional Administration Shares to avoid
such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). This may occur, for
example, when a purchaser or group of purchasers' pattern of frequent
purchases, sales or exchanges of Administration Shares of a Fund is evident,
or if purchases, sales or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of 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, also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale of shares of the Funds and other
investment portfolios of the Trust (such as additional payments based on new
sales, amounts exceeding pre-established thresholds, or the length of time
customers' assets have remained in the Trust) and, 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 can vary among Service
Organizations depending upon such factors as the amounts their customers have
invested (or may invest) in particular investment portfolios of the Trust, 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
the Additional Statement.
EXCHANGE PRIVILEGE
Administration Shares of the Funds may be exchanged by a Service
Organization for (i) Administration Shares of any other mutual fund sponsored
by Goldman Sachs and designated as an eligible fund for this purpose
37
<PAGE>
and (ii) the corresponding class of any Goldman Sachs Money Market Fund at the
net asset value next determined either by writing to Goldman Sachs, Attention:
Goldman Sachs Fixed Income Funds -- Name of Fund and Class of shares, c/o GSAM
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. Administration Shares acquired by telephone exchange must be
registered in the same name(s) and have the same address as Administration
Shares of the Fund for which the exchange is being made.
In an effort to prevent unauthorized or fraudulent exchanges by telephone,
Goldman Sachs employs reasonable procedures as set forth under "Redemption of
Administration Shares" to confirm that such instructions are genuine. In times
of drastic economic or market changes, the telephone exchange privilege may be
difficult to implement. For federal income tax purposes, an exchange is
treated as a redemption of the Administration Shares surrendered in the
exchange, on which an investor may be subject to tax, followed by a purchase
of Administration Shares, or the corresponding class of any Goldman Sachs
Money Market Fund received in the exchange. Shareholders should consult their
own tax advisers concerning the tax consequences of an exchange. Exchanges are
available only in states where exchanges may legally be made. The exchange
privilege may be materially modified or withdrawn at any time on sixty (60)
days' written notice to the recordholders of Administration Shares and is
subject to certain limitations. See "Purchase of Administration Shares."
REDEMPTION OF ADMINISTRATION SHARES
The Funds will redeem their Administration Shares upon request of the
recordholder of such Shares on any Business Day at the net asset value next
determined after receipt of such request in proper form by Goldman Sachs. (See
"Administration Plan" for a description of limited situations where a Service
Organization or other intermediary may be authorized to accept redemptions for
the Funds.) If Administration Shares to be redeemed were recently purchased by
check, a Fund may delay transmittal of redemption proceeds until such time as
it has assured itself that good funds have been collected for the purchase of
such Administration Shares. This may take up to fifteen (15) days. Redemption
requests may be made by a Service Organization by writing to or calling the
Transfer Agent at the address or telephone number set forth on the back cover
page of this Prospectus. A Service Organization may request redemptions by
telephone if the optional telephone redemption privilege is elected on the
Account Information Form. It may be difficult to implement redemptions by
telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. Among other
things, any redemption request that requires money to go to an account or
address other than that designated on the Account Information Form must be in
writing and signed by an authorized person designated on the Account
Information Form. Any such written request is also confirmed by telephone with
both the requesting party and the designated bank account to verify
instructions. Exchanges among accounts with different names, addresses and
social security or 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
38
<PAGE>
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. Administration Shares of each Fund earn dividends
declared on the day the shares are redeemed.
The Funds will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Administration 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 Administration Shares.
Service Organizations are responsible for the timely transmittal of
redemption requests by their customers to the Transfer Agent. In order to
facilitate timely transmittal of redemption requests, Service Organizations
have established times by which redemption requests must be received by them.
Additional documentation may be required when deemed appropriate by a Service
Organization.
----------------
39
<PAGE>
APPENDIX
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide a Fund with your correct Taxpayer
Identification Number (TIN), regardless of whether you file tax returns.
Failure to do so may subject you to penalties. Failure to provide your correct
TIN and to sign your name in the Certification section of the Account
Information Form could result in withholding of 31% by a Fund for the federal
backup withholding tax on distributions, redemptions, exchanges and other
payments relating to your account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). Backup withholding could apply to payments relating to
your account while you are awaiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report your interest and/or dividend income
on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
section of the Account Information Form.
If you are an exempt recipient, you should furnish your TIN and certify your
exemption by signing the Certification section and writing "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRA's, governmental agencies, financial institutions, registered
securities and commodities dealers and others.
If you are a nonresident alien or foreign entity, you must provide a
completed Form W-8 to the Fund in order to avoid backup withholding on certain
payments. Other payments to you may be subject to nonresident alien
withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN
1776 HERITAGE DRIVE
NORTH QUINCY, MASSACHUSETTS, 02171
ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TOLL FREE (IN U.S.) . . . . . . . . 800-621-2550
FIPROADMIN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GOLDMAN SACHS
FIXED INCOME FUNDS
- --------------------------------------------------------------------------------
PROSPECTUS
ADMINISTRATION SHARES
GOLDMAN
SACHS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OAKMARK UNITS
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
A CASH MANAGEMENT VEHICLE FOR
EXISTING AND PROSPECTIVE UNITHOLDERS OF
[LOGO OF OAKMARK FUNDS]
PROSPECTUS
-----------
THE OAKMARK FAMILY OF FUNDS
TWO NORTH LASALLE STREET
CHICAGO, ILLINOIS 60602-3790
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights............................................................ 2
Fees and Expenses.......................................................... 5
Financial Highlights....................................................... 7
Investment Objective and Policies.......................................... 9
Description of Securities.................................................. 11
Risk Factors............................................................... 13
Investment Techniques...................................................... 14
Investment Restrictions.................................................... 18
Portfolio Turnover......................................................... 18
Management................................................................. 19
Dividends.................................................................. 21
Net Asset Value............................................................ 22
Performance Information.................................................... 23
Units of the Trust......................................................... 24
Taxation................................................................... 25
Additional Information..................................................... 27
Additional Services........................................................ 27
Unitholder Services........................................................ 28
Purchase of Oakmark Units.................................................. 29
Redemption of Oakmark Units................................................ 31
</TABLE>
QUESTIONS ABOUT YOUR ACCOUNT:
If you have questions about your account, please call Oakmark at: 1-800-
OAKMARK (1-800-625-6275).
<PAGE>
PROSPECTUS
March 1, 1998
OAKMARK UNITS
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Seeks a high level of current income, consistent with relatively low
volatility of principal, that is exempt from regular federal income tax. The
Fund invests primarily in municipal securities.
This Prospectus relates to the offering of Service Units of the Fund ("Oakmark
Units") through Harris Associates L.P. ("Harris Associates") in its capacity
as a Service Organization for the Fund.
Goldman Sachs Asset Management (the "Investment Adviser"), New York, New York,
a separate operating division of Goldman, Sachs & Co. ("Goldman Sachs"),
serves as investment adviser to the Fund. Goldman Sachs serves as the Fund's
distributor and transfer agent. Harris Associates or its designee will act as
nominee and recordholder of Oakmark Units. Investors should be aware that
Oakmark Units of the Fund may be purchased only through Harris Associates or
its designee. Harris Associates is not the distributor of the Fund.
This Prospectus provides information about the Fund that a prospective
investor should understand before investing. This Prospectus should be
retained for future reference. A Statement of Additional Information (the
"Additional Statement"), dated March 1, 1998, containing further information
about the Fund 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 by calling The
Oakmark Family of Funds at 1-800-OAKMARK (1-800-625-6275) or by writing the
Funds at Two North LaSalle Street, Chicago, Illinois 60602. The SEC maintains
a Web site (http://www.sec.gov) that contains the Additional Statement and
other information regarding the Trust.
-----------------
UNITS OF THE FUND 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 THE FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
1
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information and is
qualified in its entirety by the more detailed information contained in this
Prospectus.
WHAT IS GOLDMAN SACHS SHORT DURATION TAX-FREE FUND?
Goldman Sachs Short Duration Tax-Free Fund (the "Fund") is an investment
fund (mutual fund) of Goldman Sachs Trust (the "Trust"), an open-end
management investment company. The Fund pools the monies of investors by
selling its units to the public and investing these monies in a portfolio of
securities designed to achieve the Fund's stated investment objective.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES OF THE FUND?
<TABLE>
-----------------------------------------------------------------------
<S> <C>
INVESTMENT OBJECTIVE A high level of current income,
consistent with low volatility of
principal, that is exempt from
regular federal income tax.
-------------------------------------------------------------------------
DURATION Target = Lehman Brothers 3-Year
Municipal Bond Index plus or minus
.5 years
Maximum = 4 years
-------------------------------------------------------------------------
EXPECTED APPROXIMATE INTEREST RATE 3-year bond
SENSITIVITY
-------------------------------------------------------------------------
INVESTMENT SECTOR At least 80% of net assets in
municipal securities.
