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GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS -- INSTITUTIONAL LIQUID ASSETS
FINANCIAL SQUARE FUNDS
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STATEMENT OF ADDITIONAL INFORMATION -- May 1, 1998
ILA UNITS
ILA ADMINISTRATION UNITS
ILA SERVICE UNITS
ILA CLASS B UNITS
ILA CLASS C UNITS
CASH MANAGEMENT SHARES
FST SHARES
FST SERVICE SHARES
FST ADMINISTRATION SHARES
FST PREFERRED SHARES
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Goldman Sachs Trust (the "Trust") is an open-end management investment company
(or mutual fund) which includes the Goldman Sachs - Institutional Liquid Assets
portfolios and Financial Square Funds. This Statement of Additional Information
relates solely to the offering of (a) ILA Units, ILA Administration Units and
ILA Service Units of: Prime Obligations Portfolio ("ILA Prime Obligations
Portfolio"), Money Market Portfolio ("ILA Money Market Portfolio"), Treasury
Obligations Portfolio ("ILA Treasury Obligations Portfolio"), Treasury
Instruments Portfolio ("ILA Treasury Instruments Portfolio"), Government
Portfolio ("ILA Government Portfolio"), Federal Portfolio ("ILA Federal
Portfolio"), Tax-Exempt Diversified Portfolio ("ILA Tax-Exempt Diversified
Portfolio"), Tax-Exempt California Portfolio ("ILA Tax-Exempt California
Portfolio"), and Tax-Exempt New York Portfolio ("ILA Tax-Exempt New York
Portfolio") (individually, an "ILA Portfolio" and collectively the "ILA
Portfolios"); (b) ILA Class B and Class C Units of ILA Prime Obligations
Portfolio; (c) Cash Management Shares of: ILA Prime Obligations Portfolio, ILA
Money Market Portfolio, ILA Government Portfolio, ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio, and ILA Tax-Exempt New York
Portfolio; and (d) FST Shares, FST Service Shares, FST Administration Shares and
FST Preferred Shares of: Goldman Sachs - Financial Square Prime Obligations
Fund ("FS Prime Obligations Fund"), Goldman Sachs - Financial Square Premium
Money Market Fund ("FS Premium Fund"), Goldman Sachs - Financial Square Money
Market Fund ("FS Money Market Fund"), Goldman Sachs - Financial Square Treasury
Obligations Fund ("FS Treasury Obligations Fund"), Goldman Sachs - Financial
Square Treasury Instruments Fund ("FS Treasury Instruments Fund"), Goldman Sachs
- - Financial Square Government Fund ("FS Government Fund"), Goldman Sachs -
Financial Square Federal Fund ("FS Federal Fund"), Goldman Sachs - Financial
Square Tax-Free Money Market Fund ("FS Tax-Free Fund") and Goldman Sachs -
Financial Square Municipal Money Market Fund ("FS Municipal Fund")
(individually, a "Fund," collectively the "Financial Square Funds" and together
with the ILA Portfolios, the "Series").
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The terms "units" and "shares" may be used interchangeably herein to refer to
shares of the Series.
Goldman Sachs Asset Management ("GSAM" or the "Adviser"), a separate operating
division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Series'
investment adviser. Goldman Sachs serves as distributor and transfer agent to
the Series.
The Goldman Sachs Funds offer banks, corporate cash managers, investment
advisers and other institutional investors a family of professionally-managed
mutual funds, including money market, fixed income and equity funds, and a range
of related services. All products are designed to provide clients with the
benefit of the expertise of GSAM and its affiliates in security selection, asset
allocation, portfolio construction and day-to-day management.
The hallmark of the Goldman Sachs Funds is personalized service, which reflects
the priority that Goldman Sachs places on serving clients' interests. Service
Organizations, as defined below, and other Goldman Sachs clients will be
assigned an Account Administrator ("AA"), who is ready to help with questions
concerning their accounts. During business hours, Service Organizations and
other Goldman Sachs clients can call their AA through a toll-free number to
place purchase or redemption orders or to obtain Series and account information.
The AA can also answer inquiries about rates of return and portfolio
composition/holdings, and guide Service Organizations through operational
details. A Goldman Sachs client can also utilize the SMART personal computer
software system which allows Service Organizations to purchase and redeem units
and also obtain Series and account information directly.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with each Prospectus relating to the ILA Units, ILA
Administration Units, ILA Service Units, ILA Class B Units, ILA Class C Units,
Cash Management Shares, FST Shares, FST Service Shares, FST Administration
Shares and FST Preferred Shares each dated May 1, 1998, as amended and
supplemented from time to time. A copy of each Prospectus may be obtained
without charge from Service Organizations, as defined herein, or by calling
Goldman, Sachs Co. at 800-621-2550 or by writing Goldman, Sachs Co., 4900 Sears
Tower, Chicago, Illinois 60606.
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TABLE OF CONTENTS
Page in
Statement of
Additional
Information
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INVESTMENT POLICIES AND PRACTICES OF THE SERIES... 1
INVESTMENT LIMITATIONS............................ 33
TRUSTEES AND OFFICERS............................. 39
THE ADVISER, DISTRIBUTOR AND TRANSFER AGENT....... 44
PORTFOLIO TRANSACTIONS............................ 52
NET ASSET VALUE................................... 54
REDEMPTIONS....................................... 55
CALCULATION OF YIELD QUOTATIONS................... 56
TAX INFORMATION................................... 63
ORGANIZATION AND CAPITALIZATION................... 69
CUSTODIAN AND SUBCUSTODIAN........................ 76
INDEPENDENT ACCOUNTANTS........................... 76
FINANCIAL STATEMENTS.............................. 76
OTHER INFORMATION................................. 76
ADMINISTRATION PLANS.............................. 77
SERVICE PLANS..................................... 80
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS.. 85
APPENDIX A........................................ A-1
APPENDIX B........................................ B-1
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INVESTMENT POLICIES AND PRACTICES OF THE SERIES
The following discussion elaborates on the description of each Series'
investment policies and practices contained in the Prospectus:
U.S. GOVERNMENT SECURITIES
Each Series may invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury. The
principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.
CUSTODIAL RECEIPTS
Each Series (other than ILA Treasury Obligations Portfolio, ILA
Treasury Instruments Portfolio, ILA Federal Portfolio, ILA Government Portfolio,
FS Treasury Obligations Fund, FS Government Fund, FS Treasury Instruments Fund
and FS Federal Fund) may also acquire custodial receipts that evidence ownership
of future interest payments, principal payments or both on certain U.S.
Government notes or bonds. Such notes and bonds are held in custody by a bank
on behalf of the owners. These custodial receipts are known by various names,
including "Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"),
and "Certificates of Accrual on Treasury Securities" ("CATS"). Although
custodial receipts are not considered U.S. Government Securities for certain
securities law purposes, they are indirectly issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities.
BANK AND CORPORATE OBLIGATIONS
Each Series (other than ILA Treasury Obligations Portfolio, ILA
Government Portfolio, ILA Federal Portfolio, ILA Treasury Instruments Portfolio,
FS Treasury Obligations Fund, FS Government Fund, FS Treasury Instruments Fund
and FS Federal Fund) may invest in commercial paper. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks
or bank holding companies, corporations, and finance companies. The commercial
paper purchased by the Series consists of direct U.S. dollar denominated
obligations of domestic or, in the case of ILA Money Market Portfolio, FS Money
Market Fund and FS Premium Fund, foreign issuers. Bank obligations in which the
Series may invest include certificates of deposit, bankers' acceptances, fixed
time deposits and bank notes. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Fixed time deposits
are bank obligations payable at a stated maturity date and bearing interest at
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a fixed rate. Fixed time deposits may be withdrawn on demand by the investor,
but may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
The ILA Prime Obligations Portfolio, ILA Money Market Portfolio, FS
Prime Obligations Fund, FS Premium Fund and FS Money Market Fund may invest in
short-term funding agreements. A funding agreement is a contract between an
issuer and a purchaser that obligates the issuer to pay a guaranteed rate of
interest on a principal sum deposited by the purchaser. Funding agreements will
also guarantee the return of principal and may guarantee a stream of payments
over time. A funding agreement has a fixed maturity date and may have either a
fixed or variable interest rate that is based on an index and guaranteed for a
set time period. Because there is no secondary market for these investments,
any such funding agreement purchased by a Series will be regarded as illiquid.
REPURCHASE AGREEMENTS
Each Series (other than the ILA Treasury Instruments Portfolio and FS
Treasury Instruments Fund) may enter into repurchase agreements with primary
dealers in U.S. Government Securities and banks affiliated with such primary
dealers. A repurchase agreement is an arrangement under which the purchaser
(i.e., the Series) purchases a U.S. Government security or other high quality
short-term debt obligation (the "Obligation") and the seller agrees, at the time
of sale, to repurchase the Obligation at a specified time and price.
Custody of the Obligation will be maintained by the Series' custodian
or subcustodian. The repurchase price may be higher than the purchase price,
the difference being income to the Series, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the Series together with
the repurchase price on repurchase. In either case, the income to the Series is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
Repurchase agreements pose certain risks for all entities, including
the Series, that utilize them. Such risks are not unique to the Series but are
inherent in repurchase agreements. The Series seek to minimize such risks by,
among others, the means indicated below, but because of the inherent legal
uncertainties involved in repurchase agreements, such risks cannot be
eliminated.
For purposes of the Investment Company Act of 1940, as amended (the
"Act"), and generally, for tax purposes, a repurchase agreement is deemed to be
a loan from the Series to the seller of the Obligation. It is not clear whether
for other purposes a court would consider the Obligation purchased by the Series
subject to a repurchase agreement as being owned by the Series or as being
collateral for a loan by the Series to the seller.
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If, in the event of bankruptcy or insolvency proceedings against the
seller of the Obligation, a court holds that the Series does not have a
perfected security interest in the Obligation, the Series may be required to
return the Obligation to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Series would be at risk of
losing some or all of the principal and income involved in the transaction. To
minimize this risk, the Series utilize custodians and subcustodians that the
Adviser believes follow customary securities industry practice with respect to
repurchase agreements, and the Adviser analyzes the creditworthiness of the
obligor, in this case the seller of the Obligation. But because of the legal
uncertainties, this risk, like others associated with repurchase agreements,
cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, a Series may encounter delay and
incur costs before being able to sell the security. Such a delay may involve
loss of interest or a decline in the price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the security.
However, if the market value of the Obligation subject to the repurchase
agreement becomes less than the repurchase price (including accrued interest),
the Series will direct the seller of the Obligation to deliver additional
securities so that the market value of all securities subject to the repurchase
agreement equals or exceeds the repurchase price.
Certain repurchase agreements which mature in more than seven days can
be liquidated before the nominal fixed term on seven days or less notice. Such
repurchase agreements will be regarded as liquid instruments.
In addition, each Series (other than the ILA Treasury Instruments
Portfolio and FS Treasury Instruments Fund), together with other registered
investment companies having management agreements with the Adviser or any of its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repurchase
agreements.
FOREIGN SECURITIES
The ILA Money Market Portfolio, FS Money Market Fund and FS Premium
Fund may invest in foreign securities and in certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations issued by major
foreign banks, foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks. The ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New York
Portfolio, FS Tax-Free Fund and FS Municipal Fund may also invest in municipal
instruments backed by letters of credit issued by certain of such banks. Under
current Securities and Exchange Commission ("SEC") rules relating to the use of
the amortized cost method of portfolio securities valuation, the ILA Money
Market Portfolio, FS Money Market Fund and FS Premium Fund are restricted to
purchasing U.S. dollar denominated securities, but it is not otherwise precluded
from purchasing securities of foreign issuers.
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Investments in foreign securities and bank obligations may involve
considerations different from investments in domestic securities due to limited
publicly available information; non-uniform accounting standards; the possible
imposition of withholding or confiscatory taxes; the possible adoption of
foreign governmental restrictions affecting the payment of principal and
interest; expropriation; or other adverse political or economic developments.
In addition, it may be more difficult to obtain and enforce a judgment against a
foreign issuer or a foreign branch of a domestic bank.
ASSET-BACKED AND RECEIVABLES-BACKED SECURITIES
The ILA Prime Obligations Portfolio, ILA Money Market Portfolio, FS
Prime Obligations Fund, FS Money Market Fund and FS Premium Fund may invest in
asset-backed and receivables-backed securities. Asset-backed and receivables-
backed securities represent participations in, or are secured by and payable
from, pools of assets such as motor vehicle installment sale contracts,
installment loan contracts, leases of various types of real and personal
property, receivables from revolving credit (credit card) agreements, corporate
receivables and other categories of receivables. Such asset pools are
securitized through the use of privately-formed trusts or special purpose
vehicles. Payments or distributions of principal and interest may be guaranteed
up to certain amounts and for a certain time period by a letter of credit or a
pool insurance policy issued by a financial institution or other credit
enhancements may be present. The value of a Series' investments in asset-backed
and receivables-backed securities may be adversely affected by prepayment of the
underlying obligations. In addition, the risk of prepayment may cause the value
of these investments to be more volatile than a Series' other investments.
Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans, computer leases, trade receivables
and credit card receivables, are being securitized in pass-through structures
similar to the mortgage pass-through structures. Consistent with their
respective investment objectives and policies, the Series may invest in these
and other types of asset-backed securities that may be developed in the future.
This Statement of Additional Information will be amended or supplemented as
necessary to reflect the ILA Prime Obligations Portfolio, ILA Money Market
Portfolio, FS Prime Obligations Fund, FS Money Market Fund and FS Premium Fund
intention to invest in asset-backed securities with characteristics that are
materially different from the securities described in the preceding paragraph.
However, a Series will generally not invest in an asset-backed security if the
income received with respect to its investment constitutes rental income or
other income not treated as qualifying income under the 90% test described in
"Tax Information" below. In general, the collateral supporting these securities
is of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments in response to interest rate fluctuations.
As set forth below, several types of asset-backed and receivables-
backed securities have already been offered to investors, including for example,
Certificates for Automobile Receivablessm ("CARSsm") and interests in pools of
credit card receivables. CARSsm represent undivided fractional interests in a
trust ("CAR Trust") whose assets consist of a pool of motor vehicle retail
installment sales contracts and security interests in the vehicles securing the
contracts. Payments of principal and interest on CARSsm are passed through
monthly to certificate holders, and are guaranteed up to certain amounts and for
a certain time period by a
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letter of credit issued by a financial institution unaffiliated with the trustee
or originator of the CAR Trust. An investor's return on CARSsm may be affected
by early prepayment of principal on the underlying vehicle sales contracts. If
the letter of credit is exhausted, the CAR Trust may be prevented from realizing
the full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Asset-backed securities present certain risks that are not presented
by mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. There is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support payments
on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection, and (ii) protection against losses
resulting from ultimate default by an obligor or servicer. Liquidity protection
refers to the provision of advances, generally by the entity administering the
pool of assets, to ensure that the receipt of payments on the losses results
from payment of the insurance obligations on at least a portion of the assets in
the pool. This protection may be provided through guarantees, policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transactions or through a combination of such
approaches. The degree of credit support provided for each issue is generally
based on historical information reflecting the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated or
failure of the credit support could adversely affect the value of or return on
an investment in such a security.
The availability of asset-backed securities may be affected by
legislative or regulatory developments. It is possible that such developments
could require the ILA Prime Obligations Portfolio, ILA Money Market Portfolio,
FS Prime Obligations Fund, FS Money Market Fund and FS Premium Fund to dispose
of any then existing holdings of such securities.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Series may purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis. These transactions involve a
commitment by the Series to purchase or sell securities at a future date. The
price of the underlying securities (usually expressed in terms of yield) and the
date when the securities will be delivered and paid for (the settlement date)
are fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment trans- actions are negotiated directly with the other party,
and such commitments are not traded on exchanges, but may be traded over-the-
counter.
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A Series will purchase securities on a when-issued basis or purchase
or sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, a Series may
dispose of or renegotiate a commitment after entering into it. A Series also
may sell securities it has committed to purchase before those securities are
delivered to the Series on the settlement date. The Series may realize a
capital gain or loss in connection with these transactions; distributions from
any net capital gains would be taxable to its unitholders. For purposes of
determining a Series' average dollar weighted maturity, the maturity of when-
issued or forward commitment securities will be calculated from the commitment
date.
When a Series purchases securities on a when-issued or forward
commitment basis, the Series will segregate cash or liquid assets having a value
(determined daily) at least equal to the amount of the Series' purchase
commitments. In the case of a forward commitment to sell portfolio securities
subject to such commitment, the Series will segregate the portfolio securities
while the commitment is outstanding. These procedures are designed to ensure
that the Series will maintain sufficient assets at all times to cover its
obligations under when-issued purchases and forward commitments.
VARIABLE AMOUNT MASTER DEMAND NOTES
Each Series (other than the ILA Treasury Obligations Portfolio, ILA
Federal Portfolio, ILA Treasury Instruments Portfolio, FS Treasury Obligations
Fund, FS Federal Fund and FS Treasury Instruments Fund) may purchase variable
amount master demand notes. These obligations permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between a Series, as lender, and the borrower. Variable amount master demand
notes are direct lending arrangements between the lender and borrower and are
not generally transferable, nor are they ordinarily rated. A Series may invest
in them only if the Adviser believes that the notes are of comparable quality to
the other obligations in which that Series may invest.
VARIABLE RATE AND FLOATING RATE OBLIGATIONS
The interest rates payable on certain fixed income securities in which
a Series may invest are not fixed and may fluctuate based upon changes in market
rates. A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
Each Series (other than the ILA Treasury Obligations Portfolio, ILA
Federal Portfolio, ILA Treasury Instruments Portfolio, FS Treasury Obligations
Fund, FS Federal Fund and FS Treasury Instruments Fund) may purchase variable
and floating rate demand instruments that are tax exempt municipal obligations
or other debt securities that possess a floating or variable interest rate
adjustment formula. These instruments permit a Series to demand payment of the
principal balance plus unpaid accrued interest upon a specified number of days'
notice to the
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issuer or its agent. The demand feature may be backed by a bank letter of credit
or guarantee issued with respect to such instrument.
The terms of the variable or floating rate demand instruments that a
Series may purchase provide that interest rates are adjustable at intervals
ranging from daily up to six months, and the adjustments are based upon current
market levels, the prime rate of a bank or other appropriate interest rate
adjustment index as provided in the respective instruments. Some of these
instruments are payable on demand on a daily basis or on not more than seven
days' notice. Others, such as instruments with quarterly or semiannual
interest rate adjustments, may be put back to the issuer on designated days on
not more than thirty days' notice. Still others are automatically called by the
issuer unless the Series instructs otherwise. The Trust, on behalf of the
Series, intends to exercise the demand only (1) upon a default under the terms
of the debt security, (2) as needed to provide liquidity to a Series, (3) to
maintain the respective quality standards of a Series' investment portfolio, or
(4) to attain a more optimal portfolio structure. A Series will determine the
variable or floating rate demand instruments that it will purchase in accordance
with procedures approved by the Trustees to minimize credit risks. To be
eligible for purchase by a Series, a variable or floating rate demand instrument
which is unrated must have high quality characteristics similar to other
obligations in which the Series may invest. The Adviser may determine that an
unrated variable or floating rate demand instrument meets a Series' quality
criteria by reason of being backed by a letter of credit, guarantee, or demand
feature issued by an an entity that meets the quality criteria for the Series.
Thus, either the credit of the issuer of the obligation or the provider of the
credit support or both will meet the quality standards of the Series.
As stated in the Prospectuses, the Series may consider the maturity of
a long-term variable or floating rate demand instrument to be shorter than its
ultimate stated maturity under specified conditions. The acquisition of
variable or floating rate demand notes for a Series must also meet the
requirements of rules issued by the SEC applicable to the use of the amortized
cost method of securities valuation. The Series will also consider the
liquidity of the market for variable and floating rate instruments, and in the
event that such instruments are illiquid, the Series' investments in such
instruments will be subject to the limitation on illiquid investments.
A Series (other than ILA Treasury Obligations Portfolio, ILA Treasury
Instruments Portfolio, ILA Government Portfolio, ILA Federal Portfolio, FS
Treasury Obligations Fund, FS Government Fund, FS Treasury Instruments Fund and
FS Federal Fund) may invest in participation interests in variable or floating
rate tax-exempt obligations held by financial institutions (usually commercial
banks). Such participation interests provide the Series with a specific
undivided interest (up to 100%) in the underlying obligation and the right to
demand payment of its proportional interest in the unpaid principal balance plus
accrued interest from the financial institution upon a specific number of days'
notice. In addition, the participation interest generally is backed by an
irrevocable letter of credit or guarantee from the institution. The financial
institution usually is entitled to a fee for servicing the obligation and
providing the letter of credit.
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RESTRICTED AND OTHER ILLIQUID SECURITIES
A Series may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"),
including restricted securities that can be offered and sold to "qualified
institutional buyers" under Rule 144A under the 1933 Act. However, a Series
will not invest more than 10% of the value of its net assets in securities which
are illiquid, which includes fixed time deposits maturing in more than seven
days that cannot be traded on a secondary market and restricted securities. The
Board of Trustees has adopted guidelines under which the Adviser determines and
monitors the liquidity of restricted securities subject to the oversight of the
Trustees. Restricted securities (including commercial paper issued pursuant to
Section 4(2) of the 1933 Act) which are determined to be liquid will not be
deemed to be illiquid investments for purposes of the foregoing restriction.
Since it is not possible to predict with assurance that the market for
restricted securities will continue to be liquid, the Adviser will carefully
monitor each Series' investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in a Series to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities.
MUNICIPAL OBLIGATIONS
The ILA Prime Obligations Portfolio, ILA Money Market Portfolio, ILA
Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-
Exempt New York Portfolio, FS Prime Obligations Fund, FS Premium Fund, FS Money
Market Fund, FS Tax-Free Fund and FS Municipal Fund may invest in municipal
obligations. Municipal obligations are issued by or on behalf of states,
territories and possessions of the United States and their political
subdivisions, agencies, authorities and instrumentalities and the District of
Columbia to obtain funds for various public purposes. The interest on most of
these obligations is generally exempt from regular federal income tax. The two
principal classifications of municipal obligations are "notes" and "bonds."
Notes. Municipal notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal
notes include tax anticipation notes, revenue anticipation notes, bond
anticipation notes, tax and revenue anticipation notes, construction loan notes,
tax-exempt commercial paper and certain receipts for municipal obligations.
Tax anticipation notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. They are frequently general obligations of the
issuer, secured by the taxing power for payment of principal and interest.
Revenue anticipation notes are issued in expectation of receipt of other types
of revenue such as federal or state aid. Tax anticipation notes and revenue
anticipation notes are generally issued in anticipation of various seasonal
revenues such as income, sales, use, and business taxes. Bond anticipation notes
are sold to provide interim financing in anticipation of long-term financing in
the market. In most cases, these monies provide for the repayment of the notes.
Tax-exempt commercial paper consists of short-term unsecured promissory notes
issued by a state or local government or an authority or agency thereof. The
Series which invest
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in municipal obligations may also acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on certain state and local governmental and authority
obligations when, in the opinion of bond counsel, if any, interest payments with
respect to such custodial receipts are excluded from gross income for federal
income tax purposes, and in the case of the ILA Tax-Exempt California and ILA
Tax-Exempt New York Portfolios, exempt from California and New York (city and
state) personal income taxes, respectively. Such obligations are held in custody
by a bank on behalf of the holders of the receipts. These custodial receipts are
known by various names, including "Municipal Receipts" ("MRs") and "Municipal
Certificates of Accrual on Tax-Exempt Securities" ("M-CATS"). There are a number
of other types of notes issued for different purposes and secured differently
from those described above.
Bonds. Municipal bonds, which generally meet longer term capital
needs and have maturities of more than one year when issued, have two principal
classifications, "general obligation" bonds and "revenue" bonds.
General obligation bonds are issued by entities such as states,
counties, cities, towns and regional districts and are used to fund a wide range
of public projects including the construction or improvement of schools,
highways and roads, water and sewer systems and a variety of other public
purposes. The basic security of general obligation bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount or special assessments.
Revenue bonds have been issued to fund a wide variety of capital
projects including: electric, gas, water and sewer systems; highways, bridges
and tunnels; port and airport facilities; colleges and universities; and
hospitals. The principal security for a revenue bond is generally the net
revenues derived from a particular facility or group of facilities or, in some
cases, from the proceeds of a special excise or other specific revenue source.
Although the principal security behind these bonds varies widely, many provide
additional security in the form of a debt service reserve fund whose monies may
also be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security including
partially or fully insured, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. In addition to a
debt service reserve fund, some authorities provide further security in the form
of a state's ability (without obligation) to make up deficiencies in the debt
service reserve fund. Lease rental revenue bonds issued by a state or local
authority for capital projects are secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the
authority's obligations.
Private activity bonds (a term that includes certain types of bonds
the proceeds of which are used to a specified extent for the benefit of persons
other than governmental units), although nominally issued by municipal
authorities, are generally not secured by the taxing power of the municipality
but are secured by the revenues of the authority derived from payments by the
industrial user. The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio and FS Tax-Free Fund do not intend to invest in private
activity bonds if the interest from such bonds would be an item of tax
preference to unitholders under the federal alternative minimum tax.
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Municipal bonds with a series of maturity dates are called serial
bonds. The serial bonds which the Portfolios may purchase are limited to short-
term serial bonds---those with original or remaining maturities of thirteen
months or less. The Series may purchase long-term bonds provided that they have
a remaining maturity of thirteen months or less or, in the case of bonds called
for redemption, the date on which the redemption payment must be made is within
thirteen months. The Series may also purchase long-term bonds (sometimes
referred to as "Put Bonds"), which are subject to a Series' commitment to put
the bond back to the issuer at par at a designated time within thirteen months
and the issuer's commitment to so purchase the bond at such price and time.
The Series which invest in municipal obligations may invest in tender
option bonds. A tender option bond is a municipal obligation (generally held
pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax-exempt rates. The bond is typically issued in conjunction with the
agreement of a third party, such as a bank, broker-dealer or other financial
institution, pursuant to which such institution grants the security holder the
option, at periodic intervals, to tender its securities to the institution and
receive the face value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the difference between the
bond's fixed coupon rate and the rate, as determined by a remarketing or similar
agent at or near the commencement of such period, that would cause the bond,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term, tax-
exempt rate. However, an institution will not be obligated to accept tendered
bonds in the event of certain defaults by, or a significant downgrading in the
credit rating assigned to, the issuer of the bond.
The tender option will be taken into consideration in determining the
maturity of tender option bonds and the average portfolio maturity of a Series.
The liquidity of a tender option bond is a function of the credit quality of
both the bond issuer and the financial institution providing liquidity.
Consequently, tender option bonds are deemed to be liquid unless, in the opinion
of the Adviser, the credit quality of the bond issuer and the financial
institution is deemed, in light of the relevant Series' credit quality
requirements, to be inadequate.
Although the ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio, ILA Tax-Exempt New York Portfolio, FS Tax-Free Fund and FS
Municipal Fund intend to invest in tender option bonds the interest on which
will, in the opinion of counsel for the issuer and sponsor or counsel selected
by the Adviser, be excluded from gross income for federal income tax purposes,
there is no assurance that the Internal Revenue Service will agree with such
counsel's opinion in any particular case. Consequently, there is a risk that a
Series will not be considered the owner of such tender option bonds and thus
will not be entitled to treat such interest as exempt from such tax. A similar
risk exists for certain other investments subject to puts or similar rights.
Additionally, the federal income tax treatment of certain other aspects of these
investments, including the proper tax treatment of tender options and the
associated fees, in relation to various regulated investment company tax
provisions is unclear. The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio, ILA Tax-Exempt New York Portfolio, FS Tax-Free Fund and FS
Municipal Fund intend to manage their respective portfolios
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in a manner designed to eliminate or minimize any adverse impact from the tax
rules applicable to these investments.
In addition to general obligation bonds, revenue bonds and serial
bonds, there are a variety of hybrid and special types of municipal obligations
as well as numerous differences in the security of municipal obligations both
within and between the two principal classifications above.
The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio, ILA Tax-Exempt New York Portfolio, FS Tax-Free Fund and FS Municipal
Fund may purchase municipal instruments that are backed by letters of credit
issued by foreign banks that have a branch, agency or subsidiary in the United
States. Such letters of credit, like other obligations of foreign banks, may
involve credit risks in addition to those of domestic obligations, including
risks relating to future political and economic developments, nationalization,
foreign governmental restrictions such as exchange controls and difficulties in
obtaining or enforcing a judgment against a foreign bank (including branches).
For the purpose of investment restrictions of the Series, the
identification of the "issuer" of municipal obligations that are not general
obligation bonds is made by the Adviser on the basis of the characteristics of
the obligation as described above, the most significant of which is the source
of funds for the payment of principal of and interest on such obligations.
An entire issue of municipal obligations may be purchased by one or a
small number of institutional investors such as one of the Series. Thus, the
issue may not be said to be publicly offered. Unlike securities which must be
registered under the 1933 Act prior to offer and sale, municipal obligations
which are not publicly offered may nevertheless be readily marketable. A
secondary market may exist for municipal obligations which were not publicly
offered initially.
Municipal obligations purchased for a Series may be subject to the
Series' policy on holdings of illiquid securities. The Adviser determines
whether a municipal obligation is liquid based on whether it may be sold in a
reasonable time consistent with the customs of the municipal markets (usually
seven days) at a price (or interest rate) which accurately reflects its value.
The Adviser believes that the quality standards applicable to each Series'
investments enhance liquidity. In addition, stand-by commitments and demand
obligations also enhance liquidity.
Yields on municipal obligations depend on a variety of factors,
including money market conditions, municipal bond market conditions, the size of
a particular offering, the maturity of the obligation and the quality of the
issue. High quality municipal obligations tend to have a lower yield than lower
rated obligations. Municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by Congress or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or municipalities to levy taxes. There is also the
possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay when due principal of and interest on
its or their municipal obligations may be materially affected.
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INVESTING IN CALIFORNIA
The financial condition of the State of California ("California"), its
public authorities and local governments could affect the market values and
marketability of, and therefore the net asset value per unit and the interest
income of, the ILA Tax-Exempt California Portfolio, or result in the default of
existing obligations, including obligations which may be held by the ILA Tax-
Exempt California Portfolio. The following section provides only a brief
summary of the complex factors affecting the financial condition of California,
and is based on information obtained from California, as publicly available
prior to the date of this Statement of Additional Information. The information
contained in such publicly available documents has not been independently
verified. It should be noted that the creditworthiness of obligations issued by
local issuers may be unrelated to the creditworthiness of California, and that
there is no obligation on the part of California to make payment on such local
obligations in the event of default in the absence of a specific guarantee or
pledge provided by California.
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved since 1995. The ratings of certain related debt of other issuers for
which California has an outstanding lease purchase, guarantee or other
contractual obligation (such as for state-insured hospital bonds) are generally
linked directly to California's rating. Should the financial condition of
California deteriorate again, its credit ratings could be further reduced, and
the market value and marketability of all outstanding notes and bonds issued by
California, its public authorities or local governments could be adversely
affected.
Economic Factors. California's economy is the largest among the 50
----------------
states (accounting for almost 13% of the nation's output of goods and services)
and one of the largest in the world. California's population of more than 32.9
million represents over 12% of the total United States population and grew by
27% in the 1980s. While California's substantial population growth during the
1980's stimulated local economic growth and diversification and sustained a real
estate boom between 1984 and 1990, it increased strains on California's limited
water resources and demands for government services. Population growth slowed
since 1991 even while substantial immigration has continued, due to a
significant increase in outmigration by California residents. However, with the
California economy improving, the recent net outmigration within the Continental
U.S. is expected to decrease or be reversed.
From mid-1990 to late 1993, California's economy suffered its worst
recession since the 1930s, with over 700,000 jobs lost. The largest job losses
were in Southern California, led by declines in the aerospace and construction
industries. These losses were significantly related to cuts in lost federal
defense spending.
Since the start of 1994, the California economy has been in a steady
recovery in all parts of the State. The State Department of Finance reports net
job growth, particularly in construction and related manufacturing, wholesale
and retail trade, electronics, exports, transportation, recreation and services.
This growth has offset the continuing but slowing job losses in the aerospace
industry and restructuring of the finance and utility sectors. Prerecession job
levels
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were reached in 1996. Unemployment in California is down more than three percent
from its 10% peak in January, 1994, but still remains higher than the national
average rate.
Constitutional Limitations on Taxes, Other Charges and Appropriations
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Limitations on Property Taxes. Certain California Instruments may be
-----------------------------
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing power of
California local governments and districts is limited by Article XIIIA of the
California constitution, also known as "Proposition 13." Briefly, Article XIIIA
limits to 1% of full cash value the rate of ad valorem property taxes on real
property and generally restricts the reassessment of property to 2% per year,
except upon new construction or change of ownership (subject to a number of
exemptions). Taxing entities may, however, raise ad valorem taxes above the 1%
limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court
announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues
through ad valorem property taxes above the 1% limit; it also requires voters of
any governmental unit to give two-thirds approval to levy any "special tax."
Court decisions, however, allowed non-voter approved levy of "general taxes"
which were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62," have been overturned in recent
court cases. An initiative proposed to re-enact the provisions of Proposition
62 as a constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
Limitations on Other Taxes, Fees and Charges. On November 5, 1996, the
--------------------------------------------
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be
submitted to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific purposes
require a two-thirds vote. Further, any general purpose tax which was imposed,
extended or increased without voter approval after December 31, 1994 must be
approved by a majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges," defined for purposes of
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<PAGE>
Article XIIID to mean "any levy other than an ad valorem tax, a special tax, or
an assessment, imposed by a [local government] upon a parcel or upon a person as
an incident of property ownership, including a user fee or charge for a property
related service." All new and existing property related fees and charges must
conform to requirements prohibiting, among other things, fees and charges which
generate revenues exceeding the funds required to provide the property related
service or are used for unrelated purposes. There are new notice, hearing and
protest procedures for levying or increasing property related fees and charges,
and, except for fees or charges for sewer, water and refuse collection services
(or fees for electrical and gas service, which are not treated as "property
related" for purposes of Article XIIID), no property related fee or charge may
be imposed or increased without majority approval by the property owners subject
to the fee or charge or, at the option of the local agency, two-thirds voter
approval by the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately
be determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainly the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
Appropriation Limits. The State and its local governments are subject
--------------------
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" excludes most State subventions to local governments. No limit is
imposed on appropriations of funds which are not "proceeds of taxes," such as
reasonable user charges or fees, and certain other non-tax funds, including bond
proceeds.
Among the expenditures not included in the Article XIIIB
appropriations limit are (1) the debt service cost of bonds issued or authorized
prior to January 1, 1979, or subsequently authorized by the voters, (2)
appropriations arising from certain emergencies declared by the Governor, (3)
appropriations for certain capital outlay projects, (4) appropriations by the
State of post 1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population and any transfer of service
responsibilities between governmental units.
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The definitions for such adjustments were liberalized in 1990 to follow more
closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local
governments must return any excess to taxpayers by rate reductions. The State
must refund 50% paid to schools and community colleges. With more liberal
annual adjustment factors since 1988, and depressed revenues since 1990 because
of the recession, few governments, including the State, are currently operating
near their spending limits, but this condition may change over time. The State's
1997-98 Budget Act provides for State appropriations more than $6 billion under
the Article XIIIB limit. Local governments may by voter approval exceed their
spending limits for up to four years.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and
XIIID of the California Constitution, the ambiguities and possible
inconsistencies of their terms, and the impossibility of predicting future
appropriations or changes in population and cost of living, and the probability
of continuing legal challenges, it is not currently possible to determine fully
the impact of these articles on California Instruments. It is not presently
possible to predict the outcome of any pending litigation with respect to the
ultimate scope, impact or constitutionality of these articles, or the impact of
any such determinations upon State agencies or local governments, or upon their
ability to pay debt service or their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
State Debt. Under the California Constitution, debt service on
----------
outstanding general obligation bonds is the second charge to the General Fund
after support of the public school system and public institutions of higher
education. Total outstanding general obligation bonds and lease purchase debt
of California increased from $9.4 billion at June 30, 1987 to $24.9 billion at
February 1, 1998. The State also had outstanding at February 1, 1998 $1.051
billion of general obligation commercial paper notes which will be refunded into
long-term bonds at a later date. In FY1996-97, debt service on general
obligation bonds and lease purchase debt was approximately 5.0% of General Fund
revenues.
Recent Financial Results. The principal sources of General Fund
------------------------
revenues in 1996-1997 were the California personal income tax (47% of total
revenues), the sales tax (34%), bank and corporation taxes (12%), and the gross
premium tax on insurance (3%). California maintains a Special Fund for Economic
Uncertainties (the "SFEU"), derived from General Fund revenues, as a reserve to
meet cash needs of the General Fund.
General. Throughout the 1980s, California state spending increased
-------
rapidly as California's population and economy also grew rapidly, including
increased spending for many assistance programs to local governments, which were
constrained by Proposition 13 and other laws. The largest state program is
assistance to local public school districts. In 1988, an initiative (Proposition
98) was enacted which (subject to suspension by a two-thirds vote of the
Legislature and the Governor) guarantees local school districts and community
college districts a minimum share of California General Fund revenues (currently
about 35%).
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<PAGE>
Beginning at the start of the 1990-91 Fiscal Year, California faced
adverse economic, fiscal and budget conditions. The economic recession
seriously affected California's tax revenues. It also caused increased
expenditures for health and welfare programs.
Recent Budgets. As a result of these factors, among others, from the
--------------
late 1980's until 1992-93, the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years, and
the State accumulated and sustained a budget deficit in the SFEU approaching
$2.8 billion at its peak at June 30, 1993. For several years, each budget
required multibillion dollar actions to bring projected revenues and
expenditures into balance and to close large "budget gaps" which were
identified. The Legislature and Governor eventually agreed on a number of
different steps to produce Budget Acts in the Fiscal Years 1991-92 to 1995-96,
including the following (not all of these actions were taken each year):
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and some funding sources from
the State to local governments, coupled with some reduction in mandates on local
government;
. transfer of about $3.6 billion in annual local property tax
revenues from cities, counties, redevelopment agencies and some other districts
to local school districts, thereby reducing state funding for schools;
. reduction in growth of support for higher education programs,
coupled with increases in student fees;
. revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were for a short duration;
. increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal aid
than the State Administration had requested); and
. various one-time adjustment and accounting changes.
The combination of stringent budget actions cutting State
expenditures, and the turnaround of the economy by late 1993, finally led to the
restoration of positive financial results, with revenues equaling or exceeding
expenditures starting in FY 1992-93. As a result, the accumulated budget
deficit of about $2.8 billion was eliminated by June 30, 1997, when the State
showed a positive balance of about $408 million, on a budgetary basis, in the
SFEU.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. For a two-
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month period in the summer of 1992, pending adoption of the annual Budget
Act, the State was forced to issue registered warrants (IOUs) to some of its
suppliers, employees and other creditors. The last of these deficit notes was
repaid in April, 1996.
The 1995-96 and 1996-97 Budget Acts reflected significantly improved
financial conditions, as the State's economy recovered and tax revenues soared
above projections. Over the two years, revenues averaged about $2 billion
higher than initially estimated. Most of the additional revenues were allocated
to school funding, as required by Proposition 98, and to make up shortfalls in
federal aid for health and welfare costs and costs of illegal aliens. The
budgets for both these years showed strong increases in funding for K-14 public
education, including implementation of initiatives to reduce class sizes for
lower elementary grades to not more than 20 pupils. Higher education funding
also increased. Spending for health and welfare programs was kept in check, as
previously-implemented cuts in benefit levels were retained.
The final results for FY 1996-97 showed General Fund revenues of $49.2
billion and expenditures of $48.9 billion. The improved revenues allowed the
repayment of the last of the recession-induced budget deficits; the SFEU had a
balance of $408 million on a budgetary basis ($281 million on a cash basis) as
of June 30, 1997, the first significant positive balance in the decade. In
1996-97, the State implemented its regular cash flow borrowing program with the
issuance of $3.0 billion of Revenue Anticipation Notes which matured on June 30,
1997, and did not require any external borrowing over the end of the fiscal
year.
Fiscal Year 1997-98 Budget. With continued strong economic recovery
and surging tax receipts, the State entered the 1997-98 Fiscal Year in the
strongest financial position in the decade. However, in May 1997, the
California Supreme Court ruled that the State had acted illegally in 1993 and
1994 by using a deferral of payments to the Public Employees Retirement Fund to
help balance earlier budgets. In response to this court decision, the Governor
ordered an immediate repayment to the Retirement Fund of about $1.235 billion,
which was made in late July, 1997, and substantially "used up" the expected
additional revenues for the fiscal year.
On August 18, 1997, the Governor signed the 1997-98 Budget Act. The
Budget Act assumes General Fund revenues and transfers of $52.5 billion, and
contains expenditures of $52.8 billion. As a result, the budget reserve (SFEU)
is reduced to an estimated $112 million at June 30, 1998. The Budget Act also
contains $14.4 billion of Special Fund expenditures. Following enactment of the
Budget Act, the State plans to carry out its normal annual cash flow borrowing,
totaling $3.0 billion to mature June 30, 1998.
The 1997-98 Budget Act provides another year of rapidly increasing
funding for K-14 public education. Total General Fund support will reach $5,150
per pupil, more than 20% higher than the recession-period levels which were in
effect as late as FY 1993-94. The $1.75 billion in new funding will be spent on
class size reduction and other initiatives, as well as fully funding growth and
cost of living increases. Support for higher education units in the State also
increased by about 6 percent. Because of the pension payment, most other State
programs were funded at levels consistent with prior years, and several
initiatives had to be dropped. These included additional assistance to local
governments, state employee raises, and funding of a bond bank.
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<PAGE>
Part of the 1997-98 Budget Act was completion of State welfare reform
legislation to implement the new federal law passed in 1996. The new State
program, called "CalWORKs," to become effective January 1, 1998, will emphasize
programs to bring aid recipients into the workforce. As required by federal
law, new time limits will be placed on receipt of welfare aid. Grant levels for
1997-98 remain at the reduced, prior years' levels.
Although, as noted, the 1997-98 Budget Act projects a budget reserve
in the SFEU of $112 million on June 30, 1998, the General Fund fund balance on
that date also reflects $1.25 billion of "Loans" which the General Fund made to
local schools in the recession years, representing cash outlays above the
mandatory minimum funding level. Settlement of litigation over these
transactions in July 1996 calls for repayment of these loans over the period
ending in 2001-02, about equally split between outlays from the General Fund and
from schools' entitlements. The 1997-98 Budget Act contained a $200 million
appropriation from the General Fund toward this settlement.
Updated figures from the Department of Finance, released in early
January, 1998, project both revenues and expenditures will be higher in 1997-98
than estimated when the Budget Act was passed, reflecting continued strong
economic activity. The Department projects the budget reserve (SFEU) at June
30, 1998 will be approximately $329 million.
Proposed 1998-99 Fiscal Year Budget
The Governor released his proposed FY 1998-99 Budget on January 9,
1998. It projected General Fund revenues and transfers of $55.4 billion, an
increase of almost 5% over 1997-98. Revenue losses due to tax cuts enacted in
late 1997 were expected to be offset by higher capital gains realizations. The
Governor proposed expenditures of $55.4 billion, also an almost 5% increase from
the prior year. The Governor's Budget proposes significant additional funding
for K-12 schools under Proposition 98, as well as additional funding for higher
education, with a proposed reduction of college student fees. State and federal
funds will be used in the new CalWORKS welfare program, with projections of a
fourth consecutive year of caseload decline. The Governor has proposed a large
capital expenditure program, focusing on schools and universities, but also
including corrections, environmental and general government projects. These
proposals would require approval of almost $10 billion of new general obligation
bonds over the next six years. All of the Governor's proposals will be reviewed
by the Legislature as part of the annual budget process.
Although the State's strong economy is producing record revenues to
the State government, the State's budget continues to be under stress from
mandated spending on education, a rising prison population, and social needs of
a growing population with many immigrants. These factors which limit State
spending growth also put pressure on local governments. There can be no
assurances that, if economic conditions weaken, or other factors intercede, the
State will not experience budget gaps in the future.
Bond Ratings. The ratings on California's long-term general
------------
obligation bonds were reduced in the early 1990's from "AAA" levels which had
existed prior to the recession, but have been raised since 1996. The State's
bonds are currently assigned ratings of "A+" from Standard & Poor's, "A1" from
Moody's and "AA-" from Fitch. There can be no assurance that such ratings
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will be maintained in the future. It should be noted that the creditworthiness
of obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of California to make payment on such
obligations in the event of default.
Legal Proceedings. California is involved in certain legal
-----------------
proceedings (described in California's recent financial statements) that, if
decided against California, may require California to make significant future
expenditures or may substantially impair revenues. Courts have recently entered
decisions which could overturn several parts of the state's recent budget
compromises. The matters covered by these lawsuits include reductions in welfare
payments and the use of certain cigarette tax funds for health costs. All of
these cases are subject to further proceedings and appeals, and if California
eventually loses, the final remedies may not have to be implemented in one year.
Obligations of Other Issures
----------------------------
Other Issuers of California Instruments. There are a number of state
---------------------------------------
agencies, instrumentalities and political subdivisions of the State of
California that issue municipal obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the credit
quality of the securities issued by them may vary considerably from the credit
quality of obligations backed by the full faith and credit of the State of
California.
State Assistance. Property tax revenues received by local governments
----------------
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
California's General Fund surplus to local agencies, the reallocation of certain
state revenues to local agencies and the assumption of certain governmental
functions by the State of California to assist municipal issuers to raise
revenues. Through 1990-91, local assistance (including public schools)
accounted for around 75% of General Fund spending. To reduce California General
Fund support for school districts, the 1992-93 and 1993-94 Budget Acts caused
local governments to transfer a total of $3.9 billion of property tax revenues
to school districts, representing loss of all the post-Proposition 13 "bailout"
aid. The largest share of these transfers came from counties, and the balance
from cities, special districts and redevelopment agencies. In order to make up
part of this shortfall, the Legislature proposed, and voters approved in 1993,
dedicating 0.5% of the sales tax to counties and cities for public safety
purposes. In addition, the Legislature has changed laws to relieve local
governments of certain mandates, allowing them to reduce costs.
Legislation enacted in late 1997 provides for the State to take over
financial responsibility for funding trial courts throughout the State. This is
estimated to save counties and cities a total of over $350 million annually.
To the extent that California should be constrained by its Article
XIIIB appropriations limit, or its obligation to conform to Proposition 98, or
other fiscal considerations, the absolute level, or the rate of growth, of state
assistance to local governments may continue to be reduced. Any such reductions
in state aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. A number of counties have
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indicated that their budgetary condition is extremely serious. In the 1995-96
and 1996-97 fiscal years, Los Angeles County, the largest in the State, had to
make significant cuts in services and personnel, particularly in the health care
system in order to balance its budget. The County's debt was downgraded by
Moody's and S&P in the summer of 1995. Orange County, which recently emerged
from federal bankruptcy protection, has substantially reduced services and
personnel in order to live within much reduced means.
Counties and cities may face further budgetary pressures as a result
of changes in welfare and public assistance programs, which were enacted in
August, 1997 in order to comply with the federal welfare reform law. Generally,
counties play a large role in the new system, and are given substantial
flexibility to develop and administer programs to bring aid recipients into the
workforce. Counties are also given financial incentives if either at the county
or statewide level, the "Welfare-to-Work" programs exceed minimum targets;
counties are also subject to financial penalties for failure to meet such
targets. Counties remain responsible to provide "general assistance" for able-
bodied indigents who are ineligible for other welfare programs. The long-term
financial impact of the new CalWORKs system on local governments is still
unknown.
Assessment Bonds. California Instruments which are assessment bonds
----------------
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured
by land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long-Term Lease Obligations. Certain California long-term
--------------------------------------
lease obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
is unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event abatement occurs. The most common cases of abatement are failure to
complete construction of the facility before the end of the period during which
lease payments have been capitalized and uninsured casualty losses to the
facility (e.g. due to earthquake). In the event abatement occurs with respect to
a lease obligation, lease payments may be interrupted (if all available
insurance proceeds and reserves are exhausted) and the certificates may not be
paid when due.
Several years ago the Richmond Unified School District (the
"District") entered into a lease transaction in which certain existing
properties of the District were sold and leased back in order to obtain funds to
cover operating deficits. Following a fiscal crisis in which the District's
finances were taken over by a state receiver (including a brief period under
bankruptcy court protection), the District failed to make rental payments on
this lease, resulting in a lawsuit by the Trustee for the Certificate of
Participation holders, in which the State of California was a named defendant
(on the grounds that it controlled the District's finances). One of the
defenses raised in answer to this lawsuit was the invalidity of the District's
lease. The trial court upheld the validity
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of the lease, and the case was subsequently settled. Any ultimate judgment in
any future case against the position taken by the Trustee may have adverse
implications for lease transactions of a similar nature by other California
entities.
Other Considerations
--------------------
The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in state regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g. because of major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which typically are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which any
such legislation will be enacted. Nor is it presently possible to determine the
impact of any such legislation on California Instruments in which the California
Portfolio may invest, future allocations of state revenues to local governments
or the abilities of state or local governments to pay the interest on, or repay
the principal of, such California Instruments.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any security in the ILA Tax-Exempt California Portfolio could
be affected by an interruption of revenues because of damaged facilities, or,
consequently, income
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tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage at reasonable rates;
(ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or state government to appropriate
sufficient funds within their respective budget limitations.
INVESTING IN NEW YORK
Some of the significant financial considerations relating to the ILA
Tax-Exempt New York Portfolio's investments in New York Instruments are
summarized below. This summary information is not intended to be a complete
description and is principally derived from official statements relating to
issues of New York Instruments that were available prior to the date of this
Statement of Additional Information. The accuracy and completeness of the
information contained in those official statements have not been independently
verified.
STATE ECONOMY. New York is the third most populous state in the nation and has
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a relatively high level of personal wealth. The State's economy is diverse with
a comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries. New York City (the "City"), which is the most populous city
in the State and nation and is the center of the nation's largest metropolitan
area, accounts for a large portion of the State's population and personal
income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation
as a whole, gradually eroding its relative economic position. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially.
Moderate growth is projected to continue in 1998 and 1999 for
employment, wages, and personal income, although the growth rates will lessen
gradually during the course of the two years. Overall employment growth is
expected to continue at a modest rate, reflecting the slowing growth in the
national economy, continued spending restraint in government, and restructuring
in the health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results in the 1996-97 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
STATE BUDGET. The State Constitution requires the governor (the "Governor") to
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submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
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The State's budget for the 1996-97 fiscal year was adopted by the
Legislature on August 4, 1997, more than four months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1997-98 fiscal year was
formulated on August 11, 1997 and was based on the State's budget as enacted by
the Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State
has failed to adopt a budget prior to the beginning of its fiscal year. There
can be no assurance that State budgets in future fiscal years will be adopted by
the April 1 statutory deadline.
The Governor is required by law to propose a balanced budget each
year. In order to address any potential remaining budget gap, the Governor is
expected to make additional proposals to bring receipts in line with
disbursements. The State has closed projected budget gaps of $5.0 billion, $3.9
billion and $2.3 billion in its 1995-96, 1996-97 and 1997-98 fiscal years,
respectively.
The 1997-98 General Fund Financial Plan is projected to be balanced on
a cash basis, with a projected cash surplus of $1.83 billion. As compared to
the Governor's Executive Budget as amended in February 1997, the State's adopted
budget for 1997-98 increased General Fund spending by $1.7 billion, primarily
from increases for local assistance ($1.3 billion). Resources used to fund
these additional expenditures include increased revenues projected for the 1997-
98 fiscal year, increased resources produced in the 1996-97 fiscal year that
will be utilized in 1997-98, re-estimates of social service, fringe benefit and
other spending, and certain non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions, including a
State funded property and local income tax reduction program, estate tax relief,
utility gross receipts tax reductions, permanent reductions in the State sales
tax on clothing, and elimination of assessments on medical providers. These
reductions are intended to reduce the overall level of State and local taxes in
New York and to improve the State's competitive position vis-a-vis other states.
The various elements of the State and local tax and assessments reductions have
little or no impact on the 1997-98 State Financial Plan, and do not begin to
materially affect the outyear projections until the State's 1999-2000 fiscal
year.
Other actions taken in the 1997-98 adopted budget add further pressure
to future budget balance in New York State. For example, the fiscal effects of
tax reductions adopted in the 1997-98 budget are projected to grow more
substantially beyond the 1998-99 fiscal year, with incremental costs averaging
in excess of $1.3 billion annually over the last three years of the tax
reduction program. These incremental costs reflect the phase-in of State-funded
school property tax and local income tax relief, the phase-out of the
assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and pre-
kindergarten early learning programs
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which could add as much as $1.4 billion in costs when fully annualized in fiscal
year 2001-02. These spending commitments are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a report
which noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The Governor presented his 1998-99 Executive Budget to the Legislature
on January 20, 1998. The Executive Budget contains financial projections for
the State's 1997-98 through 2000-01 fiscal years, detailed estimates of receipts
and a proposed Capital Program and Financing Plan for the 1997-98 through 2002-
03 fiscal years. It is expected that the Governor will prepare amendments to
his Executive Budget as permitted under law and that these amendments will be
reflected in a revised Financial Plan. There can be no assurance that the
Legislature will enact into law the Executive Budget as proposed by the
Governor, or that the State's adopted budget projections will not differ
materially and adversely from the projections set forth therein.
The 1998-99 Financial Plan is projected to be balanced on a cash basis
in the General Fund. Total General Fund receipts, including transfers from
other funds, are projected to be $36.22 billion, an increase of $1.02 billion
over projected receipts in the current fiscal year. Total General Fund
disbursements, including transfers to other funds, are projected to be $36.18
billion, an increase of $1.02 billion over the projected expenditures (including
pre-payments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from all Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for
senior citizens under STAR, which is projected to reduce General Fund receipts
by $537 million in 1998-99. The proposed reduction supplements STAR
tax reductions already scheduled in law, which are projected at $187 million in
1998-99. The Budget also proposes several new tax-cut initiatives and other
funding changes that are projected to further reduce receipts available to the
General Fund by over $200 million. These initiatives include reducing the fee
to register passenger motor vehicles and earmarking a larger portion of such
fees to dedicated funds and other purposes; extending the number of weeks in
which certain clothing purchases are exempt from sales taxes; more fully
conforming State law to reflect recent Federal changes in estate taxes;
continuing lower pari-mutuel tax rates; and accelerating scheduled property tax
relief for farmers from 1999 to 1998. In addition to the specific tax and fee
reductions discussed above, the Executive Budget also proposes establishing a
reserve of
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$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
The Division of the Budget estimates that the 1998-99 Financial Plan
includes approximately $62 million in non-recurring resources, comprising less
than two-tenths of one percent of General Fund disbursements. The non-recurring
resources projected for use in 1998-99 consist of $27 million in retroactive
federal welfare reimbursements for family assistance recipients with HIV/AIDS,
$25 million in receipts from the Housing Finance Agency that were originally
anticipated in 1997-98, and $10 million in other measures, including $5 million
in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at
$4.82 billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the financial plan is
based upon forecasts of national and State economic activity. Economic
forecasts have frequently failed to predict accurately the timing and magnitude
of changes in the national and the State economies. Actual results, however,
could differ materially and adversely from the projections set forth in a
financial plan, and those projections may be changed materially and adversely
from time to time.
In the past, the State has taken management actions and made use of
internal sources to address potential State financial plan shortfalls, and the
Division of Budget believes it could take similar actions should variances occur
in its projections for the current fiscal year.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund of
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the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
The State ended the first six months of its 1997-98 fiscal year with
an unaudited General Fund cash balance of $3.2 billion, or $254 million above
the August Financial Plan estimate. Total unaudited receipts, including
transfers from other funds, totaled $18.8 billion, or $340 million higher than
expected. The additional receipts reflected higher-than-anticipated tax
revenues of $244 million and miscellaneous receipts of $93 million. Unaudited
General Fund spending for the same period equaled $16.0 billion, or $86 million
above the cashflow projections published in the August Financial Plan. For
fiscal year 1997-98, total General Fund
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receipts were projected at $35.09 billion, an increase of $2.05 billion from
1996-97 results. Total disbursements, including transfers to capital projects,
debt service and other funds, were projected at $34.60 billion, or 5.2 percent
higher than disbursements in 1996-97.
The mid-year update projected a closing balance in the General Fund of
$927 million, which was composed of a $530 million reserve for future needs, a
$332 million balance in the Tax Stabilization Reserve Fund ("TSRF"), and a $65
million balance in the Contingency Reserve Fund ("CRF").
As part of the 1997-98 Adopted Budget Report, the State also issued
its update to the GAAP-basis Financial Plan for the State's 1997-98 fiscal year,
based on the cash-basis 1997-98 State Financial Plan completed in August. The
GAAP-basis update projected a General Fund operating deficit of $959 million,
primarily reflecting the use of a portion of the 1996-97 cash surplus to fund
1997-98 liabilities, offset by the $530 million reserve for future needs.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which the
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State of New York may incur debt. Under the State Constitution, the State may
not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
----
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
from the sale of duly authorized but unissued general obligation bonds, by
issuing bond anticipation notes. The State may also, pursuant to specific
constitutional authorization, directly guarantee certain obligations of the
State of New York's authorities and public benefit corporations ("Authorities").
Payments of debt service on New York State general obligation and New York
State-guaranteed bonds and notes are legally enforceable obligations of the
State of New York.
The State employs additional long-term financing mechanisms, lease-
purchase and contractual-obligation financings, which involve obligations of
public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a contractual-
obligation financing arrangement with the Local Government Assistance
Corporation ("LGAC") to restructure the way the State makes certain local aid
payments.
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In February 1997, the Job Development Authority ("JDA") issued
approximately $85 million of State-guaranteed bonds to refinance certain of its
outstanding bonds and notes in order to restructure and improve JDA's capital
structure. Due to concerns regarding the economic viability of its programs,
JDA's loan and loan guarantee activities had been suspended since the Governor
took office in 1995. As a result of the structural imbalances in JDA's capital
structure, and defaults in its loan portfolio and loan guarantee program
incurred between 1991 and 1996, JDA would have experienced a debt service cash
flow shortfall had it not completed its recent refinancing. JDA anticipates
that it will transact additional refinancings in 1999, 2000 and 2003 to complete
its long-term plan of finance and further alleviate cash flow imbalances which
are likely to occur in future years. The State does not anticipate that it will
be called upon to make any payments pursuant to the State guarantee in the 1997-
98 fiscal year. JDA recently resumed its lending activities under a revised set
of lending programs and underwriting guidelines.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount to yield net proceeds not in
excess of $4.7 billion (exclusive of certain refunding bonds). Over a period of
years, the issuance of these long-term obligations, which are to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal
borrowing of the State at $4.7 billion, less net proceeds of bonds issued by
LGAC and bonds issued to provide for capitalized interest, except in cases where
the Governor and the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing
above the cap was thus permitted in any fiscal year it was required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of June 1995, LGAC had issued bonds to provide net proceeds of $4.7 billion,
completing the program.
On January 13, 1992, S&P reduced its ratings on the State's general
obligation bonds from A to A- and, in addition, reduced its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On August 28, 1997, S&P revised its ratings on the State's general
obligation bonds from A- to A and revised its ratings on the State's moral
obligation, lease purchase, guaranteed and contractual obligation debt. On
March 2, 1998, S&P affirmed its A rating on the State's outstanding bonds.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State
and stated that the outlook for the State's general obligations is stable.
The State anticipated that its capital programs will be financed, in
part, by State and public authorities borrowings in the 1997-98 fiscal year.
The State expects to issue $605 million in general obligation bonds (including
$140 million for purposes of redeeming outstanding bond anticipation notes) and
$140 million in general obligation commercial paper. The Legislature
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had also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of State borrowings for the 1997-98 fiscal year is subject to change as market
conditions, interest rates and other factors vary throughout the fiscal year.
The proposed 1997-98 through 2002-03 Capital Program and Financing
Plan was released with the 1998-99 Executive Budget on January 20, 1998. As a
part of that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding BANs) and $140 million in general obligation
commercial paper; the issuance of $83 million in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against the State or its officers or
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employees could have a substantial or long-term adverse effect on State
finances. Among the more significant of these cases are those that involve (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to New York State of certain land in central and upstate New
York; (2) certain aspects of New York State's Medicaid policies, including its
rates, regulations and procedures; (3) action against New York State and New
York City officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges to regulations promulgated by
the Superintendent of Insurance establishing certain excess medical malpractice
premium rates; (7) challenges to certain aspects of petroleum business taxes;
(8) action alleging damages resulting from the failure by the State's Department
of Environmental Conservation to timely provide certain data; (9) challenges to
the constitutionality of Public Health Law 2807-d, which imposes a gross
receipts tax from certain patient care services; (10) an action seeking
reimbursement from the State for certain costs arising out of the provision of
pre-school services and programs for children with handicapped conditions; (11)
action seeking enforcement of certain sales and excise taxes and tobacco
products and motor fuel sold to non-Indian consumers on Indian reservations; and
(12) a challenge to the constitutionality of Clean Water/Clean Air Bond Act.
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Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller developed a plan to restore the State's retirement systems to prior
funding levels. Such funding is expected to exceed prior levels by $116 million
in fiscal 1996-97, $193 million in fiscal 1997-98, peaking at $241 million in
fiscal 1998-99. Beginning in fiscal 2001-02, State contributions required under
the Comptroller's plan are projected to be less than that required under the
prior funding method. As a result of the United States Supreme Court decision
in the case of State of Delaware v. State of New York, on January 21, 1994, the
----------------- -----------------
State entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's 1994-
95 fiscal year. Litigation challenging the constitutionality of the treatment
of certain moneys held in a reserve fund was settled in June 1996 and certain
amounts in a Supplemental Reserve Fund previously credited by the State against
prior State and local pension contributions will be paid in 1998.