-------------------------------------------------------------------------
CREDIT QUALITY Minimum = BBB/Baa
-------------------------------------------------------------------------
OTHER INVESTMENTS U.S. Government Securities and
repurchase agreements collateralized
by such securities.
-------------------------------------------------------------------------
BENCHMARK Lehman Brothers 3-Year Municipal
Bond Index
-------------------------------------------------------------------------
</TABLE>
There can be no assurance that the Fund's objective will be achieved. For
a further description of the Fund's investment objective and policies, see
"Investment Objective and Policies," "Description of Securities" and
"Investment Techniques."
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD CONSIDER
BEFORE INVESTING?
The Fund's unit price will fluctuate with market and economic conditions,
so that an investment in the Fund may be worth more or less when redeemed
than when purchased. The Fund should not be relied upon as a complete
investment program. There can be no assurance that the Fund's investment
objective will be achieved. See "Risk Factors."
Interest Rate Risk. When interest rates decline, the market value of
fixed-income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed-income securities tends to decline.
Volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
- --------------------------------------------------------------------------------
2
<PAGE>
Default Risk/Credit Risk. Investments in fixed-income securities are
subject to the risk that the issuer could default on its obligations, and
the Fund could sustain losses on such investments. A default could impact
both interest and principal payments.
Call Risk and Extension Risk. Fixed-income securities may be subject to
both call risk and extension risk. Call risk (i.e., where the issuer
exercises its right to pay principal on an obligation earlier than
scheduled) causes cash flow to be returned earlier than expected. Call risk
typically results when interest rates have declined. Under such
circumstances, the Fund will suffer from having to reinvest in lower
yielding securities. Extension risk (i.e., where the issuer exercises its
right to pay principal on an obligation later than scheduled) causes cash
flows to be returned later than expected. Extension risk typically results
when interest rates have increased. Under such circumstances, the Fund will
suffer from the inability to invest in higher yielding securities.
Tax Risk of Municipal Securities. Because of their tax-exempt status, the
yields and market values of municipal securities may be more adversely
impacted by changes in tax rates and policies than taxable fixed-income
securities.
Other. The Fund's use of certain investment techniques, including
derivatives, options, futures and swap transactions, will subject the Fund
to greater risk than funds that do not employ such techniques.
WHO MANAGES THE FUND?
Goldman Sachs Asset Management serves as the Investment Adviser to the
Fund. As of January 26, 1998, the Investment Adviser, together with its
affiliates, acted as investment adviser, administrator or distributor for
assets in excess of $140 billion.
WHO DISTRIBUTES THE FUND'S UNITS?
Goldman Sachs acts as distributor of the Fund's units.
WHO IS HARRIS ASSOCIATES L.P.?
This Prospectus relates to the offering of Oakmark Units through Harris
Associates in its capacity as a Service Organization for the Fund. Harris
Associates or its designee will act as nominee and recordholder of the
Oakmark Units. Investors should be aware that Oakmark Units of the Fund may
be purchased only through Harris Associates or its designee.
3
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment in Oakmark Units is $1,000. Minimum
subsequent investments are $100.
HOW DO I PURCHASE OAKMARK UNITS?
You may purchase Oakmark Units of the Fund by check, by wire, by
electronic transfer or by exchange through State Street Bank and Trust
Company as agent for Harris Associates ("Oakmark"). There are no sales
commissions or underwriting discounts.
ADDITIONAL SERVICES. The Trust, on behalf of the Fund, has adopted a
Service Plan with respect to the Service Units which authorizes the Fund to
compensate Service Organizations, like Harris Associates, for providing
account administration and unitholder liaison services to their customers
who are the beneficial owners of such Units. The Trust, on behalf of the
Fund, will enter into agreements with each Service Organization which will
provide for compensation to the Service Organization in an amount up to
0.50% (on an annualized basis) of the average daily net assets of the
Services Units of the Fund attributable to or held in the name of the
Service Organization for its customers. See "Additional Services."
HOW DO I SELL MY OAKMARK UNITS?
You may redeem Oakmark Units 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 Oakmark Units."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Dividends accrue to unitholders daily and will be paid to Harris
Associates monthly for distribution to unitholders of Oakmark Units.
Unitholders of Oakmark Units may receive dividends in additional Oakmark
Units of the Fund or you may elect to receive cash. For further information
concerning dividends, see "Dividends."
4
<PAGE>
FEES AND EXPENSES
OAKMARK UNITS
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases............................. none
Maximum Sales Charge Imposed on Reinvested Dividends.................. none
Redemption Fees....................................................... none
Exchange Fees......................................................... none
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees (after applicable limitations)/1/..................... 0.40%
Service Fees/2/....................................................... 0.50%
Other Expenses (after applicable limitations)/1/...................... 0.05%
----
TOTAL FUND OPERATING EXPENSES (AFTER FEE AND EXPENSE LIMITATIONS)/3/.. 0.95%
====
</TABLE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
assuming (i) a 5% annual return and (ii) redemption at the end of each time
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$10 $30 $53 $117
</TABLE>
/1/ The Investment Adviser has voluntarily 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) to the extent such expenses exceed 0.05% of the Fund's average
daily net assets.
/2/ Service Organizations may charge other fees to their customers who are
beneficial owners of Service Units in connection with their customer
accounts. See "Additional Services" Investors should be aware that, due to
the service fees, a long-term shareholder in the Fund may pay over time more
than the economic equivalent of the maximum front-end sales charge permitted
under the rules of the National Association of Securities Dealers, Inc.
/3/ Without the limitations described above, "Other Expenses" and "Total
Operating Expenses" of the Fund for the fiscal year ended October 31, 1997
would have been .83% and 1.73%, respectively.
The Investment Adviser has no current intention of modifying or
discontinuing any of the limitations set forth above, but may do so in the
future at its discretion. The information set forth in the foregoing table and
hypothetical example relates only to Oakmark Units of the Fund. Oakmark Units
are Service Units sold through Harris Associates. The Fund also offers
5
<PAGE>
Institutional Shares, Administration Shares, Class A Shares, Class B Shares
and Class C Shares. The other classes of the Fund are subject to different
fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services. Information
regarding any other class of the Fund may be obtained from Harris Associates
or Goldman Sachs.
In addition to the compensation itemized above, certain Service
Organizations may receive other compensation in connection with the sale and
distribution of Service Shares or for service to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Additional Services" in this Prospectus.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of the Fund that an investor will bear directly
or indirectly. The information on the fees and expenses included in the table
and the hypothetical example above are based on the Fund's actual fees and
expenses and should not be considered as representative of past or future
expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, the Fund's
actual performance will vary and may result in an actual return greater or
less than 5%. See "Management -- Investment Adviser" and "Additional
Services."
6
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a unit (of the Class specified) of the
Fund outstanding during the period(s) indicated have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Fund for the year ended October 31, 1997 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus.