The legal proceedings noted above involve State finances, State
programs and miscellaneous cure rights, tort, real property and contract claims
in which the State is a defendant and the monetary damages sought are
substantial, generally in excess of $100 million. These proceedings could
affect adversely the financial condition of the State in the 1997-98 fiscal year
or thereafter. Adverse developments in these proceedings, other proceedings for
which there are unanticipated, unfavorable and material judgments, or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced financial plan. An adverse decision in any of these proceedings
could exceed the amount of the reserve established in the State's financial plan
for the payment of judgments and, therefore, could affect the ability of the
State to maintain a balanced financial plan. In its audited financial
statements for the 1996-97 fiscal year, the State reported its estimated
liability for awarded and anticipated unfavorable judgments to be $364 million,
of which $134 million is expected to be paid during the 1997-98 fiscal year.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part, to the
- -----------
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is State-
supported or State-related. There can be no assurance that there will not be
reductions in State aid to the City from amounts currently projected or that
State budgets will be adopted by the April 1 statutory
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<PAGE>
deadline or that any such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, New
York State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the Authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating assistance is
expected to continue to be required in future years. In addition, certain
statutory arrangements provide for State local assistance payments otherwise
payable to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional assistance to
localities whose local assistance payments have been paid to Authorities under
these arrangements. However, in the event that such local assistance payments
are so diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New York
- ----------------------------------
may also be impacted by the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. There
can be no assurance that there will not be reductions in State aid to the City
from amounts currently projected or that State budgets will be adopted by the
April 1 statutory deadline or that any such reductions or delays will not have
adverse effects on the City's cash flow or expenditures. In addition, the
Federal budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to the public credit markets. The City was not able to sell short-
term notes to the public again until 1979. In 1975, S&P suspended its A rating
of City bonds. This suspension remained in effect until March 1981, at which
time the City received an investment grade rating of BBB from S&P.
On July 2, 1985, S&P revised its rating of City bonds upward to BBB+
and on November 19, 1987, to A-. On February 3, 1998, S&P placed a BBB+ rating
on the City's general obligation debt on CreditWatch with positive implications.
Moody's ratings of City bonds were revised in November 1981 from B (in effect
since 1977) to Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May
1988 to A and again in February 1991 to Baa1. On February 25, 1998, Moody's
upgraded nearly $28 billion of the City's debt from Baa1 to A3.
New York City is heavily dependent on New York State and federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future federal and State assistance will enable the City to make up
its budget deficits. To help alleviate the City's financial difficulties, the
Legislature created the Municipal Assistance Corporation ("MAC") in 1975. Since
its creation, MAC has provided, among other things, financing assistance to the
City
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<PAGE>
by refunding maturing City short-term debt and transferring to the City
funds received from sales of MAC bonds and notes. MAC is authorized to issue
bonds and notes payable from certain stock transfer tax revenues, from the
City's portion of the State sales tax derived in the City and, subject to
certain prior claims, from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid revenues below a specified level are included among the events of default in
the resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do
not constitute an enforceable obligation or debt of either the State or the
City. As of June 30, 1997, MAC had outstanding an aggregate of approximately
$4.267 billion of its bonds. MAC is authorized to issue bonds and notes to
refunds its outstanding bonds and notes and to fund certain reserves, without
limitation as to principal amount, and to finance certain capital commitments to
the Transit Authority and the New York City School Construction Authority for
the 1997 fiscal year in the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
The City since 1981 has fully satisfied its seasonal financing needs
in the public credit markets, repaying all short-term obligations within their
fiscal year of issuance. Although the City's current financial plan projects
$2.4 billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing
requirements for the 1996 fiscal year increased to $2.4 billion from $2.2
billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively.
Seasonal financing requirements were $1.4 billion in the 1993 fiscal year. The
delay in the adoption of the State's budget in certain past fiscal years has
required the City to issue short-term notes in amounts exceeding those expected
early in such fiscal years.
Certain localities, in addition to the City, have experienced
financial problems and have requested and received additional New York State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional assistance is not
included in the State's projections of its receipts and disbursements for the
1997-98 fiscal year.
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<PAGE>
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the re-establishment of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million
will be dispersed among all cities, towns and villages, a 3.97% increase in
General Purpose State Aid.
Municipalities and school districts have engaged in substantial short-
term and long-term borrowings. In 1995, the total indebtedness of all
localities in New York State other than New York City was approximately $19
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1995.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
STANDBY COMMITMENTS
In order to enhance the liquidity, stability or quality of municipal
obligations, the ILA Prime Obligations Portfolio, ILA Money Market Portfolio,
ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California Portfolio, ILA
Tax-Exempt New York Portfolio, FS Prime
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<PAGE>
Obligations Fund, FS Premium Fund, FS Money Market Fund, FS Tax-Free Fund and FS
Municipal Fund each may acquire the right to sell a security to another party at
a guaranteed price and date. Such a right to resell may be referred to as a put,
demand feature or "standby commitment", depending on its characteristics. The
aggregate price which a Series pays for securities with standby commitments may
be higher than the price which otherwise would be paid for the securities.
Standby commitments may not be available or may not be available on satisfactory
terms.
Standby commitments may involve letters of credit issued by domestic
or foreign banks supporting the other party's ability to purchase the security
from the Series. The right to sell may be exercisable on demand or at specified
intervals, and may form part of a security or be acquired separately by the
Series.
Management of the Trust understands that the Internal Revenue Service
has issued a favorable revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. Institutional Tax-
Exempt Assets, the predecessor company of which ILA Tax-Exempt Diversified
Portfolio and ILA Tax-Exempt California Portfolio were series, has received a
ruling (which does not serve as precedent for other taxpayers and which are
applicable only to the taxpayer requesting the ruling and which have, on
occasion, been reversed by the Internal Revenue Service) from the Internal
Revenue Service to the effect that it is considered the owner of the municipal
obligations subject to standby commitments so that the interest on such
instruments will be tax-exempt income to it. The Internal Revenue Service has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest therein, to be purchased by
either the seller or a third party. Each of the ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New York
Portfolio, FS Tax-Free Fund and FS Municipal Fund intends to take the position
that it is the owner of any municipal obligations acquired subject to a standby
commitment or acquired or held with certain other types of put rights and that
its distributions of tax-exempt interest earned with respect to such municipal
obligations will be tax-exempt for its unitholders. There is no assurance that
standby commitments will be available to a Series nor has any Series assumed
that such commitments will continue to be available under all market conditions.
INVESTMENT LIMITATIONS
The following restrictions may not be changed with respect to any
Series without the approval of the majority of outstanding voting securities of
that Series (which, under the Act and the rules thereunder and as used in the
Prospectus and this Statement of Additional Information, means the lesser of (1)
67% of the units of that Series present at a meeting if the holders of more than
50% of the outstanding units of that Series are present in person or by proxy,
or (2) more than 50% of the outstanding units of that Series). Investment
restrictions that involve a maximum percentage of securities or assets shall not
be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or
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<PAGE>
encumbrance of securities or assets of, or borrowings by or on behalf of, a
Series, with the exception of borrowings permitted by Investment Restriction
(3).
Accordingly, the Trust may not, on behalf of any Series (except for
FS Government Fund):
(1) Make any investment inconsistent with the Series' classification
as a diversified company under the Act. This restriction does not,
however, apply to any Series classified as a non-diversified company under
the Act.
(2) Purchase securities if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of a Series to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and each Series (other than the FS Money Market
Fund and FS Premium Fund) reserves freedom of action, when otherwise
consistent with its investment policies, to concentrate its investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, obligations (other than commercial paper) issued or
guaranteed by U.S. banks and U.S. branches of U.S. or foreign banks and
repurchase agreements and securities loans collateralized by such U.S.
Government obligations or such bank obligations. Each of FS Money Market
Fund and FS Premium Fund may concentrate its investments in obligations
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and repurchase agreements and securities loans
collateralized by such obligations and will invest more than 25% of its
total assets in obligations issued or guaranteed by banks (whether foreign
or domestic) and repurchase agreements and securities loans collateralized
by such obligations. However, if adverse economic conditions prevail in the
banking industry, each of FS Money Market Fund and FS Premium Fund may, for
defensive purposes, temporarily invest less than 25% of the value of its
total assets in such obligations. Notwithstanding the foregoing, the ILA
Money Market Portfolio will invest more than 25% of the value of its total
assets in bank obligations (whether foreign or domestic) except that if
adverse economic conditions prevail in the banking industry, the ILA Money
Market Portfolio may, for defensive purposes, temporarily invest less than
25% of its total assets in bank obligations. For the purposes of this
restriction, state and municipal governments and their agencies,
authorities and instrumentalities are not deemed to be industries;
telephone companies are considered to be a separate industry from water,
gas or electric utilities; personal credit finance companies and business
credit finance companies are deemed to be separate industries; and wholly
owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the
activities of their parents.
(3) Borrow money, except that (a) the Series may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in amounts up
to 33 1/3% of its total assets (including the amount borrowed), (b) the
Series may, to the extent permitted by applicable law, borrow up to an
additional 5% of its total assets for temporary purposes, (c) the Series
may obtain such short-term credit as may be necessary for the
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<PAGE>
clearance of purchases and sales of portfolio securities and (d) the Series
may purchase securities on margin to the extent permitted by applicable
law.
(4) Make loans, except (a) through the purchase of debt obligations in
accordance with each Series' investment objective and policies, (b) through
repurchase agreements with banks, brokers, dealers and other financial
institutions, (c) with respect to the Financial Square Funds, loans of
securities as permitted by applicable law, and (d) with respect to the ILA
Portfolios, loans of securities.
(5) Underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Series may be deemed to be an
underwriting.
(6) Purchase, hold or deal in real estate, although the Series may
purchase and sell securities that are secured by real estate or interests
therein, securities of real estate investment trusts and mortgage-related
securities and may hold and sell real estate acquired by the Series as a
result of the ownership of securities.
(7) Invest in commodities or commodity contracts, except that the
Series may invest in currency and financial instruments and contracts that
are commodities or commodity contracts.
(8) Issue senior securities to the extent such issuance would violate
applicable law.
FS Government Fund may not:
(1) With respect to 75% of its total assets taken at market value,
invest more than 5% of the value of the total assets of that Series in the
securities of any one issuer, except U.S. Government securities and
repurchase agreements collateralized by U.S. Government securities. This
restriction does not, however, apply to any Series classified as a non-
diversified company under the Act.
(2) With respect to 75% of its total assets taken at market value,
purchase the securities of any one issuer if, as a result of such purchase,
that Series would hold more than 10% of the outstanding voting securities
of that issuer. This restriction does not, however, apply to any Series
classified as a non-diversified company under the Act.
(3) Borrow money, except from banks on a temporary basis for
extraordinary or emergency purposes, provided that a Series is required to
maintain asset coverage of 300% for all borrowings and that no purchases of
securities will be made if such borrowings exceed 5% of the value of the
Series' assets. This restriction does not apply to cash collateral
received as a result of portfolio securities lending.
(4) Mortgage, pledge or hypothecate its assets except to secure
permitted borrowings.
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<PAGE>
(5) Act as underwriter of the securities issued by others, except to
the extent that the purchase of securities in accordance with a Series'
investment objective and policies directly from the issuer thereof and the
later disposition thereof may be deemed to be underwriting.
(6) Purchase securities if such purchase would cause more than 25% in
the aggregate of the market value of the total assets of a Series to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to, and the Series reserves freedom of action, when
otherwise consistent with its investment policies to, concentrate its
investments in, U.S. Government securities, obligations (other than
commercial paper) issued or guaranteed by U.S. banks, and U.S. branches of
foreign banks and repurchase agreements and securities loans collateralized
by U.S. Government securities or such bank obligations. (For the purposes
of this restriction, state and municipal governments and their agencies and
authorities are not deemed to be industries, and telephone companies are
considered to be a separate industry from water, gas or electric utilities,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents. Such
concentration may be effected when the Adviser determines that risk
adjusted returns in such industries are considered favorable relative to
other industries.)
(7) Issue senior securities, except as appropriate to evidence
indebtedness that a Series is permitted to incur and except for shares of
existing or additional series of the Trust.
(8) Purchase or sell real estate (excluding securities secured by
real estate or interests therein), interests in oil, gas or mineral leases,
commodities or commodities contracts. The Trust reserves the freedom to
hold and to sell real estate acquired for any Series as a result of the
ownership of securities.
(9) Make loans to other persons, except loans of portfolio securities
and except to the extent that the purchase of debt obligations and entry
into repurchase agreements in accordance with such Series' investment
objective and policies may be deemed to be loans.
(10) Purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary for
the clearance of transactions), make short sales of securities, maintain a
short position, or invest in or write puts, calls or combinations thereof
(except that a Series may acquire puts in connection with the acquisition
of a debt instrument).
(11) Invest in other companies for the purpose of exercising control
or management.
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<PAGE>
Each Series may, notwithstanding any other fundamental investment
restriction or policy, invest some or all of its assets in a single open-end
investment company or series thereof with substantially the same investment
objectives, restrictions and policies as the Series.
As money market funds, the Series must also comply with Rule 2a-7
under the Act. While a detailed and technical Rule, Rule 2a-7 has three basic
requirements: portfolio maturity, portfolio quality and portfolio
diversification. Portfolio maturity. Rule 2a-7 requires that the maximum
maturity (as determined in accordance with Rule 2a-7) of any security in a
Series' portfolio may not exceed 397 days and a Portfolio's average portfolio
maturity may not exceed 90 days. Portfolio quality. A money market fund may
only invest in First Tier and Second Tier securities (as defined in the Rule and
the Prospectus). Each Series, other than the ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New York
Portfolio, FST Tax-Free Fund and FS Municipal Fund (the "Tax-Exempt Series"), as
a matter of non-fundamental policy only invests in First Tier securities.
Portfolio diversification. The ILA Prime Obligations, ILA Government, ILA
Treasury Obligations, ILA Money Market, ILA Federal, ILA Treasury Instruments
and ILA Tax-Exempt Diversified Portfolios, FS Prime Obligations, FS Premium, FS
Government, FS Treasury Obligations, FS Money Market, FS Federal, FS Treasury
Instruments, FS Tax-Free and FS Municipal Funds may not invest more than 5% of
their total assets in the securities of any one issuer (except U.S. Government
securities, repurchase agreements collateralized by such securities and certain
securities subject to a guarantee or unconditional demand feature). Each of
such Series may, however, invest up to 25% of its total assets in the First Tier
Securities of a single issuer for a period of up to three business days after
the purchase thereof. ILA Tax-Exempt New York and ILA Tax-Exempt California
Portfolios, with respect to 75% of their respective total assets, may not invest
more than 5% of their total assets in the securities of any one issuer (except
U.S. Government securities, repurchase agreements collateralized by such
securities and certain securities subject to a guarantee or unconditional demand
feature); provided that such Funds may not invest more than 5% of their
respective total assets in the securities of a single issuer unless the
securities are First Tier securities. Subject to certain exceptions,
immediately after the acquisition of any demand features or guarantees (i.e.,
generally, the right to sell the security at a price equal to its approximate
amortized cost (for a demand feature) or principal amount (for a guarantee) plus
accrued interest), with respect to 75% of the assets of a Series, no more than
10% of the Series' total assets may be invested in securities issued by or
subject to demand features or guarantees issued by the same issuer. In the case
of the Tax-Exempt Series (which are the only Series that are permitted to invest
in Second Tier securities), subject to certain exceptions immediately after the
acquisition of a demand feature or guarantee that is a Second Tier security, no
more than 5% of the Tax-Exempt Series' total assets may be invested in
securities or demand features or guarantees issued by the institution that
issued the demand feature or guarantee. The Tax-Exempt Series' investment in
Second Tier securities that are conduit securities, (which, generally, are
municipal securities involving an agreement or arrangement providing for payment
by a person other than the issuer of the municipal security) that are not U.S.
Government securities or securities with a guarantee by a non-controlled person,
may not exceed 1% of the Series' total assets. Also, the Tax-Exempt Series'
investment in Second Tier conduit securities of any one issuer of all issuers
combined may not exceed 5% of the Series total assets. Securities which are
rated in the highest short-term rating category by at least two Nationally
Recognized Statistical Rating Organizations ("NRSROs"), or if only one NRSRO has
assigned a rating, by that NRSRO, (or unrated securities determined by the
Investment Adviser to be of comparable
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<PAGE>
quality) are "First Tier Securities." Securities rated in the top two short-term
rating categories by at least two NRSROs or by the only NRSRO which has assigned
a rating, but which are not First Tier Securities (or unrated securities
determined by the Investment Adviser to be of comparable quality) are "Second
Tier Securities." Unrated securities may also be First Tier or Second Tier
securities if they are of comparable quality. In accordance with certain rules,
the rating of demand feature or guarantee of a security may be deemed to be the
rating of the underlying security. NRSROs include S&P, Moody's, Duff and Phelps,
Inc., Fitch IBCA Inc., and Thomson BankWatch, Inc. For a description of their
rating categories, see Appendix A.
"Value" for the purposes of all investment restrictions shall mean the
value used in determining a Series' net asset value. "U.S. Government
securities" shall mean securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities.
In addition to the fundamental policies mentioned above, the Board of
Trustees of the Trust has adopted the following non-fundamental policies with
respect to the Financial Square Funds which may be changed or amended by action
of the Board of Trustees without approval of shareholders. Accordingly, the
Trust may not, on the behalf of any Series:
(a) Invest in companies for the purpose of exercising control or
management.
(b) Invest more than 10% of a Series' net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities
not eligible for resale pursuant to Rule 144A under the 1933 Act.
(c) Purchase additional securities if the Series' borrowings exceed 5% of
its net assets.
(d) Make short sales of securities, except short sales against the box.
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<PAGE>
TRUSTEES AND OFFICERS
Information pertaining to the Trustees and officers of the Trust is
set forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAST 5 YEARS
- --------------------------- ---------- -------------------------------------------------------------------------------------------
<S> <C> <C>
Ashok N. Bakhru, 56 Chairman Executive Vice President -
1325 Ave. of Americas & Trustee Finance and Administration and
New York, NY 10019 Chief Financial Officer, Coty Inc. (since April 1996); President, ABN Associates (June
1994 to March 1996); Senior Vice President of Scott Paper Company (until June 1994);
Director of Arkwright Mutual Insurance Company; Trustee of International House of
Philadelphia; Member of Cornell University Council; Trustee of the Walnut Street Theater.
*David B. Ford, 52 Trustee Managing Director, Goldman
One New York Plaza Sachs (since 1996); General
New York, NY 10004 Partner, Goldman Sachs (1986-1996); Co-Head of Goldman Sachs Asset Management (since
December 1994).
*Douglas C. Grip, 36 Trustee & Managing Director, Goldman Sachs (since November 1997); Vice President, Goldman Sachs
One New York Plaza President (May 1996 - November 1997); President, MFS Retirement Services Inc., of Massachusetts
New York, NY 10004 Financial Services (prior thereto).
*John P. McNulty, 45 Trustee Managing Director, Goldman
One New York Plaza Sachs (since 1996); General
New York, NY 10004 Partner of Goldman Sachs
(1990-1994 and 1995-1996); Co-Head of
Goldman Sachs Asset Management (since
November 1996); Limited Partner of
Goldman Sachs (1994 to November 1995).
Mary P. McPherson, 63 Trustee Vice President and Senior Program
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
The Andrew W. Mellon Officer, The Andrew W. Mellon
Foundation Foundation (since October 1997);
140 East 62nd Street President Emeritus of Bryn Mawr
New York, NY 10021 College (1978-1997); Director of Josiah Macy,
Jr. Foundation (since 1977); Director of the
Philadelphia Contributionship (since 1985);
Director of Amherst College (since 1986);
Director of Dayton Hudson Corporation (since
1988); Director of the Spencer Foundation (since
1993); and member of PNC Advisory Board (since
1993).
*Alan A. Shuch, 49 Trustee Limited Partner, Goldman Sachs
One New York Plaza (since 1994); Director and
New York, NY 10004 Vice President of Goldman Sachs Funds
Management, Inc. (from April 1990 to November
1994); President and Chief Operating Officer,
GSAM (from September 1988 to November 1994);
Limited Partner, Goldman Sachs since December
1994.
Jackson W. Smart, 68 Trustee Chairman, Executive Committee,
One Northfield Plaza First Commonwealth, Inc. (a
#218 managed dental care company,)
Northfield, IL 60093 (since January 1996); Chairman and Chief
Executive Officer, MSP Communications Inc. (a
company engaged in radio broadcasting) (since
November 1988), Director, Federal Express
Corporation (since 1976), Evanston Hospital
Corporation (since 1980), First Commonwealth,
Inc. (since 1988) and North American Private
Equity Group (a venture capital fund).
William H. Springer, 68 Trustee Vice Chairman and Chief Financial and
701 Morningside Drive Administrative Officer of Ameritech
Lake Forest, IL 60045 (a telecommunications holding
company) (February 1987 to
retirement in June 1992); Director,
Walgreen Co. (a retail drug store
</TABLE>
-40-
<PAGE>
<TABLE>
<S> <C> <C>
business); Director of Baker,
Fentress & Co. (a closed-end,
non-diversified management investment company)
(April 1992 to present).
Richard P. Strubel, 59 Trustee Managing Director, Tandem
37 N. Michigan Ave. Partners, Inc. (since 1990);
Suite 1405 President and Chief Executive
Chicago, IL 60611 Director of Kaymar Technologies, Inc. (since
March 1997); Officer, Microdot, Inc. (a
diversified manufacturer of fastening systems
and connectors)(January 1984 to October 1994).
*John M. Perlowski, 34 Treasurer Vice President, Goldman Sachs
One New York Plaza (since July 1995); Director,
New York, NY 10004 Investors Bank and Trust (November 1993 to July
1995); Audit Manager of Arthur Andersen LLP
(prior thereto).
*John W. Mosior, 59 Vice Vice President, Goldman Sachs
4900 Sears Tower President and Manager of Shareholder
Chicago, IL 60606 Servicing of GSAM (since November 1989).
*Nancy L. Mucker, 49 Vice Vice President, Goldman Sachs
4900 Sears Tower President (since April 1985); Manager of
Chicago, IL 60606 Shareholder Servicing of GSAM (since November
1989).
*James A. Vice Vice President of Goldman Sachs
Fitzpatrick, 38 President Asset Management (since April
4900 Sears Tower 1997); Vice President and General
Chicago, IL 60606 Manager, First Data Corporation - Investor
Services Group (prior thereto).
*Michael J. Richman, 38 Secretary General Counsel of the
85 Broad Street Funds Group of Goldman Sachs
New York, NY 10004 Asset Management (since
December 1997); Associate General
Counsel of Goldman Sachs Assets Management
(February 1994 to December 1997);
Vice President and Assistant General
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Counsel of Goldman Sachs (since June 1992);
Counsel to the Funds Group, GSAM (since
June 1992); Partner, Hale and Dorr
(September 1991 to June 1992).
*Howard B. Surloff, 33 Assistant Assistant General Counsel,
85 Broad Street Secretary Goldman Sachs Asset Management
New York, NY 10004 and Associate General Counsel to the Funds Group
(since December 1997); Assistant General
Counsel and Vice President, Goldman Sachs
(since November 1993 and May 1994, respectively);
Counsel to the Funds Group, Goldman Sachs Asset
Management (since November 1993); Associate of
Shereff Friedman, Hoffman & Goodman (prior thereto).
*Valerie A. Zondorak, 33 Assistant Assistant General Counsel,
85 Broad Street Secretary Goldman Sachs Asset Management
New York, NY 10004 and Associate General Counsel to the Funds Group (since December 1997);
Vice President and
Assistant General Counsel, Goldman Sachs (since March 1997 and December 1997,
respectively); Counsel to the Funds Group, Goldman Sachs Asset Management
(since March 1997); Associate of Shereff Friedman, Hoffman & Goodman (prior thereto).
*Steven E. Hartstein, 35 Assistant Legal Products Analyst,
85 Broad Street Secretary Goldman Sachs (June 1993 to
New York, NY 10004 present); Funds Compliance Officer, Citibank Global
Asset Management (August 1991 to June 1993).
*Deborah Farrell, 27 Assistant Administrative Assistant, Goldman
85 Broad Street Secretary Sachs (January 1996 to present);
New York, NY 10004 Secretary, Goldman Sachs (January 1994 to January 1996); Secretary,
Cleary Gottlieb, Steen and Hamilton
(September 1990 to January 1994).
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
*Kaysie P. Uniacke, 37 Assistant Managing Director, Goldman Sachs (since November 1997);
One New York Plaza Secretary Vice President (1988 - 1977); Senior Portfolio Manager, Goldman Sachs
New York, NY 10004 Asset Management (since 1988).
*Elizabeth D. 29 Assistant Portfolio Manager, GSAM (April
Anderson, Secretary 1996 to present); Junior
One New York Plaza Portfolio Manager, Goldman Sachs
New York, NY 10004 Asset Management (1995 to April 1996);
Funds Trading Assistant, GSAM (1993-1995);
Compliance Analyst, Prudential Insurance
(1991-1993)
</TABLE>
Each interested Trustee and officer holds comparable positions with
certain other investment companies of which Goldman Sachs, GSAM or an affiliate
thereof is the investment adviser and/or distributor. As of April 3, 1998, the
Trustees and officers of the Trust as a group owned less than 1% of the
outstanding units of beneficial interest of each of the Series.
The Trust pays each Trustee, other than those who are "interested
persons" of Goldman Sachs, a fee for each Trustee meeting attended and an annual
fee. Such Trustees are also reimbursed for travel expenses incurred in
connection with attending such meetings.
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the fiscal year ended December 31,
1997:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits from Goldman
Aggregate Accured as Sachs Mutual
Compensation Part of Funds
from the Series' (including the
Name of Trustee Series Expenses Series)*
- ------------------------------ -------- -------- ---------
<S> <C> <C> <C>
Ashok N. Bakhru $78,751 $0 $93,750
David B. Ford $ 0 $0 $ 0
Douglas C. Grip $ 0 $0 $ 0
Mary P. McPherson $59,220 $0 $70,500
John P. McNulty $ 0 $0 $ 0
Alan A. Shuch $ 0 $0 $ 0
Jackson W. Smart $59,220 $0 $70,500
William H. Springer $59,220 $0 $70,500
Richard P. Strubel $59,220 $0 $70,500
</TABLE>
______________
* The Goldman Sachs Mutual Funds consisted of 43 mutual funds, including
the eighteen series, on January 31, 1998.
-43-
<PAGE>
THE ADVISER, DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER
GSAM, a separate operating division of Goldman Sachs, acts as the
investment adviser to the Series. Under the Management Agreement between
Goldman Sachs on behalf of GSAM and the Trust on behalf of the Series, GSAM,
subject to the supervision of the Board of Trustees of the Trust and in
conformity with the stated policies of each Series, acts as investment adviser
and directs the investments of the Series. In addition, GSAM administers the
Series' business affairs and, in connection therewith, furnishes the Trust with
office facilities and (to the extent not provided by the Trust's custodian,
transfer agent, or other organizations) clerical, recordkeeping and bookkeeping
services and maintains the financial and account records required to be
maintained by the Trust. As compensation for these services and for assuming
expenses related thereto, the Trust pays GSAM a fee, computed daily and paid
monthly at an annual rate of .35% and .205% of each ILA Portfolio's and
Financial Square Fund's average daily net assets, respectively. GSAM has agreed
to reduce or otherwise limit (a) the total operating expenses of each ILA
Portfolio (excluding fees payable to Service Organizations, taxes, interest,
brokerage and litigation, indemnification and other extraordinary expenses) on
an annualized basis, to 0.43% of the average daily net assets of each Portfolio;
and (b) certain other expenses of each Financial Square Fund (excluding fees
payable to Service Organizations, management fees, taxes, interest and brokerage
and litigation, indemnification and other extraordinary expenses) to the extent
such expenses exceed .01% of the average daily net assets of each Fund. The
amount of such reductions or limits, if any, are calculated monthly and are
based on the cumulative difference between a Series' estimated annualized
expense ratio and the expense limit for that Series. This amount shall be
reduced by any prior payments related to the current fiscal year. GSAM has also
voluntarily agreed to waive a portion of its management fee for each Financial
Square Fund during the fiscal year ended December 31, 1997.
Goldman Sachs has authorized any of its directors, partners, officers
and employees who have been elected or appointed to the position of Trustee or
officer of the Trust to serve in the capacities in which they have been elected
and appointed.
The Trust, on behalf of each Series, is responsible for all expenses
other than those expressly borne by GSAM under the Series' Management Agreement.
The expenses borne by units of each Series include, without limitation, the fees
payable to GSAM, the fees and expenses under the Trust's distribution,
authorized dealer, administration and service plans, the fees and expenses of
the Series' custodian, fees and expenses of the Series' transfer agent, filing
fees for the registration or qualification of units under federal or state
securities laws, expenses of the organization of the Series, taxes (including
income and excise taxes, if any), interest, costs of liability insurance,
fidelity bonds, indemnification or contribution, any costs, expenses or losses
arising out of any liability of, or claim for damages or other relief asserted
against, the Series for violation of any law, legal and auditing and tax fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of Goldman Sachs with respect to the Series), expenses of
preparing and setting in type prospectuses, statements of additional
information,
-44-
<PAGE>
proxy material, reports and notices, the printing and distribution
of the same to unitholders and regulatory authorities, its proportionate share
of the compensation and expenses of its "non-interested" Trustees, and
extraordinary expenses incurred by the Series.
The Management Agreement entered into on behalf of the ILA Portfolios
(the "ILA Management Agreement") was most recently approved by the Board of
Trustees, including the "non-interested" Trustees, on April 22, 1998 and by the
unitholders of each ILA Portfolio (other than the ILA Treasury Instruments and
ILA Tax-Exempt New York Portfolios) on April 19, 1990 and by the unitholders of
the ILA Treasury Instruments and ILA Tax-Exempt New York Portfolios on June 3,
1991. The ILA Management Agreement will remain in effect until June 30, 1998,
and will continue in effect thereafter only if such continuance is specifically
approved at least annually by a majority of the Trustees or by a vote of a
majority of the outstanding voting securities of the particular ILA Portfolio,
as defined in the Act, and, in either case, by a majority of "non-interested"
Trustees.
For the fiscal years ended December 31, 1997, December 31, 1996 and
December 31, 1995 the amount of the Management fee incurred by each ILA
Portfolio was as follows:
<TABLE>
<CAPTION>
ILA PORTFOLIO 1997 1996 1995
------------- ------------- ---------- ----------
<S> <C> <C> <C>
Prime Obligations Portfolio $4,412,869 $5,185,990 $6,728,074
Money Market Portfolio 3,744,112 2,955,074 2,618,275
Treasury Obligations Portfolio 2,682,436 3,157,511 3,206,490
Treasury Instruments Portfolio 1,250,151 1,555,342 1,079,236
Government Portfolio 2,258,653 2,509,206 3,259,056
Federal Portfolio 5,630,323 5,426,430 4,543,196
Tax-Exempt Diversified Portfolio 4,244,463 3,850,742 3,795,451
Tax-Exempt California Portfolio 1,803,245 1,410,751 1,030,447
Tax-Exempt New York Portfolio 300,711 266,835 234,853
</TABLE>
GSAM agreed not to impose a portion of its advisory fees for the
fiscal years ended December 31, 1997, December 31, 1996 and December 31, 1995
with respect to the ILA Money Market, ILA Treasury Instruments, ILA Federal, ILA
Tax-Exempt Diversified and ILA Tax-Exempt New York Portfolios. Had such fees
been imposed, the following additional fees would have been incurred for the
periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
ILA PORTFOLIO
-------------
Money Market Portfolio $ 525,057 $ 492,512 $ 436,325
Treasury Instruments Portfolio 1,551,858 2,073,789 1,438,992
Federal Portfolio 3,925,458 4,069,823 3,407,655
Tax-Exempt Diversified Portfolio 1,543,881 1,540,297 1,518,129
Tax-Exempt New York Portfolio 93,920 92,366 109,464
</TABLE>
-45-
<PAGE>
In addition, GSAM assumed certain expenses related to the operations
of each ILA Portfolio during various periods of 1997, 1996 and 1995 to the
extent such expenses would have caused each ILA Portfolio's total expenses to
exceed, on an annualized basis, certain contractual or voluntary expense
limitations. Had these expenses not been assumed, the following additional
expenses would have been incurred for such years:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
ILA PORTFOLIO
- ----------------------------------
Prime Obligations Portfolio $160,669 $234,432 $347,317
Money Market Portfolio 67,224 243,590 135,715
Treasury Obligations Portfolio 6,756 212,886 203,882
Treasury Instruments Portfolio 80,196 220,794 223,652
Government Portfolio 30,990 231,536 276,785
Federal Portfolio 44,904 452,463 302,153
Tax-Exempt Diversified Portfolio 1,052 24,367 239,829
Tax-Exempt California Portfolio 21,406 22,092 19,625
Tax-Exempt New York Portfolio 25,375 16,029 32,403
</TABLE>
The FS Management Agreement entered into on behalf of the Financial
Square Funds was most recently approved by the Trustees, including the "non-
interested" Trustees, on April 22, 1998. The Financial Square Funds'
shareholders approved the FS Management Agreement on April 21, 1997. The FS
Management Agreement will remain in effect until June 30, 1998 and will continue
in effect thereafter only if such continuance is specifically approved at least
annually by a majority of the Trustees or by a vote of a majority of the
outstanding voting securities of the particular Financial Square Fund (as
defined in the Act) and, in either case, by a majority of "non-interested"
Trustees.
Prior to May 1, 1997, the Financial Square Funds then in operation had
separate investment advisory and administration agreements. Effective May 1,
1997 the services under such agreements were combined in the Management
Agreement (the "FS Management Agreement"). The services required to be
performed for the Financial Square Funds and the combined advisory and
administration fees payable by the Financial Square Funds under the former
advisory and administration agreements are identical to the services and fees
under the FS Management Agreement. For the fiscal years ended December 31,
1997, December 31, 1996 and December 31, 1995 the amounts of the management fee
(including both advisory and administration fees) incurred by each Financial
Square Fund (other than the FS Municipal Fund, which had not yet commenced
operations) were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
FINANCIAL SQUARE FUND
- ------------------------------
FS Prime Obligations Fund $8,706,734 $8,504,328 $7,194,392
FS Money Market Fund 8,298,316 5,131,644 3,236,027
FS Treasury Obligations Fund 5,329,826 4,121,944 2,401,903
FS Government Fund 3,562,882 2,179,655 1,119,731
FS Tax-Free Fund 1,405,152 930,176 459,413
</TABLE>
-46-
<PAGE>
<TABLE>
<S> <C> <C> <C>
FS Premium Money Market
Fund(1) 50,146 N/A N/A
FS Treasury Instruments
Fund(1) 383,414 N/A N/A
FS Federal Fund(1) 1,623,443 N/A N/A
</TABLE>
_______________________
(1) FS Premium Money Market Fund, FS Treasury Instruments Fund and FS Federal
Fund commenced operations on August 1, 1997, March 3, 1997 and February 28,
1997, respectively.
During the periods presented, GSAM agreed voluntarily that it would
not impose a portion of its management fee. Had such fees been imposed, the
following additional fees (including both advisory and administration fees)
would have been incurred by these Series for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
FINANCIAL SQUARE FUND
---------------------
<S> <C> <C> <C>
FS Prime Obligations Fund $1,792,563 $1,750,891 $3,173,924
FS Money Market Fund 1,708,477 1,142,133 1,063,477
FS Treasury Obligations Fund 1,097,197 848,635 1,747,326
FS Government Fund 733,442 448,753 493,804
FS Tax-Free Money Market Fund 289,296 219,242 304,151
FS Premium Money Market
Fund(1) 104,092 N/A N/A
FS Treasury Instruments
Fund(1) 80,267 N/A N/A
FS Federal Fund(1) 344,281 N/A N/A
</TABLE>
__________________________
(1) FS Premium Money Market Fund, FS Treasury Instruments Fund and FS
Federal Fund commenced operations on August 1, 1997, March 3, 1997 and
February 28, 1997, respectively.
In addition, GSAM assumed certain expenses related to the operations
of each Financial Square Fund during various periods of 1997, 1996 and 1995 to
the extent such expenses would have caused each Fund's total expenses to exceed,
on an annualized basis, certain contractual or voluntary expense limitations.
Had these expenses not been assumed, the Series would have incurred the
following additional expenses:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
FINANCIAL SQUARE FUND
- -------------------------------
<S> <C> <C> <C>
FS Prime Obligations Fund $718,967 $637,605 $382,318
FS Money Market Fund 791,686 456,796 420,234
FS Treasury Obligations 574,345 551,885 280,395
FS Government Fund 512,637 352,113 197,008
FS Tax-Free Money Market Fund 166,670 83,097 83,376
</TABLE>
-47-
<PAGE>
<TABLE>
<S> <C> <C> <C>
FS Premium Money Market
Fund(1) 164,216 N/A N/A
FS Treasury Instruments
Fund(1) 162,710 N/A N/A
FS Federal Fund(1) 567,341 N/A N/A
</TABLE>
__________________________
(1) FS Premium Money Market Fund, FS Treasury Instruments Fund and FS
Federal Fund commenced operations on August 1, 1997, March 3, 1997 and
February 28, 1997, respectively.
The ILA Management and FS Management Agreements provide that GSAM
shall not be liable to an ILA Portfolio or Financial Square Fund for any error
of judgment by GSAM or for any loss sustained by the ILA Portfolio or Financial
Square Fund except in the case of GSAM's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. Each ILA Portfolio or Financial
Square Fund may use any name derived from the name "Goldman Sachs" only so long
as the ILA Management and FS Management Agreements remain in effect. The ILA
Management and FS Management Agreements also provide that they shall terminate
automatically if assigned and that they may be terminated with respect to any
particular ILA Portfolio or Financial Square Fund without penalty by vote of a
majority of the Trustees or a majority of the outstanding voting securities of
that ILA Portfolio or Financial Square Fund on 60 days' written notice to GSAM
or by GSAM without penalty at any time on 90 days' (60 days with respect to an
Financial Square Fund) written notice to the Trust.
In managing the Goldman Sachs Money Market Funds, GSAM will draw upon
the Goldman Sachs Credit Department. The Credit Department provides superior
credit risk management for our portfolios through a team of 94 professionals who
contribute a combination of industry analysis, fund-specific expertise and
global capacity (through their local presence in foreign markets). The Credit
department continuously monitors all issuers approved for investment by the
money market funds by monitoring news stories, business developments, financial
information and ratings, as well as occasional discussions with issuer
management and rating agency analysts. The Credit Department receives rating
agency reports and rating change information electronically and via fax as well
as Reports from Goldman's Research Department. Specifically with regards to
managing the ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio, ILA Tax-Exempt New York Portfolio, FS Tax-Free Money Market Fund and
FS Municipal Money Market Fund, GSAM will draw upon the extensive research
generated by Goldman Sachs' Municipal Credit Group. The Municipal Credit Group's
research team continually reviews current information regarding the issuers of
municipal and other tax-exempt securities, with particular focus on long-term
creditworthiness, short-term liquidity, debt service costs, liability
structures, and administrative and economic characteristics.
THE DISTRIBUTOR AND TRANSFER AGENT
-48-
<PAGE>
Goldman Sachs acts as principal underwriter and distributor of each
Series' units. The Distribution Agreement between Goldman Sachs and the Trust
was most recently approved by the Trustees on April 22, 1998. Goldman Sachs
retained approximately $10,530 of commissions on redemptions of ILA Class B
shares during 1997. Goldman Sachs also serves as the Series' transfer agent.
Goldman Sachs provides customary transfer agency services to the Series,
including the handling of unitholder communications, the processing of
unitholder transactions, the maintenance of unitholder account records, payment
of dividends and distributions and related functions. For these services,
Goldman Sachs receives .04% (on an annualized basis) of the average daily net
assets with respect to each ILA Portfolio (other than the ILA Prime Obligations
Portfolio). With respect to the ILA Prime Obligations Portfolio, Goldman Sachs
is entitled to receive a fee from the Series equal to the classes' proportionate
share of the total transfer agency fees borne by the Series, which are equal to
$12,000 per year per class plus $7.50 per account, together with out-of-pocket
expenses and transaction related expenses applicable to ILA Class B and ILA
Class C Units and .04% of the average daily net assets of the other classes of
the ILA Prime Obligations Portfolio. Goldman Sachs may from time to time agree
that the fee it would otherwise be entitled to receive under its transfer agency
agreement will be reduced. Goldman Sachs currently imposes no fees under its
transfer agency agreement with the Financial Square Funds.
For the fiscal years ended December 31, 1997, December 31, 1996 and
December 31, 1995 the ILA Portfolios incurred transfer agency fees as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Prime Obligations Portfolio $ 535,143 $ 592,685 $768,923
Money Market Portfolio 487,902 394,010 349,060
Treasury Obligations Portfolio 306,564 360,858 366,456
Treasury Instruments Portfolio 320,230 414,758 287,798
Government Portfolio 258,132 286,766 372,463
Federal Portfolio 1,092,179 1,085,286 908,708
Tax-Exempt Diversified Portfolio 661,525 616,119 607,252
Tax-Exempt California Portfolio 206,085 161,229 117,765
Tax-Exempt New York Portfolio 45,100 41,051 39,298
</TABLE>
Goldman Sachs is one of the largest international investment banking
firms in the United States. Founded in 1869, Goldman Sachs is a major
investment banking and brokerage firm providing a broad range of financing and
investment services both in the United States and abroad. As of November 28,
1997, Goldman Sachs and its consolidated subsidiaries had assets of
approximately $178 billion and partners' capital of $6.1 billion. Goldman Sachs
became registered as an investment adviser in 1981. As of March 23, 1998,
Goldman Sachs, together with its affiliates, acted as investment adviser,
administrator or distributor for approximately $153 billion in total assets.
Activities of Goldman Sachs and Its Affiliates and Other Accounts
-----------------------------------------------------------------
Managed by Goldman Sachs. The involvement of the Adviser and Goldman Sachs and
- ------------------------
their affiliates, in the
-49-
<PAGE>
management of, or their interest in, other accounts and other activities of
Goldman Sachs may present conflicts of interest with respect to the Series or
impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Adviser and its advisory affiliates have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate accounts
and other funds and collective investment vehicles) which have investment
objectives similar to those of the Series and/or which engage in transactions in
the same types of securities, currencies and instruments as the Series. Goldman
Sachs and its affiliates are major participants in the global currency,
equities, swap and fixed-income markets, in each case both on a proprietary
basis and for the accounts of customers. As such, Goldman Sachs and its
affiliates are actively engaged in transactions in the same securities,
currencies, and instruments in which the Series invest. Such activities could
affect the prices and availability of the securities, currencies, and
instruments in which the Series invest, which could have an adverse impact on
each Portfolio's performance. Such transactions, particularly in respect of
proprietary accounts or customer accounts other than those included in the
Adviser's and its advisory affiliates' asset management activities, will be
executed independently of the Portfolios' transactions and thus at prices or
rates that may be more or less favorable. When the Adviser and its advisory
affiliates seek to purchase or sell the same assets for their managed accounts,
including the Series, the assets actually purchased or sold may be allocated
among the accounts on a basis determined in its good faith discretion to be
equitable. In some cases, this system may adversely affect the size or the price
of the assets purchased or sold for the Series.
From time to time, the Series' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Adviser, and/or its affiliates, will
not initiate or recommend certain types of transactions in certain securities or
instruments with respect to which the Adviser and/or its affiliates are
performing services or when position limits have been reached.
In connection with their management of the Series, the Adviser may
have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Adviser will not be under
any obligation, however, to effect transactions on behalf of the Series in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Series. The proprietary activities or
portfolio strategies of Goldman Sachs and its affiliates or the activities or
strategies used for accounts managed by them or other customer accounts could
conflict with the transactions and strategies employed by the Adviser in
managing the Series.
The results of each Series' investment activities may differ
significantly from the results achieved by the Adviser and its affiliates for
their proprietary accounts or other accounts (including investment companies or
collective investment vehicles) managed or advised by them. It is possible that
Goldman Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by a Series. Moreover, it is possible that a Series will sustain losses during
periods in which Goldman Sachs
-50-
<PAGE>
and its affiliates achieve significant profits on their trading for proprietary
or other accounts. The opposite result is also possible.
An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding a Series'
activities, but will not be involved in the day-to-day management of such
Series. In such instances, those individuals may, as a result, obtain
information regarding the Series' proposed investment activities which is not
generally available to the public. In addition, by virtue of their affiliation
with Goldman Sachs, any such member of an investment policy committee will have
direct or indirect interests in the activities of Goldman Sachs and its
affiliates in securities, currencies and investments similar to those in which
the Series invests.
In addition, certain principals and certain of the employees of the
Adviser are also principals or employees of Goldman Sachs or its affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Series should be aware.
The Adviser may enter into transactions and invest in instruments in
which customers of Goldman Sachs serve as the counterparty, principal or issuer.
In such cases, such party's interests in the transaction will be adverse to the
interests of the Series, and such party may have no incentive to assure that
the Series obtain the best possible prices or terms in connection with the
transactions. Goldman Sachs and its affiliates may also create, write or issue
derivative instruments for customers of Goldman Sachs or its affiliates, the
underlying securities, currencies or instruments of which may be those in which
the Series invest or which may be based on the performance of a Series. The
Series may, subject to applicable law, purchase investments which are the
subject of an underwriting or other distribution by Goldman Sachs or its
affiliates and may also enter into transactions with other clients of Goldman
Sachs or its affiliates where such other clients have interests adverse to those
of the Series. At times, these activities may cause departments of Goldman
Sachs or its affiliates to give advice to clients that may cause these clients
to take actions adverse to the interests of the client. To the extent
affiliated transactions are permitted, the Series will deal with Goldman Sachs
and its affiliates on an arms-length basis.
Each Series will be required to establish business relationships with
its counterparties based on the Series' own credit standing. Neither Goldman
Sachs nor its affiliates will have any obligation to allow their credit to be
used in connection with a Series' establishment of its business relationships,
nor is it expected that a Series' counterparties will rely on the credit of
Goldman Sachs or any of its affiliates in evaluating the Series'
creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is
not required to, purchase and hold shares of a Series in order to increase the
assets of the Series. Increasing a Series' assets may enhance investment
flexibility and diversification and may contribute to economies of scale that
tend to reduce a Series' expense ratio. Goldman Sachs reserves the right to
redeem at any time some or all of the shares of a Series acquired for its own
account. A large redemption of shares of a Series by Goldman Sachs could
significantly reduce the asset size of the Series, which might have an adverse
effect on a Series' investment flexibility, portfolio
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<PAGE>
diversification and expense ratio. Goldman Sachs will consider the effect of
redemptions on a Series and other unitholders in deciding whether to redeem its
units.
PORTFOLIO TRANSACTIONS
GSAM places the portfolio transactions of the Series and of all other
accounts managed by GSAM for execution with many firms. GSAM uses its best
efforts to obtain execution of portfolio transactions at prices which are
advantageous to each Series and at reasonably competitive spreads or (when a
disclosed commission is being charged) at reasonably competitive commission
rates. In seeking such execution, GSAM will use its best judgment in evaluating
the terms of a transaction, and will give consideration to various relevant
factors, including without limitation the size and type of the transaction, the
nature and character of the market for the security, the confidentiality, speed
and certainty of effective execution required for the transaction, the general
execution and operational capabilities of the broker-dealer, the general
execution and operational capabilities of the firm, the reputation, reliability,
experience and financial condition of the firm, the value and quality of the
services rendered by the firm in this and other transactions, and the
reasonableness of the spread or commission, if any. Securities purchased and
sold by the Series are generally traded in the over-the-counter market on a net
basis (i.e., without commission) through broker-dealers and banks acting for
their own account rather than as brokers, or otherwise involve transactions
directly with the issuer of such securities.
Goldman Sachs is active as an investor, dealer and/or underwriter in
many types of municipal and money market instruments. Its activities in this
regard could have some effect on the markets for those instruments which the
Series buy, hold or sell. An order has been granted by the SEC under the Act
which permits the Series to deal with Goldman Sachs in transactions in certain
taxable securities in which Goldman Sachs acts as principal. As a result, the
Series may trade with Goldman Sachs as principal subject to the terms and
conditions of such exemption.
Under the Act, the Series are prohibited from purchasing any
instrument of which Goldman Sachs is a principal underwriter during the
existence of an underwriting or selling syndicate relating to such instrument,
absent an exemptive order (the order referred to in the preceding paragraph will
not apply to such purchases) or the adoption of and compliance with certain
procedures under such Act. The Trust has adopted procedures which establish,
among other things, certain limitations on the amount of debt securities that
may be purchased in any single offering and on the amount of the Trust's assets
that may be invested in any single offering. Accordingly, in view of Goldman
Sachs' active role in the underwriting of debt securities, a Series' ability to
purchase debt securities in the primary market may from time to time be limited.
In certain instances there may be securities which are suitable for
more than one Series as well as for one or more of the other clients of GSAM.
Investment decisions for each Series and for GSAM's other clients are made with
a view to achieving their respective investment objectives. It may develop that
a particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security
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<PAGE>
may be bought for one or more clients when one or more other clients
are selling that same security. Some simultaneous transactions are inevitable
when several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security in a particular transaction as far as a Series is concerned. Each
Series believes that over time its ability to participate in volume transactions
will produce better executions for the Series.
During the fiscal year ended December 31, 1997, the Trust acquired and
sold securities of its regular broker/dealers: Lehman Brothers, Deutsche Bank,
Bear Stearns Cos., CS First Boston, Donaldson, Lufkin & Jenrette, Morgan
Stanley, Swiss Bank Corp., Canadian Imperial Bank, Salomon Brothers, Inc., and
JP Morgan.
As of December 31, 1997, each ILA Portfolio held the following amounts
of securities of its regular broker/dealers, as defined in Rule 10b-1 under the
Act, or their parents ($ in thousands): the ILA Prime Obligations Portfolio -
Bear Stearns ($39,795), Morgan Stanley ($79,219), Swiss Bank ($754), Donaldson,
Lufkin & Jenrette ($372), Salomon ($728); the ILA Money Market Portfolio -
Morgan Stanley ($39,789), Swiss Bank ($12,064), Donaldson, Lufkin & Jenrette
($5,952), Salomon ($11,648), Bear Stearns ($34,816), Canadian Imperial Bank
($15,499), JP Morgan ($9,735); the ILA Government Portfolio - Lehman Brothers
($25,000), Morgan Stanley ($50,000), Swiss Bank ($43,091), Donaldson, Lufkin &
Jenrette ($21,260), Salomon ($41,605); the ILA Treasury Obligations Portfolio -
Swiss Bank ($103,863), Bear Stearns ($35,000), CS First Boston ($30,000), JP
Morgan ($35,000), Morgan Stanley ($35,000), Lehman Brothers ($35,000),
Donaldson, Lufkin & Jenrette ($51,243), and Salomon ($100,282).
As of December 31, 1997, each Financial Square Fund held the following
amounts of securities of its regular broker/dealers as defined in Rule 10b-1
under the Investment Company Act, or their parents ($ in thousands); FS Prime
Obligations Fund - Bear Stearns ($174,079), Swiss Bank Corp. ($152,497), JP
Morgan ($50,000), Donaldson, Lufkin & Jenrette ($75,237), Salomon Brothers
($147,238) Lehman Brothers ($300,000), Morgan Stanley & Co. ($187,081); FS Money
Market Fund - Canadian Imperial Bank ($62,996), Swiss Bank Corp. ($146,917), JP
Morgan ($50,000), Donaldson, Lufkin & Jenrette ($72,484), Salomon Brothers
($141,851) CS First Boston ($99,836), Morgan Stanley & Co. ($149,406), Bear
Stearns ($109,133); FS Treasury Obligations Fund - Canadian Imperial Bank
($165,000), Swiss Bank Corp. ($386,123), JP Morgan ($165,000), Donaldson, Lufkin
& Jenrette ($190,501), CS First Boston ($150,000), Morgan Stanley & Co.
($165,000), Bear Stearns ($165,000), Salomon Brothers ($372,809), Lehman
Brothers ($165,000); FS Government Fund - Canadian Imperial Bank ($100,000),
Swiss Bank Corp. ($126,823), JP Morgan ($100,000), Donaldson, Lufkin & Jenrette
($62,570), Salomon Brothers ($122,450) Lehman Brothers ($100,000), Morgan
Stanley & Co. ($200,000); FS Premium Money Market Fund - Swiss Bank Corp.
($25,221), Donaldson, Lufkin & Jenrette ($12,443), CS First Boston ($5,990),
Morgan Stanley & Co. ($5,000), Salomon Brothers - ($24,352), Lehman Brothers
($5,000).
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<PAGE>
NET ASSET VALUE
The net asset value per unit of each Series (except for FS Government
Fund, FS Premium Fund and FS Treasury Obligations Fund) is determined by the
Series' custodian as of the close of regular trading on the New York Stock
Exchange (normally, but not always, 4:00 p.m. New York time) (in the case of the
FS Government Fund, FS Premium Fund and FS Treasury Obligations Fund, net asset
value is determined normally, but not always, at 5:00 p.m. New York time) on
each Business Day. A Business Day means any day on which the New York Stock
Exchange is open, except for days on which Chicago, Boston or New York banks are
closed for local holidays. Such holidays include: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
Each Series' securities are valued using the amortized cost method of
valuation in an effort to maintain a constant net asset value of $ 1.00 per
unit, which the Board of Trustees has determined to be in the best interest of
each Series and its unitholders. This method involves valuing a security at
cost on the date of acquisition and thereafter assuming a constant accretion of
a discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Series would receive if it sold the instrument. During such periods, the yield
to an investor in a Series may differ somewhat from that obtained in a similar
investment company which uses available market quotations to value all of its
portfolio securities. During periods of declining interest rates, the quoted
yield on units of a Series may tend to be higher than a like computation made by
a fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by a Series resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Series would be able to obtain a somewhat higher yield if he or she purchased
units of the Series on that day, than would result from investment in a fund
utilizing solely market values, and existing investors in the Series would
receive less investment income. The converse would apply in a period of rising
interest rates.
The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, each Series' price per unit as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
each Series by the Trustees, at such intervals as they deem appropriate, to
determine whether the Series' net asset value calculated by using available
market quotations (or an appropriate substitute which reflects market
conditions) deviates from $1.00 per unit based on amortized cost, as well as
review of methods used to calculate the deviation. If such deviation exceeds
1/2 of 1%, the Trustees will promptly consider what action, if any, will be
initiated. In the event the Trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or existing
unitholders, they will take such corrective action as they regard to be
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding part or all of dividends or payment of distributions from
capital or capital gains; redemptions of units in kind; or establishing a net
asset value per unit by using available market quotations or equivalents. In
addition, in order to stabilize the net asset value
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<PAGE>
per unit at $1.00 the Trustees have the authority (1) to reduce or increase the
number of units outstanding on a pro rata basis, and (2) to offset each
unitholder's pro rata portion of the deviation between the net asset value per
unit and $1.00 from the unitholder's accrued dividend account or from future
dividends. Each Series may hold cash for the purpose of stabilizing its net
asset value per unit. Holdings of cash, on which no return is earned, would tend
to lower the yield on such Series' units.
In order to continue to use the amortized cost method of valuation for
each Series' investments, the Series must comply with Rule 2a-7. See
"Investment Restrictions."
The proceeds received by each Series for each issue or sale of its
units, and all net investment income, realized and unrealized gain and proceeds
thereof, subject only to the rights of creditors, will be specifically allocated
to such Series and constitute the underlying assets of that Series. The
underlying assets of each Series will be segregated on the books of account, and
will be charged with the liabilities in respect to such Series and with a share
of the general liabilities of the Trust. Expenses with respect to the Series are
to be allocated in proportion to the net asset values of the respective Series
except where allocations of direct expenses can otherwise be fairly made. In
addition, within each Series, ILA Units, ILA Administration Units, ILA Service
Units, ILA Class B and Class C Units, ILA Cash Management Shares, FST Shares,
FST Administration Shares, FST Service Shares and FST Preferred Shares (if any)
will be subject to different expense structures (see "Organization and
Capitalization").
REDEMPTIONS
The Trust may suspend the right of redemption of units of a Series and
may postpone payment for any period: (i) during which the New York Stock
Exchange is closed for regular trading other than customary weekend and holiday
closings or during which trading on the New York Stock Exchange is restricted,
(ii) when the SEC determines that a state of emergency exists which may make
payment or transfer not reasonably practicable, (iii) as the SEC may by order
permit for the protection of the unitholders of the Trust or (iv) at any other
time when the Trust may, under applicable laws and regulations, suspend payment
on the redemption of the Series' units.
The Trust agrees to redeem units of each Series solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Series during any 90-
day period for any one unitholder. The Trust reserves the right to pay other
redemptions, either total or partial, by a distribution in kind of securities
(instead of cash) from the applicable Series' portfolio. The securities
distributed in such a distribution would be valued at the same value as that
assigned to them in calculating the net asset value of the units being redeemed.
If a unitholder receives a distribution in kind, he or she should expect to
incur transaction costs when he or she converts the securities to cash.
A FST shareholder of any Financial Square Fund with balances in excess
of $100 million may elect to have a special account with State Street for the
purpose of redeeming shares from its account in that Series by check. When
State Street receives a completed signature card and authorization form, the
shareholder will be provided with a supply of checks. Checks drawn on
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<PAGE>
this account may be payable to the order of any person in any amount of $500 or
more, but cannot be certified. The payee of the check may cash or deposit it
like any other check drawn on a bank. When such a check is presented to State
Street for payment, a sufficient number of full and fractional shares will be
redeemed to cover the amount of the check. Cancelled checks will be returned to
the shareholder by State Street. The Trust and Goldman Sachs each reserves the
right to waive the minimum requirement.
The check redemption privilege enables a shareholder to receive the
dividends declared on the shares to be redeemed until such time as the check is
processed. Because of this feature, the check redemption privilege may not be
used for a complete liquidation of an account. If the amount of a check is
greater than the value of shares held in the shareholder's account, the check
will be returned unpaid, and the shareholder may be subject to extra charges.
Goldman Sachs reserves the right to impose conditions on, limit the
availability of or terminate the check redemption privilege at any time with
respect to a particular shareholder or Service Organization in general. The
Trust and State Street reserve the right at any time to suspend the check
redemption privilege and intend to do so in the event that federal legislation
or regulations impose reserve requirements or other restrictions deemed by the
Trustees to be adverse to the interests of the Series.
CALCULATION OF YIELD QUOTATIONS
Each Series' yield quotations are calculated by a standard method
prescribed by the rules of the SEC. Under this method, the yield quotation is
based on a hypothetical account having a balance of exactly one unit at the
beginning of a seven-day period.
Yield, effective yield and tax-equivalent yield are calculated
separately for each class of units of a Series. Each type of unit is subject to
different fees and expenses and may have differing yields for the same period.
The yield quotation is computed as follows: the net change, exclusive
of capital changes (i.e., realized gains and losses from the sale of securities
and unrealized appreciation and depreciation), in the value of a hypothetical
pre-existing account having a balance of one unit at the beginning of the base
period is determined by dividing the net change in account value by the value of
the account at the beginning of the base period. This base period return is
then multiplied by 365/7 with the resulting yield figure carried to the nearest
100th of 1%. Such yield quotation shall take into account all fees that are
charged to a Series.
Each Series also may advertise a quotation of effective yield for a 7-
calendar day period. Effective yield is computed by compounding the
unannualized base period return determined as in the preceding paragraph by
adding 1 to that return, raising the sum to the 365/7 power and subtracting one
from the result, according to the following formula:
Effective Yield = [(base period return + 1) to the 365th power divided by 7] - 1
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The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio, ILA Tax-Exempt New York Portfolio, ILA Federal Portfolio, ILA
Treasury Instruments Portfolio, FS Treasury Instruments Fund, FS Federal Fund,
FS Tax-Free Fund and FS Municipal Fund may also advertise a tax-equivalent yield
which is computed by dividing that portion of a Series' yield (as computed
above) which is tax-exempt by one minus a stated income tax rate and adding the
quotient to that portion, if any, of the yield of the Series that is not tax-
exempt.
Unlike bank deposits or other investments which pay a fixed yield or
return for a stated period of time, the return for a Series will fluctuate from
time to time and does not provide a basis for determining future returns. Return
is a function of portfolio quality, composition, maturity and market conditions
as well as of the expenses allocated to each Series. The return of a Series may
not be comparable to other investment alternatives because of differences in the
foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate return.
The yield, effective yield and tax-equivalent yield of each ILA
Portfolio with respect to ILA Units, ILA Administration Units, ILA Service
Units, ILA Class B Units and ILA Class C Units (Cash Management Shares had not
been offered as of December 31, 1997) for the seven-day period ended December
31, 1997 were as follows:
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<TABLE>
<CAPTION>
Tax-
Effective Equivalent
Yield Yield Yield
------ ---------- -----------
<S> <C> <C> <C>
ILA Prime Obligations Portfolio:
ILA Units 5.40% 5.55% N/A
ILA Administration Units 5.25% 5.39% N/A
ILA Service Units 5.00% 5.13% N/A
ILA Class B Units 4.40% 4.55% N/A
ILA Class C Units 4.40% 4.55% N/A
ILA Money Market Portfolio:
ILA Units 5.57% 5.72% N/A
ILA Administration Units 5.30% 5.46% N/A
ILA Service Units 5.07% 5.19% N/A
ILA Treasury Obligations Portfolio:
ILA Units 5.33% 5.47% N/A
ILA Administration Units 5.18% 5.31% N/A
ILA Service Units 4.92% 5.04% N/A
ILA Treasury Instruments Portfolio:
ILA Units 5.13% 5.26% N/A
ILA Administration Units 4.98% 5.10% N/A
ILA Service Units 4.73% 4.84% N/A
ILA Government Portfolio:
ILA Units 5.65% 5.81% N/A
ILA Administration Units 5.39% 5.55% N/A
ILA Service Units 5.15% 5.28% N/A
ILA Federal Portfolio:
ILA Units 5.64% 5.80% N/A
ILA Administration Units 5.39% 5.54% N/A
ILA Service Units 5.15% 5.28% N/A
ILA Tax-Exempt Diversified Portfolio:
ILA Units 3.72% 3.79% 6.28%
ILA Administration Units 3.57% 3.64% 6.03%
ILA Service Units 3.32% 3.38% 5.61%
ILA Tax-Exempt California Portfolio*
ILA Units 3.49% 3.55% 5.90%
ILA Administration Units 3.34% 3.40% 5.64%
ILA Service Units** 3.09% 3.14% 5.22%
ILA Tax-Exempt New York Portfolio***
ILA Units 3.61% 3.68% 6.10%
ILA Administration Units 3.46% 3.52% 5.84%
ILA Service Units** 3.21% 3.26% 5.42%
- -------------------------
</TABLE>
* 6.51%, 6.23% and 5.77% for the ILA Units, ILA Administration Units and ILA
Service Units, respectively, when taking California State taxes into
account.