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(H)
----------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1997-Institu-
tional Shares... $9.96 $0.4181(a) $0.1091 (a) -- $0.5272 $(0.4172)
1997-Administra-
tion Shares..... 9.96 0.3924(a) 0.1100 (a) -- 0.3024 (0.3924)
1997-Service
Shares.......... 9.97 0.3675(a) 0.1000 (a) -- 0.4675 (0.3625)
1997-Class A
Shares(f)....... 9.94 0.1950(a) 0.1400 (a) -- 0.3350 (0.1950)
1997-Class B
Shares(f)....... 9.94 0.1663(a) 0.1368 (a) -- 0.3031 (0.1631)
1997-Class C
Shares(f)....... 10.04 0.0670(a) 0.0300 (a) -- 0.0970 (0.0670)
1996-Institu-
tional Shares... 9.94 0.4192(a) 0.0200 (a) -- 0.4192 (0.4192)
1996-Administra-
tion Shares..... 9.94 0.3944(a) 0.0200 (a) -- 0.4144 (0.3944)
1996-Service
Shares.......... 9.95 0.3697(a) 0.0200 (a) -- 0.3897 (0.3697)
1995-Institu-
tional Shares... 9.79 0.4235(a) 0.1500 (a) -- 0.3735 (0.4235)
1995-Administra-
tion Shares..... 9.79 0.3989(a) 0.1500 (a) -- 0.5489 (0.3989)
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET RATIO OF
REALIZED REALIZED NET NET NET
GAIN ON GAIN ON INCREASE ASSET EXPENSES
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) VALUE TO
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET AT END AVERAGE
FUTURES INVESTMENT FUTURES IN TO ASSET OF TOTAL NET
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(G) ASSETS
------------ ---------- ------------ ------- ------------- ---------- ------ ---------- ---------
SHORT DURATION TAX-FREE FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1997-Institu-
tional Shares... -- -- -- -- $(0.4172) $0.1100 $10.07 5.40% 0.45%
1997-Administra-
tion Shares..... -- -- -- -- (0.3924) 0.1100 10.07 5.14 0.70
1997-Service
Shares.......... -- -- -- -- (0.3675) 0.1000 10.07 4.77 0.95
1997-Class A
Shares(f)....... -- -- -- -- (0.1950) 0.1400 10.08 3.39(d) 0.70(b)
1997-Class B
Shares(f)....... -- -- -- -- (0.1631) 0.1400 10.08 3.07(d) 1.30(b)
1997-Class C
Shares(f)....... -- -- -- -- (0.0670) 0.0300 10.07 0.97(d) 1.45(b)
1996-Institu-
tional Shares... -- -- -- -- (0.4192) 0.0300 9.96 4.50 0.45
1996-Administra-
tion Shares..... -- -- -- -- (0.3944) 0.0300 9.96 4.24 0.70
1996-Service
Shares.......... -- -- -- -- (0.3697) 0.0200 9.97 3.98 0.95
1995-Institu-
tional Shares... -- -- -- -- (0.4235) 0.1500 9.94 5.98 0.45
1995-Administra-
tion Shares..... -- -- -- -- (0.3989) 0.1500 9.94 5.76 0.70
</TABLE>
<TABLE>
<CAPTION>
LIMITATIONS
--------------------
NET
RATIO OF ASSETS RATIO OF RATIO OF
NET AT END EXPENSES NET
INVESTMENT OF TO INVESTMENT
INCOME TO PORTFOLIO PERIOD AVERAGE INCOME TO
AVERAGE TURNOVER (IN NET AVERAGE
NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ----------- ------- --------- ----------
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER 31,
1997-Institu-
tional Shares... 4.18% 194.75% $28,821 1.23% 3.40%
1997-Administra-
tion Shares..... 3.91 194.75 77 1.48 3.13
1997-Service
Shares.......... 3.66 194.75 2,051 1.73 2.88
1997-Class A
Shares(f)....... 3.81(b) 194.75(f) 4,023 1.73(b) 2.78(b)
1997-Class B
Shares(f)....... 3.31(b) 194.75(f) 106 2.23(b) 2.38(b)
1997-Class C
Shares(f)....... 2.60(b) 194.75(f) 2 2.23(b) 1.82(h)
1996-Institu-
tional Shares... 4.21 231.65 34,814 1.01 3.65
1996-Administra-
tion Shares..... 3.96 231.65 48 1.26 3.40
1996-Service
Shares.......... 3.74 231.61 695 1.51 3.18
1995-Institu-
tional Shares... 4.31 259.52 58,389 0.77 3.99
1995-Administra-
tion Shares..... 4.14 259.52 46 1.02 3.82
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
INCOME (LOSS) FROM INVESTMENT OPERATIONS(H)
--------------------------------------------------
NET REALIZED NET
AND REALIZED
UNREALIZED AND
GAIN (LOSS) UNREALIZED TOTAL
ON GAIN (LOSS) INCOME
NET ASSET INVESTMENT, ON FOREIGN (LOSS)
VALUE AT NET OPTION AND CURRENCY FROM FROM NET
BEGINNING INVESTMENT FUTURES RELATED INVESTMENT INVESTMENT
OF PERIOD INCOME TRANSACTIONS TRANSACTIONS OPERATIONS INCOME
--------- ---------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1995-Service
Shares.......... 9.79 0.3744(a) 0.1600 (a) -- 0.5344 (0.3744)
1994-Institu-
tional Shares... 10.23 0.3787(a) (0.3575)(a) -- 0.0212 (0.3787)
1994-Administra-
tion Shares..... 10.23 0.3537(a) (0.3575)(a) -- (0.0038) (0.3537)
1994-Service
Shares(f)....... 9.86 0.0475(a) (0.0700)(a) -- (0.0225) (0.0475)
1993-Institu-
tional Shares... 9.93 0.3834 0.3000(c) -- 0.6834 (0.3834)
1993-Administra-
tion Shares(f).. 10.16 0.1555 0.0720(c) -- 0.2275 (0.1555)
.FOR THE PERIOD OCTOBER 1, 1992(E) THROUGH OCTOBER 31,
1992-Institu-
tional Shares... 10.00 0.0341 (0.0700)(c) -- (0.0359) (0.0341)
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTIONS TO SHAREHOLDERS
----------------------------------------------------------
IN EXCESS
FROM NET OF NET RATIO OF
REALIZED REALIZED NET NET NET
GAIN ON GAIN ON INCREASE ASSET EXPENSES
INVESTMENT, IN EXCESS INVESTMENT, FROM TOTAL (DECREASE) VALUE TO
OPTION AND OF NET OPTION AND PAID DISTRIBUTIONS IN NET AT END AVERAGE
FUTURES INVESTMENT FUTURES IN TO ASSET OF TOTAL NET
TRANSACTIONS INCOME TRANSACTIONS CAPITAL SHAREHOLDERS VALUE PERIOD RETURN(G) ASSETS
------------ ---------- ------------ ------- ------------- ---------- ------ ----------- ---------
SHORT DURATION TAX-FREE FUND (CONTINUED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995-Service
Shares.......... -- -- -- -- (0.3744) 0.1600 9.95 5.59 0.95
1994-Institu-
tional Shares... (0.0825) -- -- -- (0.4612) (0.4400) 9.79 0.17 0.45
1994-Administra-
tion Shares..... (0.0825) -- -- -- (0.4362) (0.4400) 9.79 (0.11) 0.70
1994-Service
Shares(f)....... -- -- -- -- (0.0475) (0.0700) 9.79 (0.32)(d) 0.95(b)
1993-Institu-
tional Shares... -- -- -- -- (0.3834) 0.3000 10.23 7.03 0.41
1993-Administra-
tion Shares(f).. -- -- -- -- (0.1555) 0.0720 10.23 2.28(d) 0.70(b)
.FOR THE PERIOD OCTOBER 1, 1992(E) THROUGH OCTOBER 31,
1992-Institu-
tional Shares... -- -- -- -- (0.0341) (0.0700) 9.93 (0.34)(d) 2.05(b)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS ASSUMING NO
VOLUNTARY WAIVER OF
FEES OR EXPENSE
LIMITATIONS
--------------------
NET
RATIO OF ASSETS RATIO OF RATIO OF
NET AT END EXPENSES NET
INVESTMENT OF TO INVESTMENT
INCOME TO PORTFOLIO PERIOD AVERAGE INCOME TO
AVERAGE TURNOVER (IN NET AVERAGE
NET ASSETS RATE(D) 000S) ASSETS NET ASSETS
---------- ----------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
1995-Service
Shares.......... 3.87 259.52 454 1.27 3.95
1994-Institu-
tional Shares... 3.74 354.00 85,704 0.61 3.58
1994-Administra-
tion Shares..... 3.51 354.00 3,866 0.86 3.35
1994-Service
Shares(f)....... 4.30(b) 354.00 440 1.11(b) 4.14(b)
1993-Institu-
tional Shares... 3.70 404.60 115,803 1.06 3.05
1993-Administra-
tion Shares(f).. 3.32(b) 404.60 911 1.07(b) 2.95(h)
.FOR THE PERIOD
OCTOBER 1, 1992(E)
THROUGH OCTOBER 31, 1992-Institu-
tional Shares... 4.58(b) 31.19(d) 14,601 2.68(b) 1.95(b)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
- --------
(a) Calculated based on the average shares outstanding methodology.
(b) Annualized.
(c) Includes the effect of Mortgage dollar roll transactions.
(d) Not Annualized.
(e) Commencement of operations.
(f) Administration, Service, Class A, Class B and Class C share activity
commenced on May 20, 1993, September 20, 1994, May 1, 1997, May 1, 1997 and
August 15, 1997, respectively.
(g) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and not
sales charge. For Class A shares only, total return would be reduced if a
sales charge were taken into account.
(h) Includes the balancing effect of calculating per share amounts.
8
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and principal investment policies of the Fund are
described below. Other investment practices and management techniques, which
involve certain risks are described under "Description of Securities," "Risk
Factors" and "Investment Techniques." There can be no assurance that the
Fund's investment objective will be achieved.
The Fund's duration approximates its price sensitivity to changes in
interest rates. Maturity measures the time until final payment is due; it
takes no account of the pattern of a security's cash flows over time. In
computing portfolio duration, the Fund will estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influence of interest rates on prepayments and coupon flows.
This method of computing duration is known as "option-adjusted" duration. The
Fund will not be limited as to its maximum weighted average portfolio maturity
or the maximum stated maturity with respect to individual securities unless
otherwise noted.
The Fund will deem a security to have met its minimum credit rating
requirement if the security receives the minimum required long-term rating (or
the equivalent short-term credit rating) at the time of purchase from at least
one nationally recognized statistical rating organization ("NRSRO") including,
but not limited to, Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's"), even though it has been rated below the
minimum rating by one or more other NRSROs or, if unrated, is determined by
the Investment Adviser to be of comparable quality. If a security satisfies
the Fund's minimum rating criteria at the time of purchase and is subsequently
downgraded below such rating, the Fund will not be required to dispose of such
security. If a downgrade occurs, the Investment Adviser will consider what
action, including the sale of such security, is in the best interest of the
Fund and its unitholders.