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** Assuming such Units had been outstanding and were subject to maximum
service fees.
*** 6.56%, 6.28% and 5.83% for the ILA Units, ILA Administration Units and
ILA Service Units, respectively, when taking New York State taxes into
account, and 6.89%, 6.61% and 6.13%, respectively, when taking New
York City taxes into account.
The information set forth in the foregoing table reflects certain fee
reductions and expense limitations voluntarily agreed to by the Adviser. See
"The Adviser, Distributor and Transfer Agent." In the absence of such fee
reductions and expense limitations, the yield of each ILA Portfolio for the same
period would have been as follows:
<TABLE>
<CAPTION>
Tax-
Effective Equivalent
Yield Yield Yield
------ ---------- -----------
<S> <C> <C> <C>
ILA Prime Obligations Portfolio
ILA Units 5.38% 5.52% N/A
ILA Administration Units 5.23% 5.10% N/A
ILA Service Units 4.98% 5.10% N/A
ILA Class B Units 4.38% 4.52% N/A
ILA Class C Units 4.38% 4.52% N/A
ILA Money Market Portfolio
ILA Units 5.43% 5.58% N/A
ILA Administration Units 5.16% 5.32% N/A
ILA Service Units 4.93% 5.05% N/A
ILA Treasury Obligations Portfolio
ILA Units 5.31% 5.45% N/A
ILA Administration Units 5.16% 5.29% N/A
ILA Service Units 4.90% 5.02% N/A
ILA Treasury Instruments Portfolio
ILA Units 4.88% 4.99% N/A
ILA Administration Units 4.73% 4.83% N/A
ILA Service Units 4.48% 4.57% N/A
ILA Government Portfolio
ILA Units 5.33% 5.50% N/A
ILA Administration Units 5.07% 5.24% N/A
ILA Service Units 4.83% 4.97% N/A
ILA Federal Portfolio
ILA Units 5.29% 5.43% N/A
ILA Administration Units 5.04% 5.17% N/A
ILA Service Units 4.80% 4.91% N/A
ILA Tax-Exempt Diversified Portfolio
ILA Units 3.63% 3.69% 6.13%
ILA Administration Units 3.48% 3.54% 5.88%
ILA Service Units 3.23% 3.28% 5.46%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
ILA Tax-Exempt California Portfolio*
ILA Units 3.49% 3.55% 5.90%
ILA Administration Units 3.34% 3.40% 5.64%
ILA Service Units** 3.09% 3.14% 5.22%
ILA Tax-Exempt New York Portfolio***
ILA Units 3.51% 3.57% 5.93%
ILA Administration Units 3.36% 3.41% 5.68%
ILA Service Units** 3.11% 3.15% 5.25%
- -----------------------------------------------------------
</TABLE>
* 6.51%, 6.23% and 5.77% for the ILA Units, ILA Administration Units and
ILA Service Units, respectively, when taking the California State
Taxes into account.
** Assuming such Units had been outstanding and were subject to maximum
service fees.
*** 6.37%, 6.10% and 5.65% for the ILA Units, ILA Administration Units and
ILA Service Units, respectively, when taking New York State taxes into
account, and 6.70%, 6.42% and 5.94%, respectively, when taking New
York City taxes into account.
The yield, effective yield and tax-equivalent yield of each Financial
Square Fund, with respect to FST Shares, FST Administration Shares, FST Service
Shares and FST Preferred Shares for the seven-day period ended December 31, 1997
were as follows:
<TABLE>
<CAPTION>
Effective Tax-Equivalent
Yield Yield Yield
------ ---------- --------------
<S> <C> <C> <C>
FS Prime Obligations Fund:
FST Shares 5.64% 5.80% N/A
FST Administration Shares 5.39% 5.54% N/A
FST Service Shares 5.15% 5.28% N/A
FST Preferred Shares 5.54% 5.70% N/A
FS Money Market Fund:
FST Shares 5.65% 5.81% N/A
FST Administration Shares 5.39% 5.55% N/A
FST Service Shares 5.15% 5.28% N/A
FST Preferred Shares 5.55% 5.71% N/A
FS Treasury Obligations Fund:
FST Shares 5.57% 5.72% N/A
FST Administration Shares 5.30% 5.46% N/A
FST Service Shares 5.07% 5.19% N/A
FST Preferred Shares 5.47% 5.62% N/A
FS Treasury Instruments Fund:
FST Shares 5.10% 5.23% N/A
FST Administration Shares 4.84% 4.97% N/A
FST Service Shares 4.60% 4.71% N/A
FST Preferred Shares 5.00% 5.13% N/A
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
FS Government Fund:
FST Shares 5.62% 5.78% N/A
FST Administration Shares 5.37% 5.52% N/A
FST Service Shares 5.12% 5.25% N/A
FST Preferred Shares 5.52% 5.68% N/A
FS Federal Fund:
FST Shares 5.54% 5.69% N/A
FST Administration Shares 5.29% 5.43% N/A
FST Service Shares 5.04% 5.17% N/A
FST Preferred Shares 5.44% 5.59% N/A
FS Tax-Free Fund:
FST Shares 3.88% 3.95% 6.55%
FST Administration Shares 3.62% 3.69% 6.11%
FST Service Shares 3.38% 3.43% 5.71%
FST Preferred Shares 3.78% 3.85% 6.39%
FS Premium Money Market Fund:%
FST Shares 5.69% 5.85% N/A
FST Administration Shares 5.44% 5.59% N/A
FST Service Shares 5.21% 5.32% N/A
FST Preferred Shares 5.59% 5.75% N/A
</TABLE>
The information set forth in the foregoing table reflects certain fee reductions
and expense limitations voluntarily agreed to by the Adviser. See "The Adviser,
Distributor and Transfer Agent." In the absence of such fee reductions, the
yield, effective yield and the tax-equivalent yield of each Financial Square
Fund for the same period would have been as follows:
<TABLE>
<CAPTION>
Effective Tax-Equivalent
Yield Yield Yield
------ ---------- --------------
<S> <C> <C> <C>
FS Prime Obligations Fund:
FST Shares 5.59% 5.75% N/A
FST Administration Shares 5.34% 5.49% N/A
FST Service Shares 5.10% 5.23% N/A
FST Preferred Shares 5.49% 5.65% N/A
FS Money Market Fund:
FST Shares 5.60% 5.76% N/A
FST Administration Shares 5.34% 5.50% N/A
FST Service Shares 5.10% 5.23% N/A
FST Preferred Shares 5.50% 5.66% N/A
FS Treasury Obligations Fund:
FST Shares 5.50% 5.65% N/A
FST Administration Shares 5.23% 5.39% N/A
FST Service Shares 5.00% 5.12% N/A
FST Preferred Shares 5.40% 5.55% N/A
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
FS Treasury Instruments Fund:
FST Shares 5.02% 5.14% N/A
FST Administration Shares 4.76% 4.88% N/A
FST Service Shares 4.52% 4.62% N/A
FST Preferred Shares 4.92% 5.04% N/A
FS Government Fund:
FST Shares 5.55% 5.70% N/A
FST Administration Shares 5.30% 5.44% N/A
FST Service Shares 5.05% 5.17% N/A
FST Preferred Shares 5.45% 5.60% N/A
FS Federal Fund:
FST Shares 5.47% 5.62% N/A
FST Administration Shares 5.22% 5.36% N/A
FST Service Shares 4.97% 5.10% N/A
FST Preferred Shares 5.37% 5.52% N/A
FS Tax-Free Fund:
FST Shares 3.84% 3.91% 6.49%
FST Administration Shares 3.58% 3.65% 6.05%
FST Service Shares 3.34% 3.39% 5.64%
FST Preferred Shares 3.74% 3.81% 6.32%
FS Premium Money Market Fund:
FST Shares 5.44% 5.58% N/A
FST Administration Shares 5.19% 5.32% N/A
FST Service Shares 4.96% 5.05% N/A
FST Preferred Shares 5.34% 5.48% N/A
</TABLE>
The quotations of tax-equivalent yield set forth above for the seven-
day period ended December 31, 1997 are based on a federal marginal tax rate of
40.8% (adjusted for the 3% phase out of itemized deductions for individuals at
high income levels).
With respect to the ILA Tax-Exempt California Portfolio, the
California top marginal State personal income tax rate of 5.62% (adjusted for
the federal income tax benefit) is being assumed in addition to the 40.8%
federal tax rate, for a combined tax rate of 46.42%. With respect to the ILA
Tax-Exempt New York Portfolio, the tax equivalent yields are being shown under
three scenarios. The first scenario assumes, as noted above, a federal marginal
tax rate of 40.8%, the second scenario assumes a New York top marginal State
personal income tax rate of 4.14% (adjusted for the federal income tax benefit),
for a combined effective tax rate of 44.94%. The third scenario assumes a New
York City top marginal personal income tax rate of 2.69% (adjusted for the
federal income tax benefit) in addition to the above federal and New York State
tax rates, for a combined effective tax rate of 47.63%. The combined tax rates
assume full deductibility of state and, if applicable, city taxes in computing
federal tax liability.
In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed or recommended by GSAM
and/or its affiliates, certain attributes or benefits to be derived from asset
allocation strategies and the Goldman Sachs mutual funds that may form a part of
such an asset allocation strategy. Such advertisements and
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information may also include a discussion of GSAM's current economic outlook and
domestic and international market views and recommend periodic tactical
modifications to current asset allocation strategies. Such advertisements and
information may include other material which highlight or summarize the services
provided in support of an asset allocation program.
From time to time any Series may publish an indication of its past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Incorporated, Weisenberger Investment Companies
Service, Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Money, Morningstar Mutual Funds, Micropal, Personal
Investor, Sylvia Porter's Personal Finance, and The Wall Street Journal.
The Trust may also advertise information which has been provided to
the NASD for publication in regional and local newspapers. In addition, the
Trust may from time to time advertise a Series' performance relative to certain
indices and benchmark investments, including (without limitation): inflation and
interest rates, certificates of deposit (CDs), money market deposit accounts
(MMDAs), checking accounts, savings accounts and repurchase agreements. The
Trust may also compare a Series' performance with that of other mutual funds
with similar investment objectives.
The composition of the investments in such mutual funds, comparative
indices and the characteristics of such benchmark investments are not identical
to, and in some cases are very different from, those of a Series. Indices and
averages are generally unmanaged and the items included in the calculations of
such indices and averages may not be identical to the formulas used by a Series
to calculate its performance data.
A Series' performance data will be based on historical results and is
not intended to indicate future performance. A Series' performance will vary
based on market conditions, portfolio expenses, portfolio investments and other
factors. Return for a Series will fluctuate unlike certain bank deposits or
other investments which pay a fixed yield or return.
The Trust may also, at its discretion, from time to time make a list
of a Series' holdings available to investors upon request. The Trust may from
time to time summarize the substance of discussions contained in shareholder
reports in advertisements and publish the Adviser's views as to markets, the
rationale for a Series' investments and discussions of a Fund's current
holdings.
In addition, from time to time, quotations from articles from
financial and other publications, such as those listed above, may be used in
advertisements, sales literature and in reports to unitholders.
TAX INFORMATION
Each Series has elected or intends to qualify and elect to be treated
and to qualify as a separate regulated investment company under Subchapter M of
the Internal Revenue Code of
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1986, as amended, (the "Code"). Such qualification does not involve supervision
of management or investment practices or policies by any governmental agency or
bureau.
In order to qualify as a regulated investment company, each Series
must, among other things, (a) derive at least 90% of its gross income for the
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stock or securities or certain
other investments (the "90% Test"); and (b) diversify its holdings so that, at
the close of each quarter of its taxable year, (i) at least 50% of the market
value of the Series' total gross assets is represented by cash and cash items
(including receivables), U.S. Government securities, securities of other
regulated investment companies and other securities limited, in respect of any
one issuer, to an amount not greater in value than 5% of the value of the
Series' total assets and not more than 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of the Series' total
(gross) assets is invested in the securities (other than U.S. Government
securities and securities of other regulated investment companies) of any one
issuer or two or more issuers controlled by the Series and engaged in the same,
similar or related trades or businesses. For purposes of these requirements,
participation interests will be treated as securities, and the issuer will be
identified on the basis of market risk and credit risk associated with any
particular interest. Certain payments received with respect to such interests,
such as commitment fees and certain facility fees, may not be treated as income
qualifying under the 90% test.
Each Series, as a regulated investment company, will not be subject to
federal income tax on any of its net investment income and net realized capital
gains that are distributed to unitholders with respect to any taxable year in
accordance with the Code's timing and other requirements, provided that the
Series distributes at least 90% of its investment company taxable income
(generally, all of its net taxable income other than "net capital gain," which
is the excess of net long-term capital gain over net short-term capital loss)
for such year and, in the case of any Series that earns tax-exempt interest, at
least 90% of the excess of the tax-exempt interest it earns over certain
disallowed deductions. A Series will be subject to federal income tax at
regular corporate rates on any investment company taxable income or net capital
gain that it does not distribute for a taxable year. In order to avoid a non-
deductible 4% federal excise tax, each Series must distribute (or be deemed to
have distributed) by December 31 of each calendar year at least 98% of its
taxable ordinary income for such year, at least 98% of the excess of its capital
gains over its capital losses (generally computed on the basis of the one-year
period ending on October 31 of such year), and all taxable ordinary income and
the excess of capital gains over capital losses for the previous year that were
not distributed in such year and on which the Series paid no federal income tax.
Dividends paid by a Series from taxable net investment income
(including income attributable to accrued market discount and a portion of the
discount on certain stripped tax-exempt obligations and their coupons) and the
excess of net short-term capital gain over net long-term capital loss will be
treated as ordinary income in the hands of unitholders. Such distributions will
not qualify for the corporate dividends-
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received deduction. Dividends paid by a Series from the excess of net long-term
capital gain (if any) over net short-term capital loss are taxable to
unitholders as long-term capital gain, regardless of the length of time the
units of a Series have been held by such unitholders, and also will not qualify
for the corporate dividends-received deduction. A Series' net realized capital
gains for a taxable year are computed by taking into account realized capital
losses, including any capital loss carryforward of that Series. At December 31,
1997, the following Series had approximately the following amounts of capital
loss carryforwards:
<TABLE>
<CAPTION>
Amount Year of Expiration
------ ------------------
<S> <C> <C>
ILA Tax - Exempt Diversified Portfolio $189,400 1988-2006
ILA Tax - Exempt New York Portfolio 6,519 1999-2004
ILA Tax - Exempt California Portfolio 28,689 2000-2003
FS Tax Free Money Market Fund 14,940 2003-2005
FS Federal Fund 7,673 2005
</TABLE>
Distributions paid by the ILA Tax-Exempt Diversified, ILA Tax-Exempt
California, ILA Tax-Exempt New York Portfolios, FS Tax-Free Fund or FS Municipal
Fund from tax-exempt interest received by them and properly designated as
"exempt-interest dividends" will generally be exempt from regular federal income
tax, provided that at least 50% of the value of the applicable Series' total
assets at the close of each quarter of its taxable year consists of tax-exempt
obligations, i.e., obligations described in Section 103(a) of the Code (not
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including units of other regulated investment companies that may pay exempt-
interest dividends, because such units are not treated as tax-exempt obligations
for this purpose). Dividends paid by the other Series from any tax-exempt
interest they may receive will not be tax-exempt, because they will not satisfy
the 50% requirement described in the preceding sentence. A portion of any tax-
exempt distributions attributable to interest on certain "private activity
bonds," if any, received by a Series may constitute a tax preference items and
may give rise to, or increase liability under, the alternative minimum tax for
particular unitholders. In addition, tax-exempt distributions of the Series may
be considered in computing the "adjusted current earnings" preference item of
their corporate unitholders in determining the corporate alternative minimum
tax. To the extent that the ILA Tax-Exempt Diversified, ILA Tax-Exempt
California, ILA Tax-Exempt New York Portfolios and FS Tax-Free and FS Municipal
Funds invest in certain short-term instruments, including repurchase agreements,
the interest on which is not exempt from Federal income tax, or earn other
taxable income any distributions of income from such investments or other
taxable income will be taxable to unitholders as ordinary income. All or
substantially all of any interest on indebtedness incurred directly or
indirectly to purchase or carry units of the Series will generally not be
deductible. The availability of tax-exempt obligations and the value of the
Series may be affected by restrictive tax legislation enacted in recent years.
In purchasing municipal obligations, the ILA Tax-Exempt Diversified,
ILA Tax-Exempt California, ILA Tax-Exempt New York Portfolios, FS Tax-Free and
FS Municipal Funds rely on opinions of nationally-recognized bond counsel for
each issue as to the excludability of interest on such obligations from gross
income for federal income tax purposes and, where applicable, the tax-exempt
nature of such interest under the personal income tax laws of a particular
state. These Series do not undertake independent investigations concerning the
tax-exempt status of such obligations, nor do they guarantee or represent that
bond counsels' opinions are correct.
Distributions of net investment income and net realized capital gains
will be taxable as described above, whether received in units or in cash.
Unitholders electing to receive distributions in the form of additional units
will have a cost basis in each unit so received equal to the amount of cash they
would have received had they elected to receive cash.
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Certain Series may be subject to foreign withholding taxes or other
foreign taxes with respect to their investments in certain securities of foreign
entities. These taxes may be reduced or eliminated under the terms of
applicable U.S. income tax treaties in some cases, and each Series intends to
satisfy any procedural requirements to qualify for benefits under these
treaties. Although no Series anticipates that more than 50% of the value of its
total assets at the close of a taxable year will be composed of securities of
foreign corporations, if the 50% requirement were satisfied by a Series, that
Series could make an election under Code Section 853 to permit its unitholders
to claim a credit or deduction on their federal income tax returns for their pro
rata portion of qualified taxes paid by that Series in foreign countries. In
the event such an election is made, unitholders will be required to include
their pro rata share of such taxes in gross income and may be entitled to claim
a foreign tax credit or deduction with respect to such taxes, subject to certain
limitations under the Code. Unitholders who are precluded from taking such
credits or deductions will nevertheless be taxed on their pro rata share of the
foreign taxes included in their gross income, unless they are otherwise exempt
from federal income tax.
Each Series will be required to report to the Internal Revenue Service
all taxable distributions, except in the case of certain exempt unitholders.
Under the backup withholding provisions of Code Section 3406, all such
distributions may be subject to withholding of federal income tax at the rate of
31% in the case of nonexempt unitholders who fail to furnish the Series with
their taxpayer identification number and with certain certifications required by
the Internal Revenue Service or if the Internal Revenue Service or a broker
notifies a Series that the number furnished by the unitholder is incorrect or
that the unitholder is subject to backup withholding as a result of failure to
report interest or dividend income. However, any taxable distributions from the
ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California, ILA Tax-Exempt
New York Portfolio or FS Tax-Free or FS Municipal Funds will not be subject to
backup withholding if the applicable Series reasonably estimates that at least
95% of its distributions will be exempt-interest dividends. The Series may
refuse to accept an application that does not contain any required taxpayer
identification number or certification that the number provided is correct, if
applicable, or that the investor is an exempt recipient. If the withholding
provisions are applicable, any such distributions, whether taken in cash or
reinvested in units, will be reduced by the amounts required to be withheld.
Investors may wish to consult their tax advisers about the applicability of the
backup withholding provisions.
Redemptions (including exchanges) and other dispositions of units in
transactions that are treated as sales for tax purposes will generally not
result in taxable gain or loss, provided that the Series successfully maintain a
constant net asset value per share, but a loss may be recognized to the extent a
CDSC is imposed on the redemption or exchange of ILA Class B or Class C Units.
All or a portion of such a loss may be disallowed under applicable Code
provisions in certain circumstances. Unitholders should consult their own tax
advisors with reference to their circumstances to determine whether a
redemption, exchange, or other disposition of Series Units is properly treated
as a sale for tax purposes.
All distributions (including exempt-interest dividends) whether
received in units or cash, must be reported by each unitholder who is required
to file a federal income tax return. The Series will inform unitholders of the
federal income tax status of their distributions after the end
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of each calendar year, including, in the case of the ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio, ILA Tax-Exempt New York
Portfolio, FS Tax-Free Fund and FS Municipal Fund the amounts that qualify as
exempt-interest dividends and any portions of such amounts that constitute tax
preference items under the federal alternative minimum tax. Unitholders who
receive exempt-interest dividends and have not held their units of the
applicable Series for its entire taxable year may have designated as tax-exempt
or as a tax preference item a percentage of their distributions which is not
exactly equal to a proportionate share of the amount of tax-exempt interest or
tax preference income earned during the period of their investment in such
Series. Each unitholder should consult his or her own tax advisor to determine
the tax consequences of an investment in a Series in the unitholder's own state
and locality.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Unitholders should consult their tax
advisers for more information.
The foregoing discussion relates solely to U.S. federal income tax law
as it applies to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies
and financial institutions. Each unitholder who is not a U.S. person should
consult his or her tax adviser regarding the U.S. and non-U.S. tax consequences
of ownership of units of a Series, including the possibility that such a
unitholder may be subject to a U.S. nonresident alien withholding tax at a rate
of 30% (or at a lower rate under an applicable U.S. income tax treaty) on
certain distributions from a Series and, if a current IRS Form W-8 or acceptable
substitute is not on file with the Series, may be subject to backup withholding
on certain payments.
STATE AND LOCAL
The Trust may be subject to state or local taxes in jurisdictions in
which the Trust may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of a Series and
its unitholders under such laws may differ from their treatment under Federal
income tax laws, and an investment in the Series may have tax consequences for
unitholders that are different from those of a direct investment in the Series'
securities. Unitholders should consult their own tax advisers concerning these
matters. For example, in such states or localities it may be appropriate for
unitholders to review with their tax advisers the state income and, if
applicable, intangible property tax consequences of investments by the Series in
securities issued by the particular state or the U.S. Government or its various
agencies or instrumentalities, because many states (i) exempt from personal
income tax distributions made by regulated investment companies from interest on
obligations of the particular state or on direct U.S. Government obligations
and/or (ii) exempt from intangible property tax the value of the units of such
companies attributable to such obligations, subject to certain state-specific
requirements and/or limitations. See also the discussion below of these
applicable provisions in California and New York.
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Provided that the Series qualify as regulated investment companies and
incur no federal income tax liability, the Series may still be subject to New
York State and City minimum taxes, which are small in amount.
California State Taxation. The following discussion of California tax
law assumes that the ILA Tax-Exempt California Portfolio will be qualified as a
regulated investment company under Subchapter M of the Code and will be
qualified thereunder to pay exempt-interest dividends. The ILA Tax-Exempt
California Portfolio intends to qualify for each taxable year under California
law to pay "exempt-interest dividends" which will be exempt from the California
personal income tax.
Individual unitholders of the ILA Tax-Exempt California Portfolio who
reside in California will not be subject to California personal income tax on
distributions received from the Portfolio to the extent such distributions are
exempt-interest dividends attributable to interest on obligations the interest
on which is exempt from California personal income tax provided that the
Portfolio satisfies the requirement of California law that at least 50% of its
assets at the close of each quarter of its taxable year be invested in such
obligations and properly designates such exempt-interest dividends under
California Law. Distributions from the ILA Tax-Exempt California Portfolio which
are attributable to sources other than those described in the second preceding
sentence will generally be taxable to such unitholders as ordinary income.
Moreover, California legislation which incorporates Subchapter M of the Code
provides that capital gain dividends may be treated as long-term capital gains.
Such gains are currently subject to personal income tax at ordinary income tax
rates. Capital gains that are retained by the Portfolio will be taxed to that
Portfolio, and California residents will receive no California personal income
tax credit for such tax. Distributions other than exempt-interest dividends are
includable in income subject to the California alternative minimum tax.
Distributions from investment income and long-term and short-term
capital gains will generally not be excluded from taxable income in determining
California corporate franchise taxes for corporate unitholders and will be
treated as ordinary dividend income for such purposes. In addition, such
distributions may be includable in income subject to the alternative minimum
tax.
Interest on indebtedness incurred or continued by unitholders to
purchase or carry units of the ILA Tax-Exempt California Portfolio will not be
deductible for California personal income tax purposes.
In addition, any loss realized by a unitholder of the ILA Tax-Exempt
California Portfolio upon the sale of units held for six months or less may be
disallowed to the extent of any exempt-interest dividends received with respect
to such units. Moreover, any loss realized upon the redemption of units within
six months from the date of purchase of such units and following receipt of a
long-term capital gains distribution will be treated as long-term capital loss
to the extent of such long-term capital gains distribution. Finally, any loss
realized upon the redemption of units within thirty days before or after the
acquisition of other units of the same Portfolio may be disallowed under the
"wash sale" rules.
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New York City and State Taxation. Individual unitholders who are
residents of New York State will be able to exclude for New York State income
tax purposes that portion of the exempt-interest dividends properly designated
as such from the ILA Tax-Exempt New York Portfolio which is derived from
interest on obligations of New York State and its political subdivisions and
obligations of Puerto Rico, the U.S. Virgin Islands and Guam. Exempt-interest
dividends may be properly designated as such only if, as anticipated, at least
50% of the value of the assets of the Portfolio are invested at the close of
each quarter of its taxable year in obligations of issuers the interest on which
is excluded from gross income for federal income tax purposes. Individual
unitholders who are residents of New York City will also be able to exclude such
income for New York City income tax purposes. Interest on indebtedness incurred
or continued by a shareholder to purchase or carry shares of the ILA Tax-Exempt
New York Portfolio is not deductible for New York State or New York City
personal income tax purposes.
Long-term capital gains, if any, that are distributed by the ILA Tax-
Exempt New York Portfolio and are properly designated as capital gain dividends
will be treated as capital gains for New York State and City income tax purposes
in the hands of New York State and New York City residents.
Unitholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
This discussion of the tax treatment of the Portfolio and its
unitholders is based on the tax laws in effect as of the date of this Statement
of Additional Information.
ORGANIZATION AND CAPITALIZATION
The Series were reorganized from series of a Massachusetts business
trust as part of Goldman Sachs Trust, a Delaware business trust, by a
Declaration of Trust dated January 28, 1997 on April 30, 1997.
The Act requires that where more than one class or series of units
exists, each class or series must be preferred over all other classes or series
in respect of assets specifically allocated to such class or series. The
Trustees also have authority to classify and reclassify any series of units into
one or more classes of units. As of the date of this Statement of Additional
Information, the Trustees have authorized the issuance of up to three classes of
units of each of the ILA Portfolios: ILA Units, ILA Administration Units and ILA
Service Units. In addition, the Trustees have authorized a fourth and fifth
class of units, ILA Class B Units and ILA Class C Units, with respect to the
Prime Obligations Portfolio. The Trustees have also authorized Cash Management
Shares of the ILA Prime Obligations Portfolio, ILA Money Market Portfolio, ILA
Government Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt
California Portfolio and ILA Tax-Exempt New York Portfolio. As of the date of
this Statement of Additional Information, the Trustees have authorized the
issuance of up to four classes of shares of each of the Financial Square Funds:
FST Shares, FST Service Shares, FST Administration Shares and FST Preferred
Shares.
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Each ILA Unit, ILA Administration Unit, ILA Service Unit, ILA Class B
Unit, ILA Class C Unit, Cash Management Share, FST Share, FST Administration
Share, FST Service Share and FST Preferred Share of a Series represents an equal
proportionate interest in the assets belonging to that Series. It is
contemplated that most units (other than ILA Class B or Class C Units) will be
held in accounts of which the record owner is a bank or other institution
acting, directly or through an agent, as nominee for its customers who are the
beneficial owners of the units or another organization designated by such bank
or institution. ILA Class B and Class C Units generally are only issued upon
exchange from Class B or Class C Shares, respectively, of other Series of the
Goldman Sachs mutual funds. ILA Units and FST Shares may be purchased for
accounts held in the name of an investor or institution that is not compensated
by the Trust for services provided to the institution's investors. ILA
Administration Units and FST Administration Shares may be purchased for accounts
held in the name of an investor or an institution that provides certain account
administration services to its customers, including maintenance of account
records and processing orders to purchase, redeem and exchange ILA
Administration Units or FST Administration Shares. ILA Administration Units of
each ILA Portfolio bear the cost of administration fees at the annual rate of up
to .15 of 1% of the average daily net assets of such Units. FST Administration
Shares of a Financial Square Fund bear the cost of administration fees at the
annual rate of up to .25 of 1% of the average daily net assets of such Shares.
ILA Service Units and FST Service Shares may be purchased for accounts held in
the name of an institution that provides certain account administration and
unitholder liaison services to its customers, including maintenance of account
records, processing orders to purchase, redeem and exchange ILA Service Units or
FST Service Shares, responding to customer inquiries and assisting customers
with investment procedures. ILA Service Units bear the cost of service fees at
the annual rate of up to .40 of 1% of the average daily net assets of such
Units. FST Service Shares of a Financial Square Fund bear the cost of service
fees at the annual rate of up to .50 of 1% of the average daily net assets of
such Shares. FST Preferred Shares may be purchased for accounts held in the
name of an institution that provides certain account administration services to
its customers, including acting directly or through an agent, as the sole
shareholder of record, maintaining account records of its customers and
processing orders to purchase, redeem and exchange FST Preferred Shares. FST
Preferred Shares of a Financial Square Fund bear the cost of preferred
administration fees at an annual rate of up to 0.10% of the average daily net
assets of such shares. ILA Class B Units of the Prime Obligations Portfolio are
sold subject to a contingent deferred sales charge of up to 5.0%, and ILA Class
C Units are sold subject to a contingent deferred sales charge of 1.0% if
redeemed within 12 months of purchase. ILA Class B and Class C Units are sold
primarily through brokers and dealers who are members of the National
Association of Securities Dealers Inc. and certain other financial services
firms that have sales arrangements with Goldman Sachs. ILA Class B and Class C
Units bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of
up to 0.75% of the average daily net assets attributable to ILA Class B and
Class C Units, respectively. ILA Class B and Class C Units also bear the cost
of an Authorized Dealer Service Plan at an annual rate of up to 0.25% of the
average daily net assets of the Prime Obligations Portfolio attributable to ILA
Class B and Class C Units. Cash Management Shares may be purchased for accounts
held in the name of an institution that provides certain account administration
and shareholder liaison services to its customers, including maintenance of
account records, processing orders to purchase, redeem and exchange Cash
Management Shares, responding to customer inquiries and
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assisting customers with investment procedures. Cash Management Shares bear the
cost of service fees at the annual rate of up to 0.50% of the average daily net
assets of such shares. Cash Management Shares also bear the cost of distribution
(Rule 12b-1) fees at an annual rate of 0.50% of the average daily net assets
attributable to Cash Management Shares.
It is possible that an institution or its affiliates may offer
different classes of units to its customers and thus receive different
compensation with respect to different classes of units of the same Series. In
the event a Series is distributed by salespersons or any other persons, they may
receive different compensation with respect to different classes of units of the
Series. ILA Administration Units, ILA Service Units, ILA Class B Units, ILA
Class C Units, Cash Management Shares, FST Administration Shares, FST Preferred
Shares and FST Service Shares each have certain exclusive voting rights on
matters relating to their respective plans. Units of each class may be
exchanged only for Units of the same class in another ILA Portfolio or, in the
case of the Prime Obligations Portfolio, shares of the corresponding class of
certain other mutual funds sponsored by Goldman Sachs. Except as described
above, the ten classes of units are identical. Certain aspects of the Units may
be altered, after advance notice to unitholders, if it is deemed necessary in
order to satisfy certain tax regulatory requirements.
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise, to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding units of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of directors from the separate voting
requirements of Rule 18f-2.
When issued units are fully paid and non-assessable. In the event of
liquidation, unitholders are entitled to share pro rata in the net assets of the
applicable class of the relevant Series available for distribution to such
unitholders. All units entitle their holders to one vote per unit, are freely
transferable and have no preemptive subscription or conversion rights.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees without the vote or consent of shareholders, either to one vote for
each share or to one vote for each dollar of net asset value represented by such
shares on all matters presented to unitholders including the election of
Trustees (this method of voting being referred to as "dollar based voting").
However, to the extent required by the Act or otherwise determined by the
Trustees, series and classes of the Trust will vote separately from each other.
Shareholders of the Trust do not have cumulative voting rights in the election
of Trustees. Meetings of shareholders of the Trust, or any series or class
thereof, may be called by the Trustees, certain officers or upon the written
request of holders of 10% or more of the shares entitled to vote at such
meetings. The shareholders of the Trust will have voting rights only with
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respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees,
officers and agents of the Trust unless the recipient is adjudicated (i) to be
liable by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such person's office or (ii)
not to have acted in good faith in the reasonable belief that such person's
actions were in the best interest of the Trust. The Declaration of Trust
provides that, if any shareholder or former shareholder of any series is held
personally liable solely by reason of being or having been a shareholder and not
because of the shareholder's acts or omissions or for some other reason, the
shareholder or former shareholder (or heirs, executors, administrators, legal
representatives or general successors) shall be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust
acting on behalf of any affected series, must, upon request by such shareholder,
assume the defense of any claim made against such shareholder for any act or
obligation of the series and satisfy any judgment thereon from the assets of the
series.
The Declaration of Trust permits the termination of the Trust or of
any series or class of the Trust (i) by a majority of the affected shareholders
at a meeting of shareholders of the Trust, series or class; or (ii) by a
majority of the Trustees without shareholder approval if the Trustees determine
that such action is in the best interest of the Trust or its shareholders. The
factors and events that the Trustees may take into account in making such
determination include (i) the inability of the Trust or any successor series or
class to maintain its assets at an appropriate size; (ii) changes in laws or
regulations governing the Trust, or any series or class thereof, or affecting
assets of the type in which it invests; or (iii) economic developments or trends
having a significant adverse impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
"master-feeder" structure by investing all or a portion of the assets of a
series of the Trust in the securities of another open-end investment company.
The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have
the right to vote on any amendment (i) that would affect the voting rights of
shareholders, (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). To the extent
provided by the Trustees in the appointment of Series Trustees, Series Trustees
(a) may, but are not required to, serve as Trustees of the Trust or any other
series or class of the Trust; (b) may have, to the exclusion of any other
Trustee of the Trust, all the powers and authorities of Trustees under the
Declaration of Trust with respect to any other series or class; and/or (c) may
have no power or authority with respect
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to any other series or class. The Trustees are not currently considering the
appointment of Series Trustees for the Trust.
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Prime Obligations Portfolio were Duquesne Capital
Management, Inc., 2579 Washington Rd. Ste. 322, Pittsburgh, PA 15241-2563
(12.29%); and National Financial Services, Co., P.O. Box 3752, Church Street
Station, New York, NY 10008 (5.91%).
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Money Market Portfolio were Bank of New York, 48
Wall Street, New York, NY 10286 (16.17%); and Stone Street & Bridge Street
Funds, 85 Broad Street, 4th Floor, New York, NY 10004-2434 (6.72%).
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Treasury Obligations Portfolio were First National
Bank of Omaha, P.O. Box 3128, Omaha, NE 68103-0128 (19.27%); Bank of New York
(NCD), Hare & Co., 1 Wall Street, 15th Floor, New York, NY 10286-0001 (7.45%);
Bank One Investment Advisors Corp., Strafe & Co., P.O. Box 710211, Columbus, OH,
43271-0211 (6.51%); and Bankers Trust Company, Hare & Co., P.O. Box 697, Des
Moines, IA 50304 (5.71%).
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Treasury Instruments Portfolio were Bank of New
York (NCD), Hare & Co., 1 Wall Street, 15th Floor, New York, NY 10286-0001
(35.73%); Hilliard Lyons Trust Co., P.O. Box 32780, Louisville, KY 40232
(7.46%); Morgan Stanley-Harris Assoc.-Sweep, 2 N. LaSalle Street, Ste. 500,
Chicago, IL 60602 (6.94%); and Mid-America Bank of Louisville-Banlou, P.O. Box
1101, Louisville, KY 40201 (5.06%).
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Government Portfolio were Morgan Stanley-Harris
Assoc.-Sweep, 2 N. LaSalle Street, Ste. 500, Chicago, IL 60602 (15.20%);
Standish Long/Shor Equity Fund LP, One Financial Ctr, Boston, MA 02111 (10.49%);
Comerica Bank, Calhoun & Co., P.O. Box 55-519, Detroit, MI 48255-0499 (7.95%);
Northern Trust, 50 South LaSalle Street, Chicago, IL 60675 (7.36%); and Berger
Accounts, P.O. Box 13390, Palm Desert, CA 92255 (5.23%).
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Tax-Exempt New York Portfolio were Bank of New
York, 48 Wall Street, New York, NY 10286 (13.94%); Werner Holding Co., Inc.,
1105 N. Market St., Ste. 130, Wilmington, DE 19501 (6.85%); and Stephen Apkon &
Lisa Hertz Apkon, 33 Ashland Ave., Pleasantville, NY 10570 (5.57%).
As of April 3, 1998, the only holders of record of 5% or more of the
outstanding units of the ILA Federal Portfolio were Bank of New York, 48 Wall
Street, New York, NY 10286 (11.23%); Hilliard Lyons Trust Co., P.O. Box 32760,
Louisville, KY 40232-2760 (6.79%); and The Baupost Group, Inc., P.O. Box 389125,
Cambridge, MA 02238 (5.64%).
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As of April 3, 1998, the only holder of record of 5% or more of the
outstanding units of the ILA Tax-Exempt California Portfolio was Bodri Capital
Management, Inc., 525 University Ave., Ste. 1322, Palo Alto, CA 94301 (6.70%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Prime Obligations Fund:
Commerce Bank of Kansas City, NA, P.O. Box 248, Kansas City, MO 64141 (9.72%);
Citicorp Trust, NA as Custodian, 400 Royal Palm Way, Flr. 3, Palm Beach, FL
33480 (6.93%); and Deloitte & Touche, 10 Westport Road, P.O. Box 820, Wilton, CT
06897 (6.28%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Money Market Fund:
Kiewit Diversified Group, Inc., One Thousand Kiewit Plz, Omaha, NE 68131
(9.12%); and Citicorp Trust, NA as Custodian, 400 Royal Palm Way, 3rd Flr., Palm
Beach, FL 33480 (8.92%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Premium Money Market
Fund: BankBoston, P.O. Box 1130, Boston, MA 02103 (31.95%); Corning, Inc., 1
Riverfront Plz, Corning, NY 14831 (8.49%); Walther Accounts, 3661 Buchanan St.,
San Francisco, CA, 94123 (8.22%); Midland Loan Services LP, 210 W. 10th St.-Fl.
6, Kansas City, MO 64105 (6.61%); and National City Bank, 4100 W. 150th St.,
Cleveland, OH 44135 (5.27%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Government Fund:
Security Trust Company, P.O. Box 1589, San Diego, CA 92112-1589 (11.49%);
Chicago Trust Company, 171 N. Clark St., #5CA, Chicago, IL 60601 (9.50%); Mellon
Bank, Three Mellon Bank Center, 34th Flr., Pittsburgh, PA 15258 (8.45%); and
State Street Bank & Trust Co., P.O. Box 1992, Boston, MA 02105 (8.09%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Tax-Free Fund: Commerce
Bank of Kansas City, NA, P.O. Box 248, Kansas City, MO 64141 (10.75%);
International Paper Trustees, 2 Manhattanville Road, Purchase, NY 10577 (6.44%);
Mercantile Bank of St. Louis, Mandell & Company, P.O. Box 387 MPO, St. Louis, MO
63101 (6.35%); Werner Holdings Co., Inc., 1105 N. Market St., Ste. 1300,
Wilmington, DE 19801 (6.24%); Reliance Trust Company, P.O. Box 48449, Atlanta,
GA 30362 (6.12%); and Summit Bank, P.O. Box 821, Hakensack, NJ 07602 (5.29%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Federal Fund: Bank of
Oklahoma, NA, P.O. Box 2300, Tulsa, OK 74192 (10.14%); and Amalgamated Bank of
Chicago, One West Monroe St., Chicago, IL 60603 (5.62%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Treasury Instruments
Fund: Harris Trust & Savings Bank, 200 W. Monroe Street, Fl. 12, Chicago, IL
60606 (36.70%); William Harris Investors, Inc., 2 N. LaSalle Street, Ste. 400,
Chicago, IL 60602 (15.73%); IBJ Schroder Bank & Trust Co., One State Street-
11th Fl., New York, NY 10004 (9.70%); Northern Capital Trust of Fargo, P.O. Box
829, Fargo,
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ND 58102 (9.07%); Central Bank & Trust Co., CEBANTCO, P.O. Box 1360,
Lexington, KY 40590 (6.89%); and Guaranty Bank & Trust Co., Haws & Co., P.O. Box
5847, Denver, CO 80217 (6.10%).
As of April 3, 1998, the entities noted below may have owned
beneficially 5% or more of the outstanding shares of FS Treasury Fund: Commerce
Bank of Kansas City, NA, P.O. Box 248, Kansas City, MO 64141 (8.08%); and
Associated Bank, Hard & Co., P.O. Box 1007, Neenah, WI 54957 (5.98%).
UNITHOLDER AND TRUSTEE LIABILITY
Under Delaware law, the unitholders of the Series are not generally
subject to liability for the debts or obligations of the Trust. Similarly,
Delaware law provides that a series of the Trust will not be liable for the
debts or obligations of any other series of the Trust. However, no similar
statutory or other authority limiting business trust unitholder liability exists
in many other states. As a result, to the extent that a Delaware business trust
or a unitholder is subject to the jurisdiction of courts of such other states,
the courts may not apply Delaware law and may thereby subject the Delaware
business trust unitholders to liability. To guard against this risk, the
Declaration of Trust contains express disclaimer of unitholder liability for
acts or obligations of a Series. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
Portfolio or the Trustees. The Declaration of Trust provides for indemnification
by the relevant Series for all loss suffered by a unitholder as a result of an
obligation of the Series. The Declaration of Trust also provides that a Series
shall, upon request, assume the defense of any claim made against any unitholder
for any act or obligation of the Series and satisfy any judgment thereon. In
view of the above, the risk of personal liability of unitholders is remote.
In addition to the requirements set forth under Delaware Law, the
Declaration of Trust provides that unitholders may bring a derivative action on
behalf of the Trust only if the following conditions are met: (a) unitholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding units of the Trust, or 10% of the outstanding units of
the series or class to which such action relates, must join in the request for
the Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such unitholder request and to investigate
the basis of such claim. The Trustees will be entitled to retain counsel or
other advisers in considering the merits of the request and may require an
undertaking by the Unitholders making such request to reimburse the Trust for
the expense of any such advisers in the event that the Trustees determine not to
bring such action.
The Declaration of Trust further provides that the Trustees will not
be liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
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CUSTODIAN AND SUBCUSTODIAN
State Street Bank and Trust Company ("State Street") has been retained
to act as custodian of the Series' assets. In that capacity, State Street
maintains the accounting records and calculates the daily net asset value per
unit of the Series. Its mailing address is P.O. Box 1713, Boston, MA 02105.
State Street has appointed The Northern Trust Company, 50 South LaSalle Street,
Chicago, Illinois 60675 as subcustodian to hold cash and certain securities
purchased by the Trust.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, 225 Franklin
Street, Boston, Massachusetts 02110, have been selected as auditors of the
Trust. In addition to audit services, Arthur Andersen prepares the Trust's
federal and state tax returns, and provides consultation and assistance on
accounting, internal control and related matters.
FINANCIAL STATEMENTS
The Financial Statements of the Series then in existence and
conducting investment operations, including the Statements of Investments as of
December 31, 1997, the Statements of Assets and Liabilities as of December 31,
1997, the related Statements of Operations for the period then ended, the
Statements of Changes in Net Assets, the Financial Highlights for the periods
presented, the Notes to the Financial Statements, and the Report of Independent
Public Accountants, all of which are included in the December 31, 1997 Annual
Report to the shareholders, are attached hereto and incorporated by reference
into this Statement of Additional Information.
OTHER INFORMATION
The Adviser, Distributor and/or their affiliates may pay, out of their
own assets, compensation to Service Organizations and other persons in
connection with the sale and/or servicing of shares of the Series and other
investment funds of the Trust. These payments ("Additional Payments") would be
in addition to the payments by the Series described in the Series' Prospectuses
and this Statement of Additional Information for shareholder servicing and
processing. These Additional Payments may take the form of "due diligence"
payments for an institution's examination of the Series and payments for
providing extra employee training and information relating to the Series;
"listing" fees for the placement of the series on a dealer's list of mutual
funds available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Series; "marketing support" fees for providing
assistance in promoting the sale of the Series' shares; and payments for the
sale of shares and/or the maintenance of share balances. In addition, the
Adviser, Distributor and/or their affiliates may make Additional Payments for
subaccounting, administrative and/or shareholder processing services that are in
addition to any shareholder servicing and processing fees paid by the Series.
The additional Payments made by the Adviser, Distributor and their affiliates
may be a fixed dollar amount, may be based on the number of customer accounts
maintained by an institution, or may be based on a percentage of the value of
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shares sold to, or held by, customers of the institutions involved, and may be
different for different institutions. Furthermore, the adviser, distributor
and/or their affiliates may contribute to various non-cash and cash incentive
arrangements to promote the sale of shares, as well as sponsor various
educational programs, sales contests and/or promotions in which participants may
receive prizes such as travel awards, merchandise and cash and/or investment
research pertaining to particular securities and other financial instruments or
to the securities and financial markets generally, educational information and
related support materials and hardware and/or software. The adviser, distributor
and their affiliates may also pay for the travel expenses, meals, lodging and
entertainment of service organizations and other institutions and their
salespersons and guests in connection with educational, sales and promotional
programs, subject to applicable nasd regulations. The distributor currently
expects that such additional bonuses or incentives will not exceed 0.50% of the
amount of any sales.
The Prospectuses and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
and this Additional statement pursuant to the rules and regulations of the SEC.
the registration statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Additional
Statement as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
ADMINISTRATION PLANS
(ILA Administration, FST Administration and FST Preferred Shares Only)
The Trust, on behalf of each ILA Portfolio and Financial Square Fund,
has adopted an administration plan with respect to the ILA Administration Units
(the "ILA Administration Plan"), with respect to the FST Administration Shares
(the "FST Administration Plan") and FST Preferred Shares (the "FST Preferred
Plan," together with the ILA Administration Plan and the FST Administration
Plan, the "Administration Plans") which authorize the ILA Portfolios and
Financial Square Funds to compensate Service Organizations for providing certain
account administration services to their customers who are beneficial owners of
such units. Pursuant to the Administration Plans, the Trust, on behalf of each
Series, enters into agreements with Service Organizations which purchase ILA
Administration Units, FST Administration Shares or FST Preferred Shares on
behalf of their customers ("Service Agreements"). Under such Service
Agreements, the Service Organizations may: (a) act, directly or through an
agent, as the sole unitholder of record and nominee for all customers, (b)
maintain account records for each customer who beneficially owns ILA
Administration Units, FST Administration Shares or FST Preferred Shares, (c)
answer questions and handle correspondence from customers regarding their
accounts, (d) process customer orders to purchase, redeem and exchange ILA
Administration Units, FST Administration Shares or FST Preferred Shares, and
handle the transmission of funds representing the customers'
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purchase price or redemption proceeds, and (e) issue confirmations for
transactions in units by customers. AS compensation for such services, the Trust
on behalf of each ILA Portfolio and Financial Square Fund pays each Service
Organization an administration fee in an amount up to .15% (on an annualized
basis) of the average daily net assets of the ILA Administration Units of each
ILA Portfolio, .25% (on an annualized basis) of the average daily net assets of
the FST Administration Shares and .10% (on an annualized basis) of the average
daily net assets of the FST Preferred Shares of each Financial Square Fund,
attributable to or held in the name of such Service Organization for its
customers.
For the fiscal years ended December 31, 1997, December 31, 1996 and
December 31, 1995, the amount of the administration fees paid by each ILA
Portfolio under its ILA Administration Plan to Service Organizations was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
ILA Prime Obligations
Portfolio $ 117,600 $ 65,534 $141,500
ILA Money Market Portfolio 510,535 316,155 223,420
ILA Treasury Obligations
Portfolio 311,981 145,201 165,430
ILA Treasury Instruments
Portfolio 296,919 145,441 110,355
ILA Government Portfolio 66,034 63,048 94,196
ILA Federal Portfolio 1,119,368 906,321 713,846
ILA Tax-Exempt Diversified
Portfolio 119,510 73,660 103,673
ILA Tax-Exempt California
Portfolio 508 262 600
ILA Tax-Exempt New York
Portfolio 46,589 39,843 27,783
</TABLE>
For the fiscal years ended December 31, 1997, December 31, 1996 and
DECEMBER 31, 1995, the amount of administration fees paid by each Financial
Square Fund under its FST Administration Plan to Service Organizations was as
follows:
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<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
FS Prime Obligations Fund $ 662,090 $ 527,357 $318,346
FS Money Market Fund 780,489 474,043 283,241
FS Treasury Obligations Fund 1,741,440 1,100,814 457,071
FS Government Fund 649,313 250,618 131,629
FS Tax Free Fund 241,784 128,721 32,166
FS Premium Money Market Fund(1) 13,845 N/A N/A
FS Treasury Instruments Fund(1) 3,240 N/A N/A
FS Federal Fund(1) 353,083 N/A N/A
- ---------------------------
</TABLE>
(1) The FST Administration Shares of the FS Premium Money Market Fund, FS
Treasury Instruments Fund and FS Federal Fund commenced share activity on August
1, 1997, April 1, 1997 and April 1, 1997. As of December 31, 1997, the FS
Municipal Fund had not commenced operations.
For the fiscal year ended December 31, 1997 and December 31, 1996, the
amount of Administration Fees paid by each Financial Square Fund under its FST
Preferred Plan was as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
FS Prime Obligations Fund(1) $181,303 $42,963
FS Money Market Fund(1) 55,349 2,874
FS Treasury Obligations Fund(1) 107,309 15,097
FS Government Fund(1) 27,961 395
FS Tax Free Fund(1) 15,965 13,155
FS Premium Money Market Fund(1) 131 N/A
FS Treasury Instruments Fund(1) 1 N/A
FS Federal Fund(1) 66,047 N/A
- ----------------------------
</TABLE>
(1) The FST Preferred Shares of the FS Prime Obligations Fund, FS Money Market
Fund, FS Treasury Obligations Fund, FS Government Fund, FS Tax-Free Fund,
FS Premium Money Market Fund, FS Treasury Instruments Fund, and FS Federal
Fund commenced share activity on May 1, 1996, May 1, 1996, May 1, 1996, May
1, 1996, May 1, 1996, August 1, 1997, May 30, 1997 and May 30, 1997.
As of December 31, 1997, the FS Municipal Fund has not commenced
operations.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in ILA Administration Units, FST Administration Shares and FST Preferred
Shares. Service Organizations, including banks regulated by the Comptroller of
the Currency, the Federal Reserve Board or the Federal Deposit Insurance
Corporation, and investment advisers and other money managers subject to the
jurisdiction of the Securities and Exchange Commission, the Department of Labor
or State Securities Commissions, are urged to consult legal advisers before
investing fiduciary assets in ILA Administration Units, FST Administration
Shares or FST Preferred Shares. In addition, under some state securities laws,
banks and other financial institutions purchasing ILA
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Administration Units, FST Administration Shares or FST Preferred Shares on
behalf of their customers may be required to register as dealers.
The Trustees of the Trust, including a majority of the Trustees Who
Are Not Interested Persons Of The Trust and who have no direct or indirect
financial interest in the operation of the Administration Plans or the related
Service Agreements, most recently voted to approve the Administration Plans and
Service Agreements at a meeting called for the purpose of voting on such
Administration Plans and Service Agreements on April 22, 1998. The
Administration Plans and Service Agreements will remain in effect until May 1,
1999 and continue in effect thereafter only if such continuance is specifically
approved annually by a vote of the Trustees in the manner described above.
An Administration Plan may not be amended to increase materially the
amount to be spent for the services described therein without approval of the
ILA Administration, FST Administration or FST Preferred Shareholders of the
Affected Series, and all material amendments of the Administration Plan must
also be approved by the Trustees in the manner described above. An
Administration Plan may be terminated at any time by a majority of the Trustees
as described above or by vote of a majority of the outstanding ILA
Administration Units, FST Administration Shares or FST Preferred Shares of the
Affected Series. The Service Agreements may be terminated at any time, without
payment of any penalty, by vote of a majority of the Trustees as described above
or by a vote of a majority of the outstanding ILA Administration Units, FST
Administration Shares or FST Preferred Shares of the Affected Series on not more
than sixty (60) days' written notice to any other party to the Service
Agreements. The Service Agreements shall terminate automatically if assigned. so
long as the Administration Plans are in effect, the selection and nomination of
those Trustees who are not interested persons shall be committed to the
discretion of the Trust's Nominating Committee, which consists of all of the
non-interested members of the Board of Trustees. The Trustees have determined
that, in their judgment, there is a reasonable likelihood that the
Administration Plans will benefit the Series And holders of ILA Administration
units, FST Administration Shares and FST Preferred Shares of such Series.
SERVICE PLANS
(ILA Service Units, Cash Management Shares and FST Service Shares Only)
The Trust has adopted a service plan on behalf of each ILA Portfolio
with respect to the ILA Service Units (the "ILA Service Plan"), on behalf of the
ILA Prime Obligations Portfolio, ILA Money Market Portfolio, ILA Government
Portfolio, ILA Tax-Exempt Diversified Portfolio and ILA Tax-Exempt New York
Portfolio with respect to the Cash Management Shares (the "Cash Management
Shares Service Plan") and on behalf of each Financial Square Fund with respect
to the FST Service Shares (the "FST Service Plan" and together with the ILA
Service Plan and the Cash Management Shares Service Plan, the "Service Plans")
which authorize the Series to compensate Service Organizations for providing
certain account administration and personal account maintenance services to
their customers who are or may become beneficial owners of such units. Pursuant
to the Service Plans, the Trust, on behalf of each ILA Portfolio or Financial
Square Fund, enters into agreements with Service Organizations which purchase
ILA
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Service Units, Cash Management Shares or FST Service Shares on behalf of their
customers ("Service Agreements"). Under such Service Agreements the Service
Organizations may: (a) act, directly or through an agent, as the sole unitholder
of record and nominee for all customers; (b) maintain account records for each
customer who beneficially owns ILA Service Units, Cash Management Shares or FST
Service Shares; (c) answer questions and handle correspondence from customers
regarding their accounts; (d) process customer orders to purchase, redeem and
exchange ILA Service Units, Cash Management Shares or FST Service Shares, and
handle the transmission of funds representing the customers' purchase price or
redemption proceeds; (e) issue confirmations for transactions in units by
customers; (f) provide facilities to answer questions from prospective and
existing investors about ILA Service Units, Cash Management Shares or FST
Service Shares; (g) receive and answer investor correspondence, including
requests for prospectuses and statements of additional information; (h) display
and make prospectuses available on the Service Organization's premises; (i)
assist customers in completing application forms, selecting dividend and other
account options and opening custody accounts with the Service Organization; (j)
act as liaison between customers and the Trust, including obtaining information
from the Trust, working with the Trust to correct errors and resolve problems
and providing statistical and other information to the Trust; and (k) with
respect to the Cash Management Shares Service Plan: (i) provide services to
customers intended to facilitate or improve their understanding of the benefits
and risks of an ILA Portfolio, (ii) facilitate the inclusion of an ILA Portfolio
in investment, retirement, asset allocation, cash management or sweep accounts
or similar products or services offered to customers by or through Service
Organizations, (iii) facilitate electronic or computer trading and/or processing
in an ILA Portfolio or providing electronic, computer or other database
information regarding an ILA Portfolio to customers, and (iv) develop, maintain
and support systems necessary to support Cash Management Shares. As compensation
for such services, (a) the Trust on behalf of each ILA Portfolio pays each
Service Organization a service fee in an amount up to .40% (on an annualized
basis) of the average daily net assets of the ILA Service Units of each ILA
Portfolio attributable to or held in the name of such Service Organization for
its customers; provided, however, that the fee paid for personal and account
maintenance services shall not exceed .25% of such average daily net assets; (b)
the Trust on behalf of each ILA Portfolio pays each Service Organization a
service fee in an amount up to .50% (on an annual basis) of the average daily
net assets of the Cash Management Shares of each ILA Portfolio attributable to
or held in the name of such Service Organization for its customers; provided,
however, that the fee paid for personal and account maintenance services shall
not exceed .25% of such average daily net assets; and (c) the Trust, on behalf
of each Financial Square Fund, pays each Service Organization a service fee in
an amount up to .50% (on an annualized basis) of the average daily net assets of
the FST Service Shares of each Financial Square Fund attributable to or held in
the name of such Service Organization for its customers; provided, however, that
the fee paid for personal and account maintenance services shall not exceed .25%
of such average daily net assets.
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. In some, but not all, cases these payments will be pursuant to
an Authorized Dealer
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<PAGE>
Plan or Service Plan described in the Prospectuses and the following sections.
Certain Service Organizations or institutions may enter into sub-transfer agency
agreements with the Trust or Goldman Sachs with respect to their services.
No Cash Management Shares were outstanding as of the fiscal year ended
December 31, 1997.
For the fiscal years ended December 31, 1997, December 31, 1996 and
December 31, 1995, the amount of the service fees paid by each ILA Portfolio
then in existence to Service Organizations was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
ILA Prime Obligations
Portfolio $ 300,300 $ 494,274 $937,733
ILA Money Market Portfolio 40,053 128,313 102,642
ILA Treasury Obligations
Portfolio 361,567 579,790 478,419
ILA Treasury Instruments
Portfolio 1,020,955 1,266,586 316,188
ILA Government Portfolio 342,976 352,931 430,114
ILA Federal Portfolio 209,156 562,023 254,508
ILA Tax-Exempt Diversified
Portfolio 102,409 130,158 220,790
ILA Tax-Exempt California
Portfolio(1) 2 -- --
ILA Tax-Exempt New York
Portfolio(1) 2 -- --
- --------------------------------------------------------------
</TABLE>
(1) ILA Service Unit activity commenced operations in 1997.
For the fiscal years ended December 31, 1997, December 31, 1996 and
December 31, 1995, the amount of service fees paid by each Financial Square Fund
to Service Organizations was as follows:
-82-
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
FS Prime Obligations
Fund $ 707,816 $ 541,076 $299,892
FS Money Market Fund(1) 1,514,944 271,936 8,447
FS Treasury Obligations
Fund 1,201,356 849,624 584,861
FS Government Fund(2) 2,533,854 1,258,434 39,940
FS Tax-Free Fund 166,974 91,599 70,179
FS Premium Money Market Fund(3) 114 N/A N/A
FS Treasury Instruments Fund(4) 112,501 N/A N/A
FS Federal Fund(5) 482,096 N/A N/A
- -------------------------------------------------------------------
</TABLE>
(1) FST Service Share activity commenced June 14, 1995.
(2) FST Service Share activity commenced May 16, 1995.
(3) FST Service Share activity commenced August 1, 1997.
(4) FST Service Share activity commenced March 5, 1997.
(5) FST Service Share activity commenced March 25, 1997.
As of December 31, 1997, FS Municipal Fund had not commenced operations.
The Trust has adopted each Service Plan pursuant to Rule 12b-1 under
the Investment Company Act in order to avoid any possibility that payments to
the Service Organizations pursuant to the Service Agreements might violate the
Investment Company Act. Rule 12b-1, which was adopted by the Securities and
Exchange Commission under the Investment Company Act, regulates the
circumstances under which an investment company such as the Trust may bear
expenses associated with the distribution of its securities. In particular,
such an investment company cannot engage directly or indirectly in financing any
activity which is primarily intended to result in the sale of securities issued
by the company unless it has adopted a plan pursuant to, and complies with the
other requirements of, such Rule. The Trust believes that fees paid for the
services provided in the Service Plans and described above are not expenses
incurred primarily for effecting the distribution of ILA Service Units, Cash
Management Shares or FST Service Shares. However, should such payments be
deemed by a court or the Securities and Exchange Commission to be distribution
expenses, such payments would be duly authorized by the Service Plans.
The Glass-Steagall Act prohibits all entities which receive deposits
from engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. Should future legislative or administrative action or judicial
or administrative decisions or interpretations prohibit or restrict the
activities of one or more of the Service Organizations in connection with the
Trust, such Service Organizations might be required to alter materially or
discontinue the services performed under their Service Agreements. If one or
more of the Service Organizations were restricted from effecting
-83-
<PAGE>
purchases or sales of ILA Service Units, Cash Management Shares or FST Service
Shares automatically pursuant to pre-authorized instructions, for example,
effecting such transactions on a manual basis might affect the size and/or
growth of the Series. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein and banks and
other financial institutions purchasing ILA Service Units, Cash Management
Shares or FST Service Shares on behalf of their customers may be required to
register as dealers pursuant to state law. Any such alteration or discontinuance
of services could require the Trustees of the Trust to consider changing the
Trust's method of operations or providing alternative means of offering ILA
Service Units, Cash Management Shares or FST Service Shares to customers of such
Service Organizations, in which case the operation of the Trust, its size and/or
its growth might be significantly altered. It is not anticipated, however, that
any alteration of the Trust's operations would have any effect on the net asset
value per unit or result in financial losses to any unitholder or shareholder.