The Investment Adviser will usually have access to the research of, and
certain proprietary technical models developed by, Goldman Sachs and will
apply quantitative and qualitative analysis in determining the appropriate
allocations among the categories of issuers and types of securities.
SHORT DURATION TAX-FREE FUND
OBJECTIVE. The Fund's investment objective is to provide investors with a
high level of current income, consistent with relatively low volatility of
principal, that is exempt from regular federal income tax.
DURATION. Under normal interest rate conditions, the Fund's duration is
expected to be equal to that of the Fund's benchmark, the Lehman Brothers
three-year Municipal Bond Index, plus or minus .5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed
9
<PAGE>
four years. The approximate interest rate sensitivity of the Fund is expected
to be comparable to a three-year bond.
INVESTMENT SECTOR. The Fund invests, under normal conditions, at least 80%
of its net assets in fixed-income securities issued by or on behalf of states,
territories and possessions of the United States (including the District of
Columbia) and the political subdivisions, agencies and instrumentalities
thereof ("Municipal Securities"), the interest on which is exempt from regular
federal income tax (i.e., excluded from gross income for federal income tax
purposes) and is not a tax preference item under the federal alternative
minimum tax. Under normal circumstances, the Fund's investments in private
activity bonds and taxable investments will not exceed, in the aggregate, 20%
of the Fund's net assets. The interest from certain private activity bonds
(including the Fund's distributions of such interest) may be a preference item
for purposes of the Federal alternative minimum tax and may increase liability
for the corporate environmental tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
CREDIT QUALITY. The Municipal Securities in which the Fund invests will be
rated, at the time of investment, at least BBB or Baa by an NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. Municipal Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions
or changing circumstances may weaken their issuers' capability to pay interest
and repay principal. The credit rating assigned to Municipal Securities may
reflect the existence of guarantees, letters of credit or other credit
enhancement features available to the issuers or holders of such Municipal
Securities.
OTHER. The Fund may employ certain active management techniques to manage
its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), interest rate
swaps, floors, caps and collars. The Fund may also employ other investment
techniques to seek to enhance returns, such as lending portfolio securities
and entering into repurchase agreements and other investment practices
described under "Investment Techniques."
While the Fund, under normal market conditions, invests substantially all of
its assets in Municipal Securities, the recognition of certain accrued market
discount income (if the Fund acquires Municipal Securities or other
obligations at a market discount), income from investments other than
Municipal Securities and any capital gains generated from the disposition of
investments, will result in taxable income. In addition to federal income tax,
unitholders may be subject to state, local or foreign taxes on distributions
of such income received from the Fund. See "Description of Securities."
10
<PAGE>
DESCRIPTION OF SECURITIES
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. government securities ("U.S. Government
Securities"). Generally, these securities include U.S. Treasury obligations
and obligations issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises which are supported by (a) the full
faith and credit of the U.S. Treasury (such as the Government National
Mortgage Association ("Ginnie Mae")), (b) the right of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association), (c) the discretionary authority of the U.S. government to
purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer. No assurance can be
given that the U.S. government will provide financial support to U.S.
government agencies, instrumentalities or sponsored enterprises in the future.
U.S. Government Securities also include Treasury receipts, zero coupon bonds
and other stripped U.S. Government Securities, where the interest and
principal components of stripped U.S. Government Securities are traded
independently. The most widely recognized program is the Separate Trading of
Registered Interest and Principal of Securities Program.
MUNICIPAL SECURITIES
GENERAL. Municipal Securities in which the Fund invests consist of bonds,
notes, commercial paper and other instruments (including participation
interests in such securities) issued by or on behalf of states, territories
and possessions of the United States (including the District of Columbia) and
their political subdivisions, agencies or instrumentalities, the interest on
which, in the opinion of bond counsel for the issuers or counsel selected by
the Investment Adviser, is exempt from regular federal income tax (i.e.,
excluded from gross income for federal income tax purposes but not necessarily
exempt from federal alternative minimum tax or from state or local taxes).
Such securities may pay fixed, variable or floating rates of interest.
Municipal Securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities such
as bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Other public purposes for which Municipal
Securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses, and obtaining funds to lend to other
public institutions and facilities.
PRIVATE ACTIVITY BONDS. Municipal Securities include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
11
<PAGE>
public authorities to obtain funds for such projects as privately-operated
housing facilities, airport, mass transit or port facilities and sewage
disposal. In addition, proceeds of certain industrial development bonds are
used for constructing, equipping, repairing or improving privately operated
industrial or commercial facilities. The Fund's distributions attributable to
the interest income from private activity bonds may subject certain investors
to the federal alternative minimum tax.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The primary risk associated with
municipal lease obligations and certificates of participation is that the
governmental lessee will fail to appropriate funds to enable it to meet its
payment obligations under the lease. Although the obligations may be secured
by the leased equipment or facilities, the disposition of the property in the
event of non-appropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovering or the failure to
fully recover the Fund's original investment. To the extent that the Fund
invests in unrated municipal leases or participates in such leases, the credit
quality rating and risk of cancellation of such unrated leases will be
monitored on an ongoing basis. Certain municipal lease obligations and
certificates of participation may be deemed illiquid for the purpose of the
Fund's limitation on investments in illiquid securities.
PRE-REFUNDED MUNICIPAL SECURITIES. The interest and principal payments on
pre-refunded Municipal Securities are typically paid from the cash flow
generated from an escrow fund consisting of U.S. Government Securities. These
payments have been "pre-refunded" using the escrow fund.
INSURED SECURITIES. "Insured" Municipal Securities are those for which
scheduled payments of interest and principal are guaranteed by a private (non-
governmental) insurance company. The insurance entitles the Fund to receive
only the face or par value of the securities held by the Fund. The insurance
does not guarantee the market value of the Municipal Securities or the net
asset value of the Fund's units.
AUCTION RATE SECURITIES. Auction rate Municipal Securities permit the holder
to sell the securities in an auction at par value at specified intervals. The
dividend or interest is typically reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of
securities at a specified minimum yield. The rate set by the auction is the
lowest interest or dividend rate that covers all securities offered for sale.
While this process is designed to permit auction rate securities to be traded
at par value, there is the
12
<PAGE>
risk that an auction will fail due to insufficient demand for the securities.
The Fund will take the time remaining until the next scheduled auction date
into account for purposes of determining the securities' duration.
ZERO COUPON, DEFERRED INTEREST, PAY-IN-KIND AND CAPITAL APPRECIATION BONDS
The Fund may invest in zero coupon, deferred interest and capital
appreciation bonds. These are securities issued at a discount from their face
value because interest payments are typically postponed until maturity. The
amount of the discount rate varies depending on factors including the time
remaining until maturity, prevailing interest rates, the security's liquidity
and the issuer's credit quality. These securities also may take the form of
debt securities that have been stripped of their interest payments. The Fund
may also invest in pay-in-kind securities which are securities that have
interest payable by the delivery of additional securities. A portion of the
discount with respect to stripped tax-exempt securities or their coupons may
be taxable. The market prices of zero coupon, deferred interest, pay-in-kind
and capital appreciation bonds generally are more volatile than the market
prices of interest-bearing securities and are likely to respond to a greater
degree to changes in interest rates than interest-bearing securities having
similar maturities and credit quality. The Fund's investments in zero coupon,
deferred interest, pay-in-kind and capital appreciation bonds may require the
Fund to sell certain of its portfolio securities to generate sufficient cash
to satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
RISK FACTORS
INTEREST RATE RISK. When interest rates decline, the market value of fixed-
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed-income securities tends to decline. Volatility of a
security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed-income securities are subject
to the risk that the issuer could default on its obligations and the Fund
could sustain losses on such investments. A default could impact both interest
and principal payments.
CALL RISK AND EXTENSION RISK. Fixed-income securities may be subject to both
call risk and extension risk. Call risk (i.e., where the issuer exercises its
right to pay principal on an obligation earlier than scheduled) causes cash
flow to be returned earlier than expected. Call risk typically results when
interest rates have declined. Under such circumstances, the Fund may be unable
to recoup all of its initial investment will also suffer from having to
reinvest in lower yielding securities. Extension risk (i.e., where the issuer
exercises its right
13
<PAGE>
to pay principal on an obligation later than scheduled) causes cash flows to
be returned later than expected. Extension risk typically results when
interest rates have increased. Under such circumstances, the Fund will suffer
from the inability to invest in higher yielding securities. Certain types of
U.S. Government Securities and Municipal Securities have this call and/or
extension risk.
TAX RISK OF MUNICIPAL SECURITIES. The yields and market values of Municipal
Securities may be more adversely impacted by changes in tax rates and policies
than taxable fixed-income securities. Because interest income from Municipal
Securities is normally not subject to regular federal income taxation, the
attractiveness of Municipal Securities in relation to other investment
alternatives is affected by changes in federal income tax rates applicable to,
or the continuing federal income tax-exempt status of, such interest income.
Any proposed or actual changes in such rates or exempt status, therefore, can
significantly affect the demand for and supply, liquidity and marketability of
Municipal Securities, which could in turn affect the Fund's ability to acquire
and dispose of Municipal Securities at desirable yield and price levels.
RISKS OF DERIVATIVE TRANSACTIONS. The Fund's transactions, if any, in
options, futures, options on futures, swaps, interest rate caps, floors and
collars and inverse floating-rate securities involve certain risks, including
a possible lack of correlation between changes in the value of hedging
instruments and the portfolio assets being hedged, the potential illiquidity
of the markets for derivative instruments, the risks arising from the margin
requirements and related leverage factors associated with such transactions.
The use of these management techniques to seek to increase total return may be
regarded as a speculative practice and involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in
securities prices or interest rates. The 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.
OTHER RISKS. Floating-rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to lower prices in the event of an
unfavorable change in the spread between two designated interest rates.
INVESTMENT TECHNIQUES
OPTIONS ON SECURITIES AND SECURITIES INDICES. The Fund may write (sell)
covered call and put options and purchase put and call options on any
securities
14
<PAGE>
in which it may invest or on any securities index comprised of securities in
which it may invest. The writing and purchase of options is a highly
specialized activity which involves investment techniques and risks different
from those associated with ordinary portfolio securities transactions. The use
of options to seek to increase total return involves the risk of loss if the
Investment Adviser is incorrect in its expectation of fluctuations in
securities prices or interest rates. The successful use of options for hedging
purposes also depends in part on the ability of the Investment Adviser to
manage future price fluctuations and the degree of correlation between the
options and securities markets. If the Investment Adviser is incorrect in its
expectation of changes in securities prices or determination of the
correlation between the securities indices on which options are written and
purchased and the securities in the Fund's investment portfolio, the
investment performance of the Fund will be less favorable than it would have
been in the absence of such options transactions. The writing of options could
increase the Fund's portfolio turnover rate and, therefore, associated
brokerage commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To seek to increase
total return, to hedge against changes in interest rates or securities prices,
the Fund may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on any of such futures contracts. The
Fund may also enter into closing purchase and sale transactions with respect
to any such contracts and options. The futures contracts may be based on
various securities (such as U.S. Government Securities), securities indices
and other financial instruments and indices. The Fund will engage in futures
and related options transactions only for bona fide hedging purposes as
defined in regulations of the Commodity Futures Trading Commission or to seek
to increase total return to the extent permitted by such regulations. The 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 the 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 or to
otherwise cover the obligations in a manner permitted by the SEC.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Techniques--Futures Contracts and Options on Futures Contracts" in
the Additional Statement. Thus, while the Fund may benefit from
15
<PAGE>
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in a poorer
overall performance than if the Fund had not entered into any futures
contracts or options transactions. Because perfect correlation between a
futures position and portfolio position that is intended to be protected is
impossible to achieve, the desired protection may not be obtained and the Fund
may be exposed to risk of loss. The loss incurred by the 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 the
Fund's net asset value. The profitability of the Fund's trading in futures to
seek to increase total return depends upon the ability of the Investment
Adviser to analyze correctly the futures markets. 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 the
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. The Fund may purchase when-
issued securities. When-issued transactions arise when securities are
purchased by the 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. The Fund may also
purchase securities on a forward commitment basis; that is, make contracts to
purchase securities for a fixed price at a future date beyond the customary
three-day settlement. The Fund is required to hold and maintain in a
segregated account with the Fund's custodian until three days prior to
settlement date, cash or liquid, assets in an amount sufficient to meet the
purchase price. Alternatively, the 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 the Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of when-issued securities
or forward commitments prior to settlement if the Investment Adviser deems it
appropriate to do so.
LLIQUID AND RESTRICTED SECURITIES. The Fund may not invest more than 15% of
its net assets in illiquid investments, which include securities that are not
readily marketable, certain municipal leases and participation interests,
repurchase agreements maturing in more than seven days, time deposits with a
notice or demand period of more than seven days, certain over-the-counter
options, and certain restricted securities, unless it is determined, based
upon the continuing review of the trading markets for a specific restricted
security, that
16
<PAGE>
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 under which to the Investment Adviser determines and monitors the
liquidity of portfolio securities subject to the oversight of the Trustees.
Investing in restricted securities eligible for resale pursuant to Rule 144A
may decrease the liquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
dealers in U.S. Government Securities and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. If the other party or "seller"
defaults, the 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, the 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 Fund to enter into repurchase
agreements with such counterparties. In addition, the Fund, together with
other registered investment companies having management agreements with the
Investment Adviser, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
TEMPORARY INVESTMENTS. The Fund may, for temporary defensive purposes invest
up to 100% of its total assets in (i) U. S. Government Securities or (ii)
repurchase agreements collateralized by U.S. Government Securities. The Fund
may for temporary defensive purposes depart from its stated investment
objectives and invest more than 20% of its net assets in taxable investments.
MISCELLANEOUS TECHNIQUES
In addition to the techniques and investments described above, the Fund may,
with respect to no more than 5% of its net assets, engage in the following
techniques and investments: (i) portfolio securities lending, (ii) interest
rate swaps, caps, floors and collars, (iii) inverse floating-rate securities,
(iv) yield curve options, (v) other investment companies, (vi) custodial
receipts and (vii) tender option bonds and standby commitments. For more
information see the Additional Statement.
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In addition, the Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. The Fund may not make additional
investments if borrowings exceed 5% of its total assets. For more information,
see the Additional Statement.
INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions that are described in
detail under "Investment Restrictions" in the Additional Statement.
Fundamental investment restrictions of the Fund cannot be changed without
approval of a majority of the outstanding units of the Fund as defined in the
Additional Statement. The Fund's investment objective and all policies not
specifically designated as fundamental are non-fundamental and may be changed
without unitholder approval. If there is a change in the Fund's investment
objective, unitholders should consider whether the Fund still remains an
appropriate investment in light of their then current financial positions and
needs.
The Fund's policy to invest, under normal market conditions, at least 80% of
its net assets in Municipal Securities, the interest on which is exempt from
regular federal income tax, is fundamental and may not be changed without
unitholder approval. For more information on the Fund's investment
restrictions, an investor should obtain the Additional Statement.
PORTFOLIO TURNOVER
The Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed- income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of the Fund will vary from year to year. The portfolio
turnover rate is computed by dividing the lesser of the dollar amount of
securities purchased or securities sold (excluding all securities whose
maturities at acquisition are one year or less) by the average monthly value
of such securities owned during the year. A 100% turnover rate would occur,
for example, if all of the securities held by the Fund were sold and replaced
within one year. The Investment Adviser will not consider the portfolio
turnover rate a limiting factor in making investment decisions for the Fund
consistent with the Fund's investment objective and portfolio management
policies. A high rate of portfolio turnover results in increased transaction
costs to the Fund. See "Financial Highlights" for a statement of the Fund's
historical portfolio turnover rates.
18
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MANAGEMENT
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy and
reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise the 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 ADVISER
INVESTMENT ADVISER. 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 Fund; Goldman Sachs registered as an
investment adviser in 1981. As of January 26, 1998, the Investment Adviser,
together with its affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $140 billion.
Under a Management Agreement with the Fund, the 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
Trust to use the name "Goldman Sachs" or a derivative thereof as part of the
Fund's name for as long as the Fund's Management Agreement is in effect.
In performing its investment advisory services, the Investment Adviser,
while remaining ultimately responsible for the management of the Fund, is able
to draw upon the research and expertise of its asset management affiliates for
portfolio decisions and management with respect to certain portfolio
securities. In addition, the Investment Adviser will have access to the
research of, and proprietary technical models developed by, Goldman Sachs and
may apply quantitative and qualitative analyses in determining the appropriate
allocations among the categories of issuers and types of securities.
Under the Management Agreement, the Investment Adviser also: (i) supervises
all non-advisory operations of the Fund; (ii) provides personnel to perform
such executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii) arranges for
at the Fund's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing unitholders, (c) the
periodic updating of the prospectus and statement of additional information
and (d) the preparation of reports to be filed with the SEC and other
regulatory authorities; (iv) maintains the Fund's records; and (v) provides
the Fund with office space and all necessary office equipment and services.