Conflict of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in ILA Service Units, Cash Management Shares or FST Service Shares.
Service Organizations, including banks regulated by the Comptroller of the
Currency, the Federal Reserve Board or the Federal Deposit Insurance
Corporation, and investment advisers and other money managers subject to the
jurisdiction of the Securities and Exchange Commission, the Department of Labor
or State Securities Commissions, are urged to consult legal advisers before
investing fiduciary assets in ILA Service Units, Cash Management Shares or FST
Service Shares.
The Trustees of the Trust, including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Service Plans or the related Service
Agreements, most recently voted to approve the Service Plans and Service
Agreements at a meeting called for the purpose of voting on such Service Plans
and Service Agreements on April 22, 1998. They will remain in effect until May
1, 1999 and will continue in effect thereafter only if such continuance is
specifically approved annually by a vote of the Trustees in the manner described
above.
A Service Plan may not be amended to increase materially the amount to
be spent for the services described therein without approval of the ILA Service
Unitholders, Cash Management Shareholders or FST Service Shareholders of the
affected Series, and all material amendments of a Plan must also be approved by
the Trustees in the manner described above. A Service Plan may be terminated at
any time by a majority of the Board of Trustees as described above or by vote of
a majority of the outstanding ILA Service Units, Cash Management Shareholders or
FST Service Shares of the affected Series. The Service Agreements may be
terminated at any time, without payment of any penalty, by vote of a majority of
the Board of Trustees as described above or by a vote of a majority of the
outstanding ILA Service Units, Cash Management Shareholders or FST Service
Shares of the affected Series on not more than sixty (60) days' written notice
to any other party to the Service Agreements. The Service Agreements shall
terminate automatically if assigned. As long as the Service Plans are in
effect, the selection and nomination of those Trustees who are not interested
persons shall be determined by the discretion of the Trust's Nominating
Committee, which consists of all of the non-interested members of the
-84-
<PAGE>
Board of Trustees. The Trustees have determined that, in their judgment, there
is a reasonable likelihood that the Service Plans will benefit the Series and
holders of ILA Service Units, Cash Management Shares and FST Service Shares of
such Series. In the Trustees' quarterly review of the Service Plans and Service
Agreements, they will consider their continued appropriateness and the level of
compensation provided therein.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
AUTHORIZED DEALER SERVICE PLAN. As described in the Prospectus, the
ILA Prime Obligations Portfolio with respect to each of its ILA Class B and
Class C Units has adopted a non-Rule 12b-1 Authorized Dealer Service Plan (the
"Authorized Dealer Service Plans") pursuant to which Goldman Sachs and
Authorized Dealers are compensated for the provision of personal and account
maintenance services. The Authorized Dealer Service Plans have been most
recently approved by the Board of Trustees, including a majority of the non-
interested Trustees who have no direct or indirect financial interest in the
Authorized Dealer Service Plans, at a meeting held on April 22, 1998. With
respect to its ILA Class B and Class C Units, the ILA Prime Obligations
Portfolio's Authorized Dealer Service Plans provide for the compensation for
personal and account maintenance services at an annual rate of up to 0.25% of
the Portfolios average daily net assets attributable to ILA Class B and Class C
Units, respectively. For the fiscal year ended December 31, 1997, the ILA Prime
Obligations Portfolio paid Goldman Sachs $1,545 and $261 under the Service Plan
with respect to its Class B and Class C units respectively.
The Authorized Dealer Service Plans will remain in effect until May 1,
1999 and from year to year thereafter, provided that the continuance of such
service plan is approved annually by a majority vote of the Trustees of the
Trust, including a majority of the non-interested Trustees who have no direct or
indirect financial interest in the Authorized Dealer Service Plans. All
material amendments of the Authorized Dealer-Service Plans must also be approved
by the Trustees of the Trust in the manner described above. The Authorized
Dealer Service Plans may be terminated at any time as to the ILA Prime
Obligations Portfolio without payment of any penalty by a vote of a majority of
the non-interested Trustees of the Trust or by vote of a majority of the
outstanding ILA Class B and Class C Units of the ILA Prime Obligations
Portfolio. The Trustees of the Trust have determined that in their judgment
there is a reasonable likelihood that the Authorized Dealer Service Plan will
benefit the ILA Prime Obligations Portfolio and its ILA Class B and Class C
Unitholders.
DISTRIBUTION PLANS. As described in the Prospectuses, the Trust has
adopted distribution plans pursuant to Rule 12b-1 under the Investment Company
Act with respect to ILA Class B and Class C Units on behalf of the ILA Prime
Obligations Portfolio (the "Class B Distribution Plan" and "Class C Distribution
Plan," respectively), and with respect to Cash Management Shares on behalf of
the ILA Prime Obligations Portfolio, ILA Money Market Portfolio, ILA Government
Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio and ILA Tax-Exempt New York Portfolio (the "Cash Management Shares
Distribution Plan"). See "Distribution and Authorized Dealer Service Plans" in
the ILA Class B and Class C Units Prospectus and "Distribution Plan" in the Cash
Management Shares Prospectus.
-85-
<PAGE>
The Distribution Plans were most recently approved on April 23, 1998
on behalf of the Trust by a majority vote of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Trust
and have no direct or indirect financial interest in the Distribution Plans,
cast in person at a meeting called for the purpose of approving the Distribution
Plans.
With respect to the ILA Prime Obligations Portfolio, the compensation
payable under the Class B and Class C Distribution Plans is equal to 0.75% per
annum of the average daily net assets attributable to ILA Class B and Class C
Units, respectively, of that ILA Portfolio. The compensation payable under the
Cash Management Shares with respect to the ILA Prime Obligations Portfolio, ILA
Money Market Portfolio, ILA Government Portfolio, ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New York
Portfolio may not exceed 0.50% per annum of the average daily net assets
attributable to Cash Management Shares of such ILA Portfolio. Currently, Goldman
Sachs is limiting the fee payable by ILA Prime Obligations Portfolio, ILA Money
Market Portfolio, ILA Government Portfolio, ILA Tax-Exempt Diversified
Portfolio, ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New York
Portfolio to 0.07% of average daily net assets attributable to Cash Management
Shares. As of the date of this Statement of Additional Information, Goldman
Sachs has no intention of modifying or discontinuing such waivers and
limitation, but may do so in the future at its discretion.
The fees received by Goldman Sachs under the Class B Distribution
Plans and contingent deferred sales charges on ILA Class B Units may be sold by
Goldman Sachs as distributor to entities which provide financing for payments to
Authorized Dealers in respect of sales of ILA Class B Units. Goldman Sachs may
also pay up to the entire amount of its fee under the Distribution Plan to
Service Organizations or other institutions for providing services in connection
with the sale of Class C Units or Cash Management Shares. To the extent such
fees are not paid to such dealers, Goldman Sachs may retain such fee as
compensation for its services and expenses of distributing ILA Class B Units,
ILA Class C Units or Cash Management Shares. If such fee exceeds its expenses,
Goldman Sachs may realize a profit from these arrangements. For the fiscal year
ended December 31, 1997, the ILA Prime Obligations Portfolio paid Goldman Sachs
$4,635 under the Class B Distribution Plan. For the fiscal year ended December
31, 1997, the ILA Prime Obligations Portfolio paid Goldman Sachs $784 under the
Class C Distribution Plan.
The Distribution Plans are compensation plans which provide for the
payment of a specified distribution fee without regard to the distribution
expenses actually incurred by Goldman Sachs. If the Distribution Plans were
terminated by the Trust's Board of Trustees and no successor plan were adopted,
the ILA Prime Obligations Portfolio, ILA Money Market Portfolio, ILA Government
Portfolio, ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio and ILA Tax-Exempt New York Portfolio would cease to make distribution
payments to Goldman Sachs and Goldman Sachs would be unable to recover the
amount of any of its unreimbursed distribution expenditures. However, Goldman
Sachs does not intend to make expenditures for which it may be compensated under
the Cash Management Shares Distribution Plan at a rate that materially exceeds
the rate of compensation received under the Plan.
-86-
<PAGE>
Under the Class B, Class C and Cash Management Distribution Plans,
Goldman Sachs, as distributor of the Portfolio's ILA Class B Units, Class C
Units and Cash Management Shares, will provide to the Board of Trustees for its
review, and the Board will review at least quarterly, a written report of the
services provided and amounts expended by Goldman Sachs under the Class B, Class
C and Cash Management Distribution Plans and the purposes for which such
services were performed and expenditures were made.
The Distribution Plans will remain in effect from year to year,
provided such continuance is approved annually by a majority vote of the Board
of Trustees, including a majority of the non-interested Trustees. The
Distribution Plans may not be amended to increase materially the amount to be
spent for the services described therein as to a particular Portfolio without
approval of a majority of the outstanding Class B, Class C or Cash Management
Unitholders, as applicable, of that Portfolio. All material amendments to the
Distribution Plans must also be approved by the Board of Trustees of the Trust
in the manner described above. The Distribution Plans may be terminated at any
time without payment of any penalty by a vote of the majority of the non-
interested Trustees or by vote of a majority of the Class B, Class C or Cash
Management Units, as applicable, of the applicable Portfolio. So long as the
Distribution Plans are in effect, the selection and nomination of non-interested
Trustees shall be committed to the discretion of the non-interested Trustees.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Distribution Plans will benefit the applicable Portfolios
and their respective Unitholders.
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<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS/1/
MOODY'S INVESTORS SERVICE, INC.
Bond Ratings
- ------------
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in the
future.
Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A
categories. The modifier 1 indicates that the obligation ranks in the higher
end of the category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of the respective
category.
Short-Term Ratings
- ------------------
Prime-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
. Leading market positions in well established industries.
- -----------------------
/1/ The ratings indicated herein are believed to be the most recent
ratings available at the date of this Statement of Additional
Information for the securities listed. Ratings are generally given
to securities at the time of issuance. While the rating agencies may
from time to time revise such ratings, they undertake no obligation
to do so, and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the date of the
Portfolios' taxable year end.
A-1
<PAGE>
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
. Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
State and Municipal Obligations
- -------------------------------
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG" and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long- term risk.
Symbols used will be as follows:
MIG 1/VMIG 1 -- This designation denotes best quality enjoying strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
A short-term rating may also be assigned on an issue having a demand
feature-variable rate demand obligation. Such ratings will be designated as
VMIG to reflect such characteristics as payment upon periodic demand rather than
fixed maturity dates and payment relying on external liquidity. Additionally,
investors should be alert to the fact that the source of payment may be limited
to the external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met.
STANDARD & POOR'S RATINGS GROUP
Bond Ratings
- ------------
AAA: An obligation rated AAA has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
A-2
<PAGE>
AA: An obligation rated AA differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A: An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still very strong.
Plus (+) or Minus (-): The AA and A ratings may be modified by the
addition of a plus or minus sign to show relative standing within the category.
Short-Term Ratings
- ------------------
A-1: A short-term obligation rated A-1 is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations is
extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
MUNICIPAL NOTES
A Standard & Poor's note rating reflects the liquidity concerns and
market access risks unique to notes. Notes maturing in 3 years or less will
likely receive a note rating.
Note rating symbols are as follows:
SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess very strong characteristics will be given a plus (+)
designation.
SP-2 -- Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term of the
notes.
Standard & Poor's assigns "dual" ratings to all debt issues that have
a put option or demand feature as part of their structure.
The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, "AAA/A-1+"). With short-term demand debt, S&P's note rating symbols
are used with the commercial paper rating symbols (for example, "SP-1+/A-1+").
A-3
<PAGE>
DUFF & PHELPS, INC.
Bond Ratings
- ------------
AAA: The highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A: Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
Duff & Phelps applies modifiers, + and -, in the AA and A categories
for long-term fixed income securities. The modifier + indicates that the
security ranks in the higher end of the category: the modifier AA or A indicates
a mid-range ranking; and the modifier - indicates that the issue ranks in the
lower end of the category.
Commercial Paper/Certificates of Deposit
- ----------------------------------------
Duff 1: Commercial paper and certificates of deposit rated Duff 1 are
considered to have a very high certainty of timely payment. Liquidity factors
are excellent and are supported by good fundamental protection factors. Risk
factors are minor.
Duff & Phelps applies a plus and minus rating scale, Duff 1+, Duff 1
and Duff 1 - in the Duff 1 top grade category for short-term debt. The rating
Duff 1+ indicates that the security has the highest certainty of timely payment,
short-term liquidity, including internal operating factors and/or ready access
to alternative sources of funds, is clearly outstanding and safety is just below
risk-free U.S. Treasury short-term obligations; the rating Duff 1 indicates a
very high certainty of timely payment, liquidity factors are excellent and are
supported by good fundamental protection factors and risk factors are minimal;
and the rating Duff 1 - indicates a high certainty of timely payment, liquidity
factors are strong and are supported by good fundamental protection factors and
risk factors are very small.
Duff 2: Commercial paper and certificates of deposit rated Duff 2 are
considered to have a good certainty of timely payment. Liquidity factors and
company fundamentals are considered sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good and risk
factors are small.
A-4
<PAGE>
FITCH IBCA, INC.
AAA: Bonds which are rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
capacity for timely payment of financial commitments, which is unlikely to be
adversely affected by reasonably foreseeable events.
AA: Bonds which are rated AA are considered to be investment grade
and of very high credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+.
A: Bonds which are rated A are considered to be investment grade and
of high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher ratings.
Fitch IBCA applies plus (+) and minus (-) modifiers in the AA and A
categories to indicate the relative position of a credit within the rating
category.
Fitch's short-term ratings have a time horizon of less than 12 months
for most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F1: Short-term debt obligations rated F-1 are considered to be of
very strong credit quality. Those issues determined to possess exceptionally
strong credit quality and having the strongest capacity for timely payment may
be denoted with a plus ("+") sign designation.
F2: Short-term debt obligations rated F-2 are considered to be of
good credit quality. Issues assigned this rating have a satisfactory capacity
for timely payment of financial commitment, but the margin of safety is not as
great as for issues assigned F1 ratings.
A-5
<PAGE>
APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of
the firm's activities and serve as the basis for its distinguished reputation
among investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that
if we serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these
assets diminish, reputation is the most difficult to restore. We are dedicated
to complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have
an uncompromising determination to achieve excellence in everything we
undertake. Though we may be involved in a wide variety and heavy volume of
activity, we would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While
recognizing that the old way may still be the best way, we constantly strive to
find a better solution to a client's problems. We pride ourselves on having
pioneered many of the practices and techniques that have become standard in the
industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO. While individual creativity
is always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the firm and in their personal lives.
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and
securities firm with a number of distinguishing characteristics.
Privately owned and ranked among Wall Street's best capitalized firms,
with partners' capital of approximately $6.1 billion as of November 28, 1997.
With thirty-seven offices around the world, Goldman Sachs employs over
11,000 professionals focused on opportunities in major markets.
B-1
<PAGE>
The number one underwriter of all international equity issuers from
(1993-1996).
A research budget of $200 million for 1997.
Premier lead manager of negotiated municipal bond offerings over the
past six years (1990-1996).*
The number one lead manager of U.S. common stock offerings for the
past eight years (1989-1996).
The number one lead manager for initial public offerings (IPOs)
worldwide (1989-1996).
- ----------------------
* SOURCE: SECURITIES DATA CORPORATION. COMMON STOCK RANKING
====================================
EXCLUDES REITS, INVESTMENT TRUSTS AND RIGHTS.
B-2
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-standing client
relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs increases assets under management by 100% over 1996
B-3
<PAGE>
Goldman Sachs Trust
INSTITUTIONAL LIQUID ASSETS
. Prime Obligations Portfolio
. Money Market Portfolio
. Government Portfolio
. Treasury Obligations Portfolio
. Treasury Instruments Portfolio
. Federal Portfolio
. Tax-Exempt Diversified Portfolio
. Tax-Exempt California Portfolio
. Tax-Exempt New York Portfolio
Goldman
Sachs
ANNUAL REPORT
December 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------- --------------------------------
- -------------------------------- --------------------------------
Dear Shareholders:
We welcome this opportunity to provide you with a summary of the trends and
key events that affected the economy and the Goldman Sachs Institutional Liquid
Assets (ILA) Portfolios in 1997. It was another strong year for the funds,
during which time all of the portfolios outperformed or performed in line with
their respective IBC Financial Data, Inc. averages. Assets in the ILA
Portfolios totaled $9.1 billion as of December 31, 1997.
1997 IN REVIEW
Over the first quarter, the U.S. economy demonstrated significant strength,
with no sign of slowing. Employment data pointed to continued growth as
unemployment rates dropped, average hourly earnings rose and real consumer
spending surged. In March, in a show of concern over the pace of economic
growth, the Federal Reserve chose to raise short-term rates by 25 basis points.
When all was said and done, first quarter's real gross domestic product (GDP)
posted a robust 4.9% increase--although this was attributed to an increase in
inventories, typically a precursor of slower growth.
Economic data early in the second quarter, including New Home Sales, the
Employment Cost Index (ECI), GDP and durable goods, continued to point to
ongoing momentum in the economy. By June, there was no overwhelming evidence
that the economy had slowed to a sustainable growth pace. Nevertheless, Fed
officials seemed impressed with a slowdown in the pace of broad price measures,
and opted to maintain a neutral stance. Early third-quarter data initially
suggested that any slowdown perceived by the Fed represented a modified
correction from the first quarter's rapid growth, not the onset of a weaker
trend. However, as the quarter progressed, subdued inflationary pressures and a
slower pace of economic growth further lowered the probability that Fed
officials would tighten monetary policy in the months that remained in 1997.
In the final months of the fiscal year, financial turmoil in Asia's equity
markets spilled into the U.S. However, a number of factors, including Federal
Reserve Chairman Alan Greenspan's testimony and U.S. investors' overall
reaction to the market, quickly restored confidence that the U.S. market would
not suffer a significant downturn. Not surprisingly, at its November meeting,
the Fed chose to leave monetary policy on hold. As the fourth quarter drew to a
close, central bankers continued to be torn between their anxiety over
excessively rapid demand growth and rising wages on the domestic front and
their worries that the Asian crisis could spread to new regions and have a
negative impact on U.S. output and earnings prospects. Consequently, Fed
officials chose to maintain their "wait-and-see" stance on monetary policy and
await future market developments.
HISTORICAL YIELD CURVE (LIBOR)
[THE FOLLOWING TABLE WAS REPRESENTED BY A GRAPH IN THE PRINTED MATERIAL]
Maturity Yield
(months) 1996 1997
-------- ---- ----
1 5.50% 5.72%
3 5.56% 5.81%
6 5.60% 5.84%
9 5.69% 5.91%
12 5.79% 5.97%
The Federal funds rate began the year at 5.25% and ended the year at 5.50%. The
slope of the LIBOR yield curve steepened significantly over the course of the
year. By the end of 1997, the spread between one- and 12-month LIBOR moved to
plus 25 basis points.
Source: Goldman Sachs Fixed Income Database, reflecting London Interbank
Offered Rate (LIBOR).
STRATEGY
Taxable. The portfolios began the fiscal period with a short laddered
structure intended to be advantageous in the event of a steepening yield curve.
In March, the
1
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
Fed's decision to tighten led us to extend the portfolios'
weighted average maturities. Despite a market rally over the next several
months, we maintained these longer weighted average maturities due to a benign
inflationary environment and a "wait-and-see" Fed. In the second half of the
fiscal year, a period of Fed inactivity caused us to slightly extend the
portfolios' durations to the upper end of the neutral range in seeking to
capture incremental yield. We maintained this stance throughout November and
December.
Tax-Exempt. Early in the year, the tax-exempt money market portfolios assumed
defensive weighted average maturities, as we anticipated higher short-term
rates in the near future. As expected, this scenario played itself out in March
when the Fed tightened, and was magnified in April when larger than expected
tax payments caused the market to back up further. During the second half of
the year, we began to extend the weighted average maturities of the portfolios
as the likelihood of further Fed tightening faded.
SUMMARY FOR ILA PORTFOLIOS INSTITUTIONAL UNITS* AS OF 12/31/97
<TABLE>
<CAPTION>
SEC
7-DAY SEC 7-DAY 30-DAY WEIGHTED AVG.
CURRENT EFFECTIVE AVERAGE MATURITY
ILA PORTFOLIOS YIELD YIELD YIELD (DAYS)
- -------------- ------- --------- ------- -------------
<S> <C> <C> <C> <C>
Prime Obligations...................... 5.40% 5.55% 5.38% 50
Money Market........................... 5.49 5.64 5.43 41
Government............................. 5.35 5.50 5.31 45
Treasury Obligations................... 5.33 5.47 5.26 35
Treasury Instruments................... 5.13 5.26 5.15 39
Federal................................ 5.45 5.60 5.40 41
Tax-Exempt Diversified................. 3.72 3.79 3.48 49
Tax-Exempt California.................. 3.49 3.55 3.24 46
Tax-Exempt New York.................... 3.61 3.68 3.38 43
</TABLE>
*ILA offers three separate classes of units (Institutional, Administration and
Service), each of which is subject to different fees and expenses that affect
performance and entitle shareholders to different services. The Administration
and Service units offer financial institutions the opportunity to receive a fee
for providing administrative support services. The Administration units pay
0.15% plus 0.10% from the
adviser for a total of 0.25%. The Service units pay 0.40% plus 0.10% from the
adviser for a total of 0.50%. Furthermore, in addition to these classes, Prime
Obligations offers Class B and Class C shares, which are subject to a
distribution fee and an authorized dealer service fee and may be subject to
contingent deferred sales charges. Performance reflects fee waivers and expense
reimbursements. Had fees not been waived or expense reimbursed, performance
would be reduced. Past performance is no guarantee of future resulted. Yield
will vary. An investment in any one of the ILA Portfolios is neither insured
nor guaranteed by the U.S. Government nor is there any assurance that the Funds
will be able to maintain a stable net asset value of $1.00 per share. More
complete information, including management fees and expenses, is included in
the ILA Portfolios' prospectus or may be obtained by calling Goldman Sachs
Funds at 1-800-621-2550.
DOMESTIC CREDIT TRENDS POSITIVE
Domestic credit quality in 1997 continued its positive trend. It was the
third consecutive year of extraordinary stock market growth and record mergers
and acquisitions. It was the seventh straight year of growth for the U.S.
economy, with high employment, low inflation and relatively stable, low
interest rates. U.S. corporations and financial institutions reported strong
earnings as a result of the strong economic environment, as well as from
previous cost-cutting and consolidation moves.
The improvement in credit strength was broad-based, except in the consumer
credit sector, which continued its downward trend. Consumer bankruptcy filings
set another record high of 1.3 million cases in 1997. Credit card loan
delinquencies, however, began to stabilize by the end of the year. These
consumer credit problems had a negative impact on the financial sector,
including serious problems in the sub-prime auto lending industry. The Credit
Department's experienced team of financial institutions analysts closely
monitored consumer credit quality trends.
2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
THE CREDIT PICTURE ABROAD: ASIA IN TROUBLE, EMU ON COURSE
The international credit environment in 1997 was dominated by the Asian
financial crisis and the apparent resolution of European Monetary Union's (EMU)
likely course. Thailand's forced currency devaluation in July set off a
financial fire that found ample fuel in the region's highly leveraged
economies. Even higher rated securities were affected; for example, Hong Kong
weathered various shocks flowing from Southeast Asia. At the time this report
was written, there were no Asian-issued holdings in any of the ILA money market
portfolios.
In Europe, the second half of the year presented a more positive picture than
the first part of the year. A "euroland" of 11 countries now appears on track,
with almost every government producing better than expected fiscal results and
unexpectedly strong economies. Yields and asset prices have begun to achieve a
measure of convergence across the Continent, while the rating agencies have
begun to clarify their (differing) approaches to creditworthiness under the
euro. Just as important, political resistance to EMU has been effectively
controlled despite stubbornly high unemployment. The combination of Europe's
improving performance and the U.S.'s continuing robust health has helped to
mute the broader contagion effects from Asia so far, though such effects may
become more potent if Asia's trouble continues well into 1998.
The year ahead will likely be more difficult for the domestic economy, with
the uncertain outlook in Europe and Asia. The Goldman Sachs Credit Department,
with its analysts based in London, Tokyo, Frankfurt and New York, as well as
extensive technological assets and credit expertise, will continue to
anticipate and monitor global developments and apply its conservative credit
standards to the money market portfolios.
OUTLOOK AND STRATEGIES FOR 1998
The pivotal factor in the U.S. economic outlook for 1998 is the tug of war
between the trade drag from Asia and the strength of the domestic economy. Asia
will most likely dominate the first half of the year while the tight U.S. labor
market is likely to have an impact in the second half of the year.
This view is dependent upon the behavior of the U.S. stock market, which has
boosted spending in both
households and businesses in recent years. A decline in the stock market could
hurt consumer spending and keep the Fed on hold throughout the year.
Providing there are no new disturbances relative to the Asian markets or
domestic financial asset prices, we anticipate that the Fed will hold off on
making policy changes for some time to come. With no signs of inflation and the
U.S. dollar ever stronger with respect to foreign markets, Chairman Greenspan
and the Fed have good reason to "wait and see" how events unfold overseas
before making any decisions that could prove destabilizing in the short-term
and whose long-term impact would be uncertain.
With the Fed on hold for the near-term, we expect to position the portfolios
with neutral weighted average maturities. However, a steepening yield curve
would give us the incentive to extend the weighted average maturities on all
portfolios, as any Fed tightening in 1998 is likely to be modest.
In closing, we thank you for your support and for making 1997 a year of
record assets for the ILA money market portfolios. As in the past, we will
continue to look for additional ways to improve our services, while seeking to
provide you with competitive performance. We welcome your suggestions and
questions, and look forward to another strong year in 1998.
Sincerely,
/s/ Kaysie Uniacke
Kaysie Uniacke
Portfolio Manager
February 2, 1998
3
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA PRIME OBLIGATIONS PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS--29.3%
BANK HOLDING COMPANIES
Bankers Trust Securities Corp.
$10,000,000 5.67% 06/09/98 $ 9,749,575
BUSINESS CREDIT INSTITUTIONS
General Electric Cap Corp.
20,000,000 5.69 02/12/98 19,867,233
20,000,000 5.67 03/13/98 19,776,350
COMMERCIAL BANKS
CP Trust Certificates Series 1996-1
35,000,000 6.22(a) 03/30/98 35,000,000
HOME BUILDERS
First Data Corp.
15,000,000 5.63 06/16/98 14,610,592
PHH Corp.
25,000,000 5.60 01/30/98 24,887,222
LIFE INSURANCE
Metlife Funding Inc.
30,000,000 5.68 01/23/98 29,895,867
RECEIVABLE/ASSET FINANCINGS
Ciesco LP
23,000,000 5.55 01/23/98 22,921,992
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES
Bear Stearns Companies, Inc.
30,000,000 5.62 01/29/98 29,868,867
10,000,000 5.71 02/17/98 9,925,714
Merrill Lynch & Co., Inc.
10,000,000 5.97 08/14/98 10,000,000
Morgan Stanley Dean Witter, Inc.
10,000,000 5.69 02/23/98 9,916,231
20,000,000 5.74 03/11/98 19,779,967
20,000,000 5.64 06/01/98 19,526,867
Smith Barney Holdings, Inc.
10,000,000 5.70 02/11/98 9,935,083
- ---------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER AND CORPORATE OBLIGATIONS $285,661,560
- ---------------------------------------------------------------------------------------------------
BANK NOTES--13.0%
Bank of Boston, N.A.
$20,000,000 5.75% 02/17/98 $ 20,000,000
10,000,000 5.99 08/13/98 10,000,000
10,000,000 5.97 10/21/98 10,000,000
Comerica Bank Detroit
15,000,000 6.00 03/27/98 14,994,334
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANK NOTES (CONTINUED)
FCC National Bank
$20,000,000 6.01%(a) 07/06/98 $ 19,997,080
Huntington National Bank
12,000,000 5.82 11/13/98 11,996,023
Morgan Guaranty Trust Co.
15,000,000 6.02 03/25/98 14,996,809
Wachovia Bank, N.A.
25,000,000 5.60 01/12/98 25,000,000
- -------------------------------------------------------------------------------------------------
TOTAL BANK NOTES $126,984,246
- -------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES(A)--46.1%
American Express Centurion Bank
$ 5,000,000 5.93% 01/20/98 $ 5,000,000
5,000,000 5.95 01/13/98 5,000,000
5,000,000 5.97 01/08/98 5,000,000
Bank One Columbus, N.A.
25,000,000 5.55 01/06/98 24,992,895
Bank One Texas
25,000,000 5.55 01/06/98 24,990,422
Comerica Bank Detroit
15,000,000 5.88 01/15/98 14,997,060
20,000,000 5.90 01/15/98 19,998,703
Commonwealth Life Insurance Co.
35,000,000 5.86 01/01/98 35,000,000
20,000,000(c) 5.86 09/04/98 20,000,000
Corestates Bank, N.A.
20,000,000 5.93 01/02/98 20,000,000
5,000,000 5.96 01/06/98 5,000,000
FCC National Bank
10,000,000 5.74 01/28/98 9,995,574
20,000,000 6.16 01/28/98 19,996,658
First Bank, N.A.
35,000,000 5.86 01/21/98 34,993,214
15,000,000 5.87 01/21/98 14,996,964
First Union Corporation
40,000,000 6.06 02/24/98 40,015,359
Merrill Lynch & Co., Inc.
10,000,000 5.65 01/05/98 9,999,711
10,000,000 5.94 01/13/98 9,999,620
10,000,000 5.96 01/12/98 9,999,627
New York Life Insurance
10,000,000 5.89 03/03/98 10,000,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (CONTINUED)
Pacific Mutual Life Insurance Co.
$25,000,000 5.66% 01/01/98 $ 25,000,000
PNC Bank, N.A.
25,000,000 5.89 01/09/98 24,990,381
10,000,000 5.91 01/09/98 9,999,874
Southtrust Bank of Alabama, N.A.
40,000,000 5.91 01/02/98 39,996,167
SMM Trust Series 1997-x
10,000,000 6.00 01/12/98 10,000,000
- ------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND NOTES $449,962,229
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--11.3%
Bankers Trust Securities Corp.
$25,000,000 5.78% 06/18/98 $ 25,000,000
15,000,000 5.79 06/18/98 15,000,000
Chase Manhattan Bank U.S.A.
25,000,000 5.64 01/14/98 25,000,000
Chase Manhattan Bank, N.A.
15,000,000 5.75 02/17/98 15,000,000
Morgan Guaranty Trust Co.
15,000,000 5.91 03/19/98 14,998,790
Regions Bank
15,000,000 6.00 03/18/98 14,999,401
- ------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT $109,998,191
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.2%
Joint Repurchase Agreement Account(d)
$ 2,000,000 6.40% 01/02/98 $ 2,000,000
- ------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT $ 2,000,000
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $974,606,226(b)
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(a) Variable rate security-base index is either U.S. Treasury Bill, one or
three month LIBOR, one month commercial paper, Federal Funds, or Prime
lending rate.