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The Fund's portfolio managers are Benjamin S. Thompson and Elisabeth Schupf
Lonsdale. Mr. Thompson and Ms. Lonsdale each specialize in municipal
securities. Mr. Thompson's responsibilities include developing investment
strategy and structuring portfolios. Ms. Lonsdale is also responsible for
GSAM's municipal credit research. Mr. Thompson worked in the institutional
sales and marketing group at GSAM until he joined the fixed-income team in
1993. Prior to joining GSAM in early 1992, Mr. Thompson worked in the
Structured Finance Group of the Chase Manhattan Bank. Before rejoining Goldman
Sachs in 1995, Ms. Lonsdale was a Director of Fitch Investors Service
evaluating the credit ratings of tax-backed issues. Prior to that, she worked
for ten years in the Goldman Sachs Municipal Finance Department.
It is the responsibility of the Investment Adviser to make the investment
decisions for the Fund and to place the purchase and sale orders for the
Fund's portfolio transactions. 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 Fund, the Investment Adviser will seek the best price and
execution of the 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 Adviser's
brokerage allocation practices.
As compensation for its services rendered and assumption of certain expenses
pursuant to the Management Agreement, GSAM is entitled to the following fee,
computed daily and payable monthly, at the annual rate listed below:
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR OR
CONTRACTUAL PERIOD ENDED
RATE OCTOBER 31, 1997
----------- ----------------
<S> <C>
0.40% 0.40%
</TABLE>
The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Fund (excluding management fees, fees under service
plans, taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0.05% per
annum of the Fund's average daily net assets. Such reductions or limits, if
any, are calculated monthly on a cumulative basis and may be discontinued or
modified by the 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 Adviser, 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
20
<PAGE>
interest with respect to the Fund or limit the 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
Fund and/or which engage in and compete for transactions in the same types of
securities, currencies and instruments as the Fund. 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 Fund. The results of the Fund's investment activities,
therefore, may differ from those of Goldman Sachs and its affiliates and it is
possible that the Fund could sustain losses during periods in which Goldman
Sachs and its affiliates and other accounts achieve significant profits on
their trading for proprietary or other accounts. In addition, the Fund may,
from time to time, enter into transactions in which other clients of Goldman
Sachs have an adverse interest. From time to time, the 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 the Fund's units. Goldman Sachs,
4900 Sears Tower, Chicago, Illinois 60606 also serves as the Fund's transfer
agent (the "Transfer Agent") and as such performs various unitholder servicing
functions. The Fund pays Goldman Sachs transfer agency fees and expenses with
respect to Service Units equal to that class's proportionate share of the
total transfer agency fees borne by the Fund. Those costs 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 applicable to Class A,
Class B and Class C shares plus 0.04% of the average daily net assets of the
other classes of the Fund.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold units of the Fund. Goldman Sachs reserves the right to redeem at any time
some or all of the units acquired for its own account.
DIVIDENDS
The Fund will declare a daily dividend. Such dividend which will be paid to
Harris Associates monthly for distribution to unitholders of Oakmark Units.
Over the course of the fiscal year, dividends accrued and paid will constitute
all
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or substantially all of the Fund's net investment income. From time to time a
portion of such dividends may constitute a return of capital. The Fund also
intends that all net realized capital gains will be declared as a dividend at
least annually. In determining amounts of capital gains to be distributed,
capital losses including any available capital loss carryovers from prior
years will be offset against capital gains.
The Fund's net investment income is determined on a daily basis. On days on
which net asset value is calculated, such determination is made immediately
prior to the calculation of the Fund's net asset value as of 3:00 p.m. Chicago
time. On days on which net asset value is not calculated, such determination
is made as of 3:00 p.m. Chicago time.
Payment of dividends from net investment income will be made on the last
calendar day of each month in additional Oakmark Units of the Fund at the net
asset value on such day, unless cash distributions are elected, in which case,
cash payment will be made on the first Business Day of the succeeding month.
Payment of dividends with respect to capital gains, if any, when declared will
be made in additional Oakmark Units of the Fund at the net asset value on the
payment date, unless cash distributions are elected. This election to receive
dividends in cash is initially made on the New Account Purchase Application
and may be changed upon written notice to Oakmark at any time prior to the
record date for a particular dividend or distribution.
At the time of an investor's purchase of units of the Fund, a portion of the
net asset value per unit may be represented by undistributed income or
realized or unrealized appreciation of the Fund's portfolio securities.
Therefore, subsequent distributions on such units from such income or realized
appreciation may be taxable to the investor even if the net asset value of the
units is, as a result of the distributions, reduced below the cost of such
units and the distributions (or portions thereof) represent a return of a
portion of the purchase price.
NET ASSET VALUE
The net asset value per unit of each class of the Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 3:00 p.m. Chicago time, 4:00 p.m. New York
time) on each Business Day (as such term is defined under "Additional
Information") immediately after the determination, if any, of the income to be
declared as a dividend. Net asset value per unit of each class is calculated
by determining the net assets of each class and dividing by the number of
outstanding units of that class.
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<PAGE>
The Fund's portfolio securities for which accurate market quotations are
readily available are valued on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities and
other portfolio securities are valued at fair value, based on yield
equivalents, a pricing matrix or other sources, under valuation procedures
established by the Trustees. Debt obligations with a remaining maturity of 60
days or less are valued at amortized cost. The Board of Trustees has
determined that the amortized cost of such securities approximates fair market
value.
PERFORMANCE INFORMATION
From time to time the Fund may publish yield, distribution rate and average
annual total return and may publish its tax equivalent yield in advertisements
and communications to unitholders 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. The Fund may also from time to time advertise total return on
a cumulative, average, year-by-year or other basis for various specified
periods by means of quotations, charts, graphs or schedules. In addition to
the above, the Fund may from time to time advertise its performance relative
to certain averages, performance rankings, indices, other information prepared
by recognized mutual fund statistical services and investments for which
reliable performance data is available.
Yield is computed by dividing net investment income earned during a recent
thirty-day period by the product of the average daily number of units
outstanding and entitled to receive dividends during the period and the
maximum offering price per unit on the last day of the relevant period. The
results are compounded on a bond equivalent (semiannual) basis and then
annualized. Net investment income per unit is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from
the net investment income determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, the Fund's tax-free yield. Tax equivalent yield is
calculated by dividing the Fund's tax-exempt yield by one minus a stated
federal tax rate.
Quotations of distribution rates are calculated by annualizing the most
recent distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share or
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<PAGE>
maximum public offering price on the last day of the period for which the
distribution rates are being calculated.
The Fund's yield, total return and distribution rate will be calculated
separately for each class of units in existence. Because each class of units
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of units for the same period will
differ. See "Units of the Trust."
The investment results of the 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 unitholder reports, the Fund may, in its discretion, from time to time,
make a list of its holdings available to investors upon request.
UNITS OF THE TRUST
The Fund is a series of the Goldman Sachs Trust, which was formed under the
laws of the State of Delaware on January 28, 1997. The Fund was formerly a
series of Goldman Sachs Trust, a Massachusetts business trust, 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 units of
beneficial interest in separate series, without further action by unitholders.
Additional series may be added in the future. The Trustees also have authority
to classify or reclassify any series or portfolio of units into one or more
classes.
When issued, units are fully paid and non-assessable. In the event of
liquidation, unitholders are entitled to share pro rata in the net assets of
the Fund available for distribution to such unitholders. All units are freely
transferable and have no preemptive, subscription or conversion rights.
Unitholders are entitled to one vote per share, provided that at the option of
the Trustees, unitholders will be entitled to a number of votes based upon the
net asset values represented by their units.
The Trust does not intend to hold annual meetings of unitholders. However,
pursuant to the Trust's By-Laws, the recordholders of at least 10% of the
units outstanding and entitled to vote at a special meeting may require the
Trust to hold such special meeting of unitholders for any purpose, and
recordholders may, under certain circumstances, as permitted by the Act,
communicate with other unitholders in connection with requiring a special
meeting of unitholders. The Trustees, will call a special meeting of
unitholders for the purpose of
24
<PAGE>
electing Trustees, if at any time less than a majority of Trustees holding
office at the time were elected by unitholders.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Fund's units. Instead, Harris Associates
maintains a record of each unitholder's ownership. Each unitholder receives
confirmation of purchase and redemption orders. Fund units and any dividends
and distributions paid by the Fund are reflected in account statements.
TAXATION
FEDERAL TAXES
The Fund is treated as a separate entity for tax purposes, has elected to be
treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, the Fund must satisfy certain requirements relating to the sources of
its income, diversification of its assets and distribution of its income to
unitholders. As a regulated investment company, the 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 unitholders in accordance with
certain timing requirements of the Code.
The Fund intends to satisfy certain requirements of the Code so that it may
distribute the tax-exempt interest it receives as "exempt-interest dividends,"
as defined in the Code. If such requirements are satisfied, distributions of
the Fund that are attributable to interest on tax-exempt obligations and that
the Fund properly designates as exempt-interest dividends will be exempt from
regular federal income tax, although all or a portion of these distributions
may be subject to the federal alternative minimum tax and may be includable in
the tax base for determining taxability of social security or railroad
retirement benefits. Persons who are "substantial users" (or related persons
to such substantial users) of facilities financed by industrial development or
certain private activity bonds should consult their own tax advisers before
purchasing units of the Fund. Interest on indebtedness incurred or continued
to purchase or carry units of the Fund is not deductible to the extent
attributable to the Fund's distributions that are exempt-interest dividends.
Dividends paid by the 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 unitholders as ordinary income except for any exempt-
interest dividends paid by the Fund, as described above. Distributions out of
the net
25
<PAGE>
capital gain (the excess of net long-term capital gain over net short-term
capital loss), if any, of the Fund, will be taxed, to unitholders as long-term
capital gains, regardless of the length of time a unitholder has held his or
her units or whether such gain was reflected in the price paid for the units.
Such long-term capital gain will constitute 20% or 28% rate gain, depending
upon the Fund's holding period for the assets the sale of which generated the
gain. These tax consequences will apply regardless of whether distributions
are received in cash or reinvested in units. Certain distributions paid by the
Fund in January of a given year may be taxable to unitholders as if received
the prior December 31. Unitholders will be informed annually about the amount
and character of distributions received from the Fund for federal income tax
purposes.
Investors should consider the tax implications of buying units immediately
prior to a distribution. Investors who purchase units shortly before the
record date for a distribution other than a daily dividend will pay a per unit
price that includes the value of the anticipated distribution and will be
taxed on any taxable distribution even though the distribution represents a
return of a portion of the purchase price.
Redemptions and exchanges of units are taxable events.
Individuals and certain other classes of unitholders may be subject to 31%
backup withholding of federal income tax on distributions (other than exempt-
interest dividends), redemptions and exchanges if they fail to furnish their
correct taxpayer identification number and certain certifications required by
the Internal Revenue Service or if they are otherwise subject to backup
withholding. Individuals, corporations and other unitholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject
to non-resident alien withholding at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from the
Fund.
OTHER TAXES
In addition to federal taxes, a unitholder may be subject to state, local or
foreign taxes on payments received from the Fund, including exempt-interest
dividends. A state income (and possibly local income and/or intangible
property) tax exemption is generally available to the extent (if any) the
Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to) certain
U.S. government obligations and/or tax-exempt municipal obligations issued by
or on behalf of the particular state or a political subdivision thereof,
provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. For a further
discussion of certain tax consequences of investing in units of the Fund, see
"Taxation" in the Additional Statement. Unitholders are
26
<PAGE>
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
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day (observed), Good
Friday, Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
ADDITIONAL SERVICES
The Trust, on behalf of the Fund, has adopted a Service Plan with respect to
the Service Units which authorizes the Fund to compensate certain institutions
("Service Organizations"), including Harris Associates, for providing account
administration and personal and account maintenance services to their
customers who are beneficial owners of such Units. The Trust, on behalf of the
Fund, enters into agreements with Service Organizations which purchase Service
Units on behalf of their customers ("Service Agreements"). The Service
Agreement 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 Units 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 unitholder of
record, maintaining account records for customers, processing orders to
purchase, redeem or exchange Service Units for customers, responding to
inquiries from prospective and existing unitholders and assisting customers
with investment procedures.
For the fiscal year ended October 31, 1997, the Trust, on behalf of the
Fund, paid the Service Organizations fees at the annual rate of 0.50% of the
Fund's average daily net assets attributable to Service Units of the Fund.
Holders of Service Units of the Fund bear all expenses and fees paid to
Service Organizations for their services with respect to such Units as well as
any other expenses which are directly attributable to such Units.
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<PAGE>
Service Organizations may charge other fees to their customers who are the
beneficial owners of Service Units in connection with their customer accounts.
These fees would be in addition to any amounts received by the Service
Organization under a Service Agreement and may affect the return earned on an
investment in the Fund. The Trust, on behalf of the Fund, accrues payments
made pursuant to a Service Agreement daily. All inquiries of beneficial owners
of Oakmark Units should be directed to Harris Associates.
The Investment Adviser, Distributor, and/or their affiliates, also pay
additional compensation from time to time, out of their assets and not as an
additional charge to the Fund, to selected Service Organizations and other
persons in connection with the sale of shares of the Fund and other investment
portfolios of the Trust (such as additional payments based on new sales
amounts exceeding pre-established thresholds, or the length of time customer
assets have remained in the Trust) and, 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 can vary among Service
Organizations depending upon such factors as the amounts their customers have
invested (or may invest) in particular investment portfolios of the Trust, 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
the Additional Statement.
UNITHOLDER SERVICES
REPORTING TO UNITHOLDERS
You will receive a confirmation statement from Oakmark reflecting each of
your purchases and redemptions of Oakmark Units, as well as periodic
statements detailing distributions made by the Fund. In addition, Oakmark will
send you semiannual reports, and annual reports containing audited financial
statements, and will provide you annually with tax information.
SPECIAL WAYS TO INVEST OR REDEEM
In addition to the ways to purchase or redeem Oakmark Units described below,
the New Account Registration Form offers you the following additional
investment and redemption options. The services are provided by Harris
Associates on behalf of its customers.
AUTOMATIC INVESTMENTS--purchase Oakmark Units each month with payment by
electronic transfer from your bank account.
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TELEPHONE INVESTMENTS--purchase Oakmark Units by placing a telephone order
and paying for them by electronic transfer from your bank account.
SYSTEMATIC WITHDRAWALS--redeem a fixed dollar amount of Oakmark Units each
month or quarter and have the proceeds sent by check to you or deposited by
electronic transfer into your bank account.
PURCHASE OF OAKMARK UNITS
You may purchase Oakmark Units of the Fund by check, by wire, by electronic
transfer or by exchange through Oakmark. There are no sales commissions or
underwriting discounts. The minimum initial investment is $1,000. Minimum
subsequent investments are $100, except for reinvestments of dividends and
capital gains distributions. Oakmark Units may be purchased on any Business
Day through Harris Associates at the net asset value per unit next determined
after receipt of an order by Oakmark. If by 3:00 p.m. Chicago time (4:00 p.m.
New York time), an order, a check or Federal Reserve draft is received by
Oakmark, the price per unit will be the net asset value computed on the day
the purchase order is received. See "Net Asset Value."
BY CHECK
To make an initial purchase of units, complete and sign the New Account
Registration Form and mail it to The Oakmark Family of Funds, P.O. Box 8510,
Boston, Massachusetts 02266-8510, together with a check for the total purchase
amount payable to State Street Bank and Trust Company.
You may make subsequent investments by submitting a check along with either
the stub from your Fund account confirmation statement or a note indicating
the amount of the purchase, your account number, and the name in which your
account is registered. Each individual check submitted for purchase must be at
least $100. Oakmark will not accept cash, drafts, "starter" checks, third-
party checks or checks drawn on money market accounts or checks drawn on banks
outside of the United States. If your order to purchase Oakmark Units of the
Fund is cancelled because your check does not clear, you will be responsible
for any resulting loss incurred by Oakmark.
BY WIRE
You may also pay for Oakmark Units by instructing your bank to wire money to
Oakmark. Your bank may charge you a fee for sending the wire. IF YOU ARE
OPENING A NEW ACCOUNT BY WIRE TRANSFER, YOU MUST FIRST TELEPHONE OAKMARK AT 1-
800-OAKMARK (1-800-625-6275) TO REQUEST AN ACCOUNT NUMBER AND FURNISH YOUR
SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER. Neither the Fund nor
Oakmark will be responsible for the consequences of delays, including delays
in the banking or Federal Reserve wire systems.
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BY ELECTRONIC TRANSFER
If you have an established Fund account with an established electronic
transfer privilege you may make subsequent investments by an electronic
transfer of funds from your bank account. Electronic transfer allows you to
make purchases at your request by calling 1-800-OAKMARK (1-800-625-6275) or at
pre-scheduled intervals. (See "Unitholder Services.") You may not open a new
account through electronic transfer.
BY EXCHANGE
You may purchase Oakmark Units of the Fund by exchange of Oakmark Units from
the Government Portfolio or the Tax-Exempt Diversified Portfolio or units from
The Oakmark Fund, The Oakmark Select Fund, The Oakmark Small Cap Fund, The
Oakmark International Fund, The Oakmark Equity and Income Fund and The Oakmark
International Small Cap Fund ("The Oakmark Funds") either by phone or by mail.
AN EXCHANGE TRANSACTION IS A SALE AND PURCHASE FOR FEDERAL INCOME TAX PURPOSES
AND MAY RESULT IN CAPITAL GAIN OR LOSS. Restrictions apply. Please review the
information under "Redemption of Oakmark Units."
PURCHASE PRICE AND EFFECTIVE DATE
Oakmark Units will be issued and dividends will begin as described below:
PURCHASE BY FEDERAL FUNDS WIRE OR ACH TRANSFER. If a purchase order is
received with a specified settlement date by Oakmark by 3:00 p.m. Chicago time
in proper form before the determination of net asset value that day and
payment is made by wire transfer or ACH transfer, units will be issued and
dividends will begin to accrue on the purchased units on the later of (i) the
Business Day after receipt by Oakmark of a purchase order or (ii) the day of
receipt of a federal funds wire or an ACH transfer by Oakmark. For purchases
without a specified settlement date, units will be issued and dividends
declared with respect to such units will begin to accrue on the Business Day
after payment is so received.
PURCHASE BY CHECK OR FEDERAL RESERVE DRAFT. If a purchase order is received
with a specified settlement date by Oakmark by 3:00 p.m. Chicago time in
proper form before the determination of net asset value that day and payment
is made by check or Federal Reserve draft, units will be issued and dividends
will begin to accrue on the purchased units on the Business Day after the date
payment is received. For purchases without a specified settlement date, units
will be issued and dividends declared with respect to such units will begin to
accrue on the Business Day after payment is so received.
GENERAL
Each purchase order for Oakmark Units must be accepted by Oakmark. Once your
purchase order has been accepted, you may not cancel or revoke it; however,
you may redeem the Oakmark Units. Oakmark reserves the right not
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to accept any purchase order that it determines not to be in the best interest
of the Trust or of the Fund's unitholders. Oakmark uses procedures designed to
give reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If Oakmark does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Oakmark will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
REDEMPTION OF OAKMARK UNITS
BY MAIL
You may redeem all or any part of your Oakmark Units of the Fund upon your
written request delivered to The Oakmark Family of Funds, P.O. Box 8510,
Boston, Massachusetts 02266-8510.
Your redemption request must:
(1) identify the Fund and give your account number;
(2) specify the number of units or dollar amount to be redeemed;
(3) be signed in ink by all owners exactly as their names appear on the
account; and
(4) for redemptions payable to an address other than the unitholder
address of record, include an ink-stamped guarantee by an "eligible
guarantor institution" as defined in the Securities Exchange Act of 1934
(including a bank, broker, dealer, credit union, national securities
exchange, registered securities association, clearing agency or savings
association, but not a notary public) for each signature on the redemption
request (the guarantee must use the phrase "signature guaranteed" and must
include the name of the guarantor bank or firm and an authorized
signature).
Special rules apply to redemptions by corporations, trusts and partnerships.
In the case of a corporation, the request must be signed in the name of the
corporation by an officer whose title must be stated, and must be accompanied
by a bylaw provision or resolution of the board of directors, certified within
60 days, authorizing the officer to so act. A redemption request from a
partnership or a trust must be signed in the name of the partnership or trust
by a general partner or a trustee and include a signature guarantee. If the
trustee is not named in the account registration, a redemption request by a
trust must also include evidence of the trustee's appointment as such (e.g., a
certified copy of the relevant portions of the trust instrument). Under
certain circumstances, before Oakmark Units can be redeemed, additional
documents may be required in order to verify the authority of the person
seeking to redeem.
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BY EXCHANGE
You may redeem all or any portion of your Oakmark Units of the Fund and use
the proceeds to purchase Oakmark Units of the Government Portfolio or the Tax-
Exempt Diversified Portfolio or shares of The Oakmark Funds if your signed,
properly completed New Account Registration Form is on file. AN EXCHANGE
TRANSACTION IS A SALE AND PURCHASE FOR FEDERAL INCOME TAX PURPOSES AND MAY
RESULT IN CAPITAL GAINS OR LOSSES. Before exchanging, you should obtain a
prospectus from The Oakmark Funds and read it carefully. The exchange
privilege is not an offering or recommendation of shares of The Oakmark Funds.
The registration of the account to which you are making an exchange must be
exactly the same as that of the account from which the exchange is made and
the amount you exchange must meet any applicable minimum investment of the
fund being purchased. An exchange may be made by following the redemption
procedure described above under "By Mail" and indicating the fund to be
purchased, except that a signature guarantee normally is not required. (See
also the discussion below of the Telephone Exchange Privilege.)
SPECIAL REDEMPTION PRIVILEGES
The Telephone Exchange and Telephone Redemption Privileges will be
established automatically when you open your account unless you elect on your
New Account Registration Form to decline these Privileges. Other Privileges
must be specifically elected. A signature guarantee may be required to
establish a Privilege after you open your account.
TELEPHONE EXCHANGE PRIVILEGE
You may use the Telephone Exchange Privilege to exchange among The Oakmark
Funds and the Fund by calling 1-800-OAKMARK (1-800-625-6275). The general
redemption policies apply to redemptions by Telephone Exchange. (See "General
Redemption Policies.")
Oakmark reserves the right at any time without prior notice to suspend or
terminate the use of the Telephone Exchange Privilege by any person or class
of persons. Oakmark believes that use of the Telephone Exchange Privilege by
investors utilizing market-timing strategies adversely affects the Fund.
THEREFORE, OAKMARK GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES
BY UNITHOLDERS IDENTIFIED BY OAKMARK AS "MARKET-TIMERS." Except for automatic
exchanges from Oakmark units, you may not make more than four exchanges from
any fund in any calender year. Oakmark reserves the right at any time without
prior notice to suspend, limit, modify, or terminate the Telephone Exchange
Privilege in its entirety. Because such a step would be taken only if it would
be in the best interest of the Fund, Oakmark expects that
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it would provide unitholders with prior written notice of any such action
unless it appears that the resulting delay in the suspension, limitation,
modification, or termination of the Telephone Exchange Privilege would
adversely affect the Fund. IF OAKMARK WERE TO SUSPEND, LIMIT, MODIFY, OR
TERMINATE THE TELEPHONE EXCHANGE PRIVILEGE, YOU MIGHT FIND THAT AN EXCHANGE
COULD NOT BE PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. See "How to Redeem Units--By Exchange."
During periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone; you may wish to consider
placing your exchange by mail during such periods.
TELEPHONE REDEMPTION PRIVILEGE
You may use the Telephone Redemption Privilege to redeem units from your
account by calling 1-800-OAKMARK (1-800-625-6275). The proceeds may be sent by
check to your registered address or you may request payment by electronic
transfer to a bank account previously designated by you at a bank that is a
member of the Automated Clearing House. If you request a redemption by
electronic transfer before the Fund's redemption cut-off time and the proceeds
are to be sent to your pre-established designated bank account, the proceeds
will be transferred to your bank account on the next business day. The
Telephone Redemption Privilege is not available for 30 days after Oakmark
receives notice from you of a change of address.
GENERAL REDEMPTION POLICIES
You may not cancel or revoke your redemption order once instructions have
been received and accepted. PLEASE TELEPHONE OAKMARK BY CALLING 1-800-OAKMARK
(1-800-625-6275) IF YOU HAVE ANY QUESTIONS ABOUT REQUIREMENTS FOR A REDEMPTION
BEFORE SUBMITTING YOUR REQUEST. Oakmark reserves the right to require a
properly completed New Account Registration Form before making payment for
Oakmark Units redeemed.
If your redemption order is received in proper form before 4:00 p.m. eastern
time, the price at which your redemption order will be executed is the net
asset value determined that business day. See "Net Asset Value." Dividends are
earned on the day that units are redeemed.
Oakmark will generally mail payment for Oakmark Units redeemed within three
days after proper instructions are received. If you attempt to redeem Oakmark
Units within 15 days after they have been purchased by check or electronic
transfer, Oakmark may delay payment of the redemption proceeds to you until it
can verify that payment for the purchase of those Oakmark Units has been (or
will be) collected. To reduce such delays, Oakmark recommends that your
purchase be made by Federal Funds wire through your bank. If you so request,
the proceeds of your redemption may be paid by wire, but the cost of the wire
(currently $5) will be deducted from the redemption proceeds.
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Oakmark reserves the right at any time without prior notice to suspend,
limit, modify, or terminate any privilege or its use in any manner by any
person or class.
Use of any Special Redemption Privilege authorizes Oakmark to tape-record
all instructions to redeem. Oakmark uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If Oakmark does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Oakmark will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Oakmark reserves the right to redeem Oakmark Units in any account and send
the proceeds to the owner if the Oakmark Units in the account do not have a
value of at least $1,000.
Oakmark Units in any account you maintain with the Fund may be redeemed to
the extent necessary to reimburse Oakmark for any loss it sustains that is
caused by you (such as losses from uncollected checks and electronic transfers
or any liability under the Code provisions on backup withholding relating to
your account).
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ADDRESS OF HARRIS ASSOCIATES L. P.
Two North LaSalle Street
Chicago, Illinois 60602-3790
THE OAKMARK FUNDS 24-HOUR NAV HOTLINE
1-800-GROWOAK
(1-800-476-9625)
OAKMARK SHAREHOLDER SERVICE
State Street Bank and Trust Company
Attention: Oakmark Funds Family
P.O. Box 8510
Boston, Massachusetts 02266-8510
1-800-OAKMARK
(1-800-625-6275)