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
(c) When-issued security.
(d) Portions of these securities are being segregated for when-issued
securities.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest date for floating rate securities, or the prerefunded date for those
type of securities.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA MONEY MARKET PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS--34.5%
BANK HOLDING COMPANIES
BUSINESS CREDIT INSTITUTIONS
General Electric Capital Corp.
$40,000,000 5.55% 01/20/98 $ 39,882,833
COMMERCIAL BANKS
CP Trust Certificates Series 1996-1
20,000,000 6.22(a) 03/30/98 20,000,000
ELECTRIC COMPANIES
Mitsui & Co U.S.A.
15,000,000 5.65 01/26/98 14,941,146
FOREIGN BANKS
Banca Crt Financial Corp.
14,000,000 6.05 02/12/98 13,901,183
11,600,000 6.05 02/13/98 11,516,174
6,000,000 6.05 02/17/98 5,952,608
17,000,000 6.05 02/24/98 16,845,725
BCI Funding Corporation
10,000,000 5.52 01/09/98 9,987,733
Cades
20,000,000 5.63 05/29/98 19,537,089
5,000,000 5.68 06/10/98 4,873,778
Cariplo Finance
10,000,000 5.65 01/08/98 9,989,014
Credit Suisse First Boston
25,000,000 5.52 01/08/98 24,973,167
11,000,000 5.70 01/15/98 10,975,617
Rose One
15,000,000 5.73 02/27/98 14,863,913
Unifunding Inc.
25,000,000 5.52 01/05/98 24,984,667
RECEIVABLE/ASSET FINANCINGS
Dakota Certificates
20,000,000 5.53 01/05/98 19,987,711
Delaware Funding
13,724,000 5.69 02/20/98 13,615,542
Enterprise Funding Corporation
10,636,000 5.72 01/22/98 10,600,511
Windmill Funding
25,000,000 5.65 01/23/98 24,913,681
10,000,000 5.70 02/25/98 9,912,917
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS (CONTINUED)
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES
Bear Stearns Companies, Inc.
$25,000,000 5.62% 01/29/98 $ 24,890,722
10,000,000 5.71 02/17/98 9,925,453
Morgan Stanley Dean Witter, Inc.
25,000,000 5.69 02/23/98 24,790,576
Smith Barney Holdings, Inc.
10,000,000 5.70 02/11/98 9,935,082
- -----------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER AND CORPORATE OBLIGATIONS $ 391,796,842
- -----------------------------------------------------------------------------------------------
BANK NOTES--2.0%
Huntington National Bank
$ 3,000,000 5.82% 11/13/98 $ 2,999,006
Morgan Guaranty Trust Co.
10,000,000 5.93 08/31/98 9,997,465
Westpac Banking Corp., New York
10,000,000 5.97 03/23/98 9,998,301
- -----------------------------------------------------------------------------------------------
TOTAL BANK NOTES $ 22,994,772
- -----------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN EURODOLLAR--3.8%
Norinchukin Bank, London
$ 8,000,000 6.27% 01/20/98 $ 8,000,063
Sanwa Bank Limited, London
10,000,000 6.12 01/14/98 10,000,036
25,000,000 5.79 01/26/98 25,000,171
- -----------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN
EURODOLLAR $ 43,000,270
- -----------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEEDOLLAR--14.5%
Bank of Tokyo Mitsubishi, New York
$12,000,000 6.00% 01/14/98 $ 12,000,000
Canadian Imperial Bank of Commerce, New York
15,500,000 5.94 03/17/98 15,499,086
Credit Agric Indosuez, New York
15,000,000 5.95 08/13/98 14,995,601
Landesbank Hessen Thuringen, New York
20,000,000 5.93 06/30/98 19,988,598
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT - YANKEEDOLLAR (CONTINUED)
Norinchukin Bank, New York
$22,000,000 5.73% 01/05/98 $ 22,000,000
15,000,000 5.68 01/07/98 15,000,025
Rabobank Nederland, New York
35,000,000 6.07 03/26/98 34,996,924
5,000,000 6.05 03/27/98 4,998,667
Royal Bank of Canada, New York
10,000,000 5.81 06/03/98 10,000,000
Societe Generale, New York
5,000,000 5.91 10/15/98 4,997,745
10,000,000 5.91 10/20/98 9,992,736
- -------------------------------------------------------------------------------------------------
$ 164,469,382
TOTAL CERTIFICATES OF DEPOSIT - YANKEEDOLLAR
- -------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES(A)--41.3%
Abbey National
$50,000,000 5.86% 01/15/98 $ 49,982,361
ABN/AMRO Bank, New York
11,000,000 6.17 01/02/98 10,999,034
American Express Centurion Bank
5,000,000 5.93 01/20/98 5,000,000
5,000,000 5.95 01/13/98 5,000,000
5,000,000 5.97 01/08/98 5,000,000
Bank One Columbus, N.A.
25,000,000 5.55 01/06/98 24,992,895
Bayerische Landesbank
35,000,000 5.84 01/26/98 34,986,872
Comerica Bank Detroit
20,000,000 5.88 01/15/98 19,996,080
17,500,000 5.90 01/05/98 17,498,865
Commonwealth Life Insurance Co.
25,000,000(c) 5.86 09/04/98 25,000,000
Corestates Bank, N.A.
20,000,000 5.95 01/05/98 20,000,000
5,000,000 5.96 01/06/98 5,000,000
Dauphin Deposit Bank & Trust
10,000,000 5.66 02/04/98 9,997,713
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (CONTINUED)
Den Danske Bank, New York
$15,000,000 5.92% 01/26/98 $ 14,999,302
25,000,000 5.93 01/15/98 24,998,618
FCC National Bank
10,000,000 5.74 01/28/98 9,995,574
30,000,000 6.16 01/02/98 29,994,986
First Bank, N.A.
15,000,000 5.87 01/21/98 14,996,964
JP Morgan & Co., Inc.
10,000,000 5.64 06/19/98 9,735,233
Merrill Lynch & Co., Inc.
10,000,000 5.94 01/13/98 9,999,620
10,000,000 5.96 01/12/98 9,999,627
Morgan Stanley Dean Witter, Inc.
15,000,000(c) 5.54 01/15/99 14,998,577
New York Life Insurance
10,000,000 5.89 03/03/98 10,000,000
PNC Bank, N.A.
15,000,000 5.89 01/28/98 14,994,229
10,000,000 5.91 01/09/98 9,999,874
SMM Trust Series 1997-x
10,000,000 6.00 01/12/98 10,000,000
Societe Generale, New York
5,000,000 6.19 01/02/98 4,999,667
Southtrust Bank of Alabama, N.A.
20,000,000 5.91 01/02/98 19,998,083
U.S. Bank, N.A.
15,000,000 6.21 03/18/98 15,035,848
10,000,000 6.24 03/10/98 10,024,395
- -------------------------------------------------------------------------------------------------
$ 468,224,417
TOTAL VARIABLE RATE DEMAND NOTES
- -------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--2.2%
Chase Manhattan Bank U.S.A.
$25,000,000 5.64%(a) 01/14/98 $ 25,000,000
- -------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT $ 25,000,000
- -------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA MONEY MARKET PORTFOLIO (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--2.8%
Joint Repurchase Agreement Account(d)
$32,000,000 6.40% 01/02/98 $ 32,000,000
- ---------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT $ 32,000,000
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $1,147,485,683(b)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Variable rate security-base index is either U.S. Treasury Bill, one or
three month LIBOR, one month commercial paper, Federal Funds, or Prime
lending rate.
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
(c) When-issued security.
(d) Portions of these securities are being segregated for when-issued
securities.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those type of securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA GOVERNMENT PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--49.9%
Federal Farm Credit Bank
$ 8,000,000 5.45% 03/03/98 $ 7,992,123
50,000,000 5.80(a) 04/14/98 49,987,517
15,000,000 5.70 12/01/98 14,985,535
12,000,000 5.65(c) 01/04/99 11,982,600
Federal Home Loan Bank
8,000,000 5.67 03/10/98 7,996,769
25,000,000 5.79 03/18/98 24,996,196
6,485,000 5.71 10/01/98 6,483,512
Federal Home Loan Mortgage Corp.
8,000,000 5.72 03/17/98 7,997,870
18,000,000 5.77(a) 03/20/98 17,996,380
Federal National Mortgage Association
75,000,000 5.59(a) 01/15/98 74,998,275
10,000,000 5.79 03/25/98 9,995,584
23,000,000 6.02 04/15/98 22,993,119
10,000,000 5.89 05/21/98 9,996,836
Student Loan Marketing Association
8,200,000 5.79 09/16/98 8,200,937
- ---------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $276,603,253
- ---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--52.2%
CIBC Oppenheimer, Dated 12/31/97, Repurchase Price $25,009,028 (Total
Collateral Value $25,504,324 consisting of U.S. Treasury Notes: 6.50%-
6.625%, 07/31/01-08/15/05)
$ 25,000,000 6.50% 01/02/98 $ 25,000,000
Deutsche Morgan Grenfell, Dated 12/31/97, Repurchase Price $25,009,444
(Total Collateral Value $25,500,784 consisting of FNMA: 02/02/98-02/11/00;
U.S. Treasury Bills: 01/29/98-04/30/98; U.S. Treasury Bond: 11.75%,
02/15/01; U.S. Treasury Notes: 5.875%-7.75%, 02/28/99-05/15/07; U.S.
Treasury Stripped Interest only Securities: 11/15/01-08/15/05)
25,000,000 6.80 01/02/98 25,000,000
Goldman, Sachs & Co., Dated 12/10/97, Repurchase Price $25,356,250 (FNMA:
$25,500,000, 6.50%, 08/01/02)
25,000,000 5.70 03/09/98 25,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Lehman Brothers Inc., Dated 12/31/97, Repurchase Price $25,009,167 (Total
Collateral Value $25,502,919 consisting of FHLMC Pool: 7.0%-9.5%,
06/01/02-07/01/27)
$ 25,000,000 6.60% 01/02/98 $ 25,000,000
Morgan Stanley & Co., Dated 10/28/97, Repurchase Price $50,700,000 (Total
Collateral Value $51,230,758 consisting of FHLMC Pool: 5.5%-8.5%,
01/01/99-12/01/27)
50,000,000 5.60 01/26/98 50,000,000
Nomura Securities International Inc., Dated 12/31/97, Repurchase Price
$25,009,583 (FNMA: $25,553,189, 6.57%, 06/20/02)
25,000,000 6.90 01/02/98 25,000,000
Joint Repurchase Agreement Account(d)
114,300,000 6.40 01/02/98 114,300,000
- -------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $289,300,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $565,903,253(b)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) Variable rate security-base index is either Federal Funds, Prime lending
rate, or one month LIBOR
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
(c) When-issued security.
(d) Portions of these securities are being segregated for when-issued
securities.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest date for floating rate securities, or the prerefunded date for those
type of securities.
The percentages shown for each investment category reflects the value of the
investments in that category as a percentage of total net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TREASURY OBLIGATIONS PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--15.8%
United States Treasury Notes
$ 10,000,000 7.25% 02/15/98 $ 10,018,359
15,000,000 6.13 03/31/98 15,009,143
39,000,000 7.88 04/15/98 39,205,303
15,000,000 6.25 07/31/98 15,045,683
10,000,000 4.75 08/31/98 9,934,688
15,000,000 5.88 10/31/98 15,018,861
5,000,000 5.75 12/31/98 5,001,085
20,000,000 5.88 01/31/98 20,040,523
- ---------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS $129,273,645
- ---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--84.3%
Bear Stearns Companies, Inc., Dated 12/31/97, Repurchase Price $35,012,153
(U.S. Treasury Bill: $35,725,759, 01/02/98)
$ 35,000,000 6.25% 01/02/98 $ 35,000,000
BZW Securities, Dated 12/31/97, Repurchase Price $35,012,882 (U.S. Treasury
Note: $35,700,057, 5.875%, 11/15/99)
35,000,000 6.63 01/02/98 35,000,000
C.S. First Boston Corp., Dated 12/31/97, Repurchase Price $30,419,042 (Total
Collateral Value $30,636,345 consisting of U.S. Treasury Interest Only
Stripped Securities: 02/15/99-08/15/06)
30,000,000 5.65 03/10/98 30,000,000
CIBC Oppenheimer, Dated 12/31/97, Repurchase Price $35,012,639 (Total
Collateral Value $35,700,652 consisting of U.S. Treasury Notes: 6.0%-7.0%,
08/15/00-07/15/06)
35,000,000 6.50 01/02/98 35,000,000
Deutsche Morgan Grenfell, Dated 12/31/97, Repurchase Price $35,013,222
(Total Collateral Value $35,700,788 consisting of U.S. Treasury Notes:
5.75%-7.25%, 2/28/99-5/15/06; U.S. Treasury Stripped Interest only
Security: 2/15/02)
35,000,000 6.80 01/02/98 35,000,000
Goldman, Sachs & Co., Dated 12/31/97, Repurchase Price $35,012,639 (U.S.
Treasury Note: $35,700,065, 5.625%, 11/30/99)
35,000,000 6.50 01/02/98 35,000,000
JP Morgan Securities, Inc., Dated 12/31/97, Repurchase Price $35,012,153
(U.S. Treasury Note: $36,312,500, 6.25%, 02/28/02)
35,000,000 6.25 01/02/98 35,000,000
Lehman Brothers Inc., Dated 12/31/97, Repurchase Price $35,012,542 (U.S.
Treasury Note: $35,698,470, 5.625%, 11/30/99)
35,000,000 6.45 01/02/98 35,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Merrill Lynch Government Securities, Inc., Dated 12/31/97, Repurchase
Price $35,012,639 (Total Collateral Value $35,702,260 consisting of U.S.
Treasury Stripped Interest only Securities: 08/15/03-05/15/04)
$ 35,000,000 6.50% 01/02/98 $ 35,000,000
Morgan Stanley & Co., Dated 12/31/97, Repurchase Price $35,012,153 (U.S.
Treasury Note: $35,704,378, 5.125%, 03/31/98)
35,000,000 6.25 01/02/98 35,000,000
Nomura Securities International, Inc., Dated 12/31/97, Repurchase Price
$35,014,097 (U.S. Treasury Note: $35,014,097, 6.0%, 06/30/99)
35,000,000 7.25 01/02/98 35,000,000
UBS Securities, Inc., Dated 12/31/97, Repurchase Price $35,012,736
(U.S. Treasury Note: $38,368,750 7.875%, 08/15/01)
35,000,000 6.55 01/02/98 35,000,000
Joint Repurchase Agreement Account
275,500,000 6.40 01/02/98 275,500,000
- -------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $690,500,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $819,773,645(a)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TREASURY INSTRUMENTS PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--98.8%
U.S. Treasury Bills
$ 90,900,000 5.19% 01/22/98 $ 90,624,800
5,000,000 4.95 02/12/98 4,971,125
11,300,000 5.10 02/12/98 11,232,765
13,400,000 5.12 02/12/98 13,319,957
U.S. Treasury Notes
175,000,000 5.00 01/31/98 174,901,395
25,000,000 5.63 01/31/98 24,995,265
150,000,000 7.25 02/15/98 150,299,338
70,000,000 5.13 02/28/98 69,940,374
75,000,000 7.88 04/15/98 75,492,375
25,000,000 5.13 04/30/98 24,969,978
75,000,000 6.00 05/31/98 75,125,148
- -------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS $715,872,520
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $715,872,520(a)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentages shown for each category reflect the value of investments in
that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA FEDERAL PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--102.9%
Federal Farm Credit Bank
$ 50,000,000 5.53%(a) 01/02/98 $ 49,999,898
59,000,000 5.40 01/02/98 58,991,150
75,000,000(c) 5.50(a) 01/04/98 75,000,000
15,000,000 5.73 01/06/98 14,988,063
10,000,000 5.60 01/08/98 9,989,111
19,820,000 5.58 01/14/98 19,780,063
25,000,000 5.65 01/15/98 24,945,069
5,000,000 5.45 01/16/98 4,988,646
17,000,000 5.45-5.77 01/21/98 16,947,283
14,000,000 5.45 01/22/98 13,955,492
11,600,000 5.48 01/26/98 11,555,856
20,000,000 5.58 01/30/98 19,910,100
24,000,000 5.62 01/30/98 23,891,347
50,000,000 5.53(a) 01/30/98 49,985,210
210,000,000 5.50(a) 02/02/98 210,000,000
21,300,000 5.53-5.65 02/02/98 21,260,165
10,000,000 5.62 02/09/98 9,939,117
34,945,000 5.49 02/11/98 34,726,705
64,000,000 5.60 02/18/98 63,522,133
45,000,000 5.56 03/02/98 44,583,000
45,000,000 5.45 03/03/98 44,955,764
11,636,000 5.59 03/12/98 11,509,523
100,000,000(d) 6.05 05/01/98 99,992,295
10,000,000 5.49 06/15/98 9,748,375
20,000,000 5.75 09/11/98 19,987,523
30,000,000 5.70 12/01/98 29,971,069
Federal Home Loan Bank
50,600,000 4.90-5.72 01/02/98 50,592,782
50,000,000 5.73 01/06/98 49,960,208
42,590,000 5.55 01/07/98 42,550,604
43,000,000 5.67 01/14/98 42,911,958
134,805,000 5.44-5.50 01/16/98 134,498,642
101,800,000 5.50-5.75 01/21/98 101,476,749
95,131,000 5.48-5.65 02/11/98 94,535,437
146,100,000 5.48-5.65 02/13/98 145,134,333
80,510,000 5.50-5.65 02/18/98 79,912,846
15,000,000 5.61 03/04/98 14,855,075
25,000,000 5.67 03/10/98 24,989,903
116,000,000 5.79(a) 03/18/98 115,982,351
46,100,000 5.37-5.52 04/01/98 45,466,858
125,000,000 5.82(a) 04/14/98 124,973,996
20,000,000 5.59 04/22/98 19,655,283
50,000,000 5.77 07/07/98 49,975,070
50,000,000 5.74(a) 09/17/98 49,972,088
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal Home Loan Bank (continued)
$ 75,000,000 5.75%(a) 10/02/98 $ 74,956,136
30,000,000 5.70 10/23/98 29,977,936
Student Loan Marketing Association
25,000,000 5.10 01/02/98 24,996,458
60,000,000 5.47-5.48 01/27/98 59,762,714
20,000,000 5.79 09/16/98 20,012,372
Tennessee Valley Authority
64,700,000 5.48 01/13/98 64,581,815
25,000,000 5.58 02/05/98 24,864,375
15,000,000 5.47 02/10/98 14,908,833
25,000,000 5.51 02/20/98 24,808,681
25,000,000 5.57 02/24/98 24,791,125
50,000,000 5.57 03/09/98 49,481,681
15,000,000 5.57 03/11/98 14,839,863
50,000,000 5.58 03/13/98 49,449,750
30,000,000 5.57 03/20/98 29,637,950
- -------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $ 2,689,636,828
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION--0.2%
U.S. Treasury Bill
$ 5,300,000 5.12% 02/12/98 $ 5,268,342
- -------------------------------------------------------------------------------------
TOTAL INVESTMENTS $2,694,905,170(b)
- -------------------------------------------------------------------------------------
</TABLE>
(a) Variable rate security-base index is either U.S. Treasury Bill, one or
three month LIBOR, Federal Funds, Prime lending rate, or 30 day discount
note rate.
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
(c) When-issued security.
(d) Portions of these securities are being segregated for when-issued
securities.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those type of securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
12
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT DIVERSIFIED PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA--5.8%
Columbia IDB PCRB for Alabama Power Co. Series 1996 A (A-1/VMIG1)
$17,800,000 4.80% 01/02/98 $ 17,800,000
Columbia IDB PCRB for Alabama Power Co. Series 1995 B (A-1/VMIG1)
21,700,000 4.80 01/07/98 21,700,000
Homewood RB for Samford University (Bank of Nova Scotia LOC)
(A-1+/MIG1)
30,800,000 4.80 01/02/98 30,800,000
Mobile County IDA PCRB for M&T Chemicals Series 1984
(Bankers Trust Company LOC)(A1)
3,000,000 4.275 01/07/98 3,000,000
Mobile IDA PCRB for Alabama Power Series 1993A(A-1/VMIG1)
8,600,000 4.10 01/07/98 8,600,000
Montgomery Special Care RB Series 1994 A (Amsouth Bank LOC) (VMIG1)
6,720,000 4.20 01/07/98 6,720,000
- ---------------------------------------------------------------------------------------------------
$ 88,620,000
- ---------------------------------------------------------------------------------------------------
ARKANSAS--1.2%
Crossett PCRB for Georgia Pacific Corp. Series 1991
(Suntrust Bank LOC)(AA3)
$ 9,500,000 4.20% 01/07/98 $ 9,500,000
Union County PCRB Series 1988 for Great Lakes Chemical(A-1+)
9,000,000 4.25(c) 01/07/98 9,000,000
- ---------------------------------------------------------------------------------------------------
$ 18,500,000
- ---------------------------------------------------------------------------------------------------
CALIFORNIA--2.0%
California School Cash Reserve Program, 1997 Pool Bonds Series A (Ambac
Assurance Corporation)(SP-1+/MIG1)
$ 6,000,000 4.75% 07/02/98 $ 6,025,469
Los Angeles County, 1997-98 TRANS, Series A(SP-1+/MIG1)
24,500,000 4.50 06/30/98 24,576,245
- ---------------------------------------------------------------------------------------------------
$ 30,601,714
- ---------------------------------------------------------------------------------------------------
COLORADO--1.2%
Colorado Health Facilities Authority Series 1992 C(A-1+/VMIG1)
$ 5,400,000 4.15% 01/07/98 $ 5,400,000
Denver Airport System Subordinate RB Series 1997 B (Westdeutsche Landesbank
Girozentrale)(A-1+/VMIG1)
13,000,000 4.10 01/07/98 13,000,000
- ---------------------------------------------------------------------------------------------------
$ 18,400,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DISTRICT OF COLUMBIA--1.3%
District of Columbia VRDN ACES for Georgetown University Series 1988 B
Bayerische LandesBank Girozentrale LOC (A-1+/VMIG1)
$ 6,875,000 3.80% 01/07/98 $ 6,875,000
District of Columbia VRDN ACES for Georgetown University Series 1988 C(A-
1+/VMIG1)
5,100,000 3.80 01/07/98 5,100,000
District of Columbia VRDN ACES for Georgetown University Series 1988 E(A-
1+/VMIG1)
1,100,000 3.80 01/07/98 1,100,000
HFA MF Hsg. for Mclean Gardens South Apartments VRDN (Sumitomo Bank
LOC)(VMIG1)
7,000,000 4.35 01/07/98 7,000,000
- --------------------------------------------------------------------------------------------------
$ 20,075,000
- --------------------------------------------------------------------------------------------------
FLORIDA--2.4%
Florida Pooled Commercial Paper Notes Series A (First Union National Bank
of Florida)(A-1/P-1)
$27,445,000 3.90% 01/14/98 $ 27,445,000
Putnam County Development Authority VRDN PCRB For Seminole Electric Series
1984 H CFC (A-1+/P-1)
9,000,000 3.85 01/07/98 9,000,000
- --------------------------------------------------------------------------------------------------
$ 36,445,000
- --------------------------------------------------------------------------------------------------
GEORGIA--13.8%
Albany Dougherty PCRB for Philip Morris Company(A-1/P-1)
$17,000,000 3.90% 01/07/98 $ 17,000,000
Albany Dougherty PCRB Series 1991 for Georgia Power Co.(VMIG1)
2,120,000 4.20 01/07/98 2,120,000
Atlanta Water & Sewer RB Eagle Tax-exempt Trust Class A Series 1997
(Financial Guaranty Insurance Company)(A1+C)
10,500,000 4.27 01/07/98 10,500,000
Bartow County PCRB for Georgia Power Co. Series 1997 (VMIG1)
29,000,000 4.80 01/07/98 29,000,000
Burke County PCRB for Georgia Power Co. Fifth Series 1995 (MIG1)
5,100,000 5.05 01/02/98 5,100,000
Burke County PCRB for Georgia Power Co. 1st Series 1992 (VMIG1)
12,425,000 4.20 01/07/98 12,425,000
Burke County PCRB for Georgia Power Co. Eighth Series 1994
(A-1/VMIG1)
1,600,000 5.05 01/02/98 1,600,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT DIVERSIFIED PORTFOLIO (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GEORGIA (CONTINUED)
Burke County PCRB for Georgia Power Co. Ninth Series 1994
(A-1/VMIG1)
$11,200,000 5.05% 01/02/98 $ 11,200,000
Burke County PCRB for Oglethorpe Power Corp. Series 1993A (FGIC)(A-1+)
7,350,000 3.65 01/07/98 7,350,000
Cobb County Institute of Nuclear Operations Inc. VRDN for Georgia Power Co.
(Suntrust Bank LOC)(AA3)
5,525,000 4.20 01/07/98 5,525,000
Cobb County Power Operations Inc. Georgia Power Co. 1st Series 1991
(Trust Company Bank LOC)(VMIG1)
8,330,000 4.20 01/07/98 8,330,000
Columbus Hospital Authority RB for St. Francis Hospital
(Suntrust Bank LOC)(VMIG1)
7,350,000 4.20 01/07/98 7,350,000
Coweta County PCRB Series 1996 for Georgia Power Co.(A-1/VMIG1)
1,600,000 5.05 01/02/98 1,600,000
Dekalb County Hospital Authority RB Series 1993 B
(Suntrust Bank LOC)(MIG1)
5,200,000 4.20 01/07/98 5,200,000
DeKalb County IDA VRDN for Siemens Energy and Automation Inc. (P-1)
3,750,000 4.25 01/07/98 3,750,000
Floyd County PCRB for Georgia Power Co. 1st Series 1996(A-1/VMIG1)
1,500,000 5.05 01/02/98 1,500,000
Fulco Hospital Authority Series 1992 Revenue Anticipation Certificates
(Suntrust Bank LOC)(A-1+)
7,100,000 4.20 01/07/98 7,100,000
Georgia Municipal Gas Authority RB Series A (Credit Suisse First
Boston/Morgan Guaranty/Bayerische Landesbank Girozentrale/Wachovia Bank
National Association/ABN Amro Bank) (A-1+)
19,500,000 3.65 01/07/98 19,500,000
Georgia Municipal Gas Authority RB Series B (Credit Suisse First
Boston/Morgan Guaranty/Bayerische Landesbank Girozentrale/Wachovia Bank
National Association)(A-1+)
16,700,000 3.65 01/07/98 16,700,000
Heard County PCRB for Georgia Power Co. 1st Series 1996 (A-1/VMIG1)
1,800,000 5.05 01/02/98 1,800,000
Henry County Georgia IDA PCRB Series 1993 for Georgia Pacific Corp.
(Suntrust Bank LOC) (AA3)
4,000,000 4.20 01/07/98 4,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Meag Project One Subordinated Bonds Series 1985 A (Credit Suisse First
Boston/Morgan Guaranty Trust Co./Bayerische Landesbank Girozentrale)(A-
1+/VMIG1)
5,000,000 3.80 05/12/98 5,000,000
Meag Project One Subordinated Bond Series 1994 E (ABN Amro
Bank) (A-1+/VMIG1)
$14,100,000 3.85% 01/07/98 $ 14,100,000
Monroe County IDA PCRB 1st Series 1997 A(A-1/VMIG1)
2,000,000 5.05 01/02/98 2,000,000
Municipal Electric Authority of Georgia Subordinate General Resolution
Series 1985 B (Credit Suisse/Morgan Guaranty/Bayerische Landesbank
Girozentrale LOC)(A-1+/VMIG1)
8,145,000 3.65 01/07/98 8,145,000
Savannah Economic Development Authority PCRB VRDN for Savannah Electric &
Power(A-1/VMIG1)
4,085,000 4.20 01/07/98 4,085,000
- --------------------------------------------------------------------------------------------------
$211,980,000
- --------------------------------------------------------------------------------------------------
IDAHO--0.7%
Idaho Health Facilities for Holy Cross Health Systems(A-1/VMIG1)
$10,000,000 4.15% 01/07/98 $ 10,000,000
- --------------------------------------------------------------------------------------------------
ILLINOIS--9.5%
Belleville IDA for Weyerhaeuser Company Series 1993(A-1)
$ 1,800,000 4.20% 01/07/98 $ 1,800,000
Chicago GO Tender Notes Series 1997 (Morgan Stanley LOC) (A-1+/VMIG1)
38,000,000 3.65 02/05/98 37,997,088
Cook County GO Variable Rate Bonds Series 1996(A-1+/VMIG1)
50,700,000 3.70 01/07/98 50,700,000
Illinois Health Facilities Authority VRDN (First National Bank of
Chicago)(A-1+/VMIG1)
3,000,000 3.80 01/07/98 3,000,000
Illinois Health Facilities Authority 1990 VRDN for Central Dupage Hospital
(Rabobank Nederland LOC)(VMIG1)
4,710,000 5.10 01/02/98 4,710,000
Illinois Health Facilities Authority VRDN Series 1985 C Revolving Fund
Pooled Finance Program (First National Bank of Chicago LOC)
(A-1+/VMIG1)
13,575,000 3.80 01/07/98 13,575,000
Illinois Health Facilities Authority VRDN Series 1985 D Revolving Fund
Pooled Finance Program (First National Bank of Chicago LOC)
(A-1+/VMIG1)
8,300,000 3.80 01/07/98 8,300,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ILLINOIS (CONTINUED)
Illinois Health Facilities Authority VRDN for Elmhurst Memorial Hospital
(VMIG1)
$ 9,200,000 5.15% 01/02/98 $ 9,200,000
Illinois Health Facilities Authority VRDN for Northwest Community Hospital
Series 1995(A-1+/MIG1)
1,700,000 4.15 01/07/98 1,700,000
Sauget PCRB VRDN Series 1992 (Monsanto)(P-1)
3,300,000 3.80 01/07/98 3,300,000
Societe Generale Municipal Securities Trust Receipts For Chicago Midway
Airport RB Series 1996 A (MBIA)(A1+C)
12,000,000 4.25 01/07/98 12,000,000
- ---------------------------------------------------------------------------------------------------
$ 146,282,088
- ---------------------------------------------------------------------------------------------------
INDIANA--4.6%
Fort Wayne Hospital Authority VRDN Series 1985 D (Bank of America
LOC)(VMIG1)
$ 1,180,000 3.65% 01/07/98 $ 1,180,000
Fort Wayne Parkview Memorial Hospital VRDN Series 1985 B (Bank of America)
(VMIG1)
15,700,000 4.15 01/07/98 15,700,000
Fort Wayne Parkview Memorial Hospital VRDN Series 1985 C (Bank of
America)(VMIG1)
7,655,000 3.65 01/07/98 7,655,000
Gary RB for U.S. Steel Corp. Series 1986 (Bank of New York)(A-1+/P-2)
20,000,000 3.90 02/18/98 20,000,000
Indiana Health Facility Hospital RB(A-1+/VMIG1)
16,800,000 3.65 01/07/98 16,800,000
Schererville Economic Development VRDN Series 1983 for Avery International
Corp. Project (Bankers Trust LOC)(A1)
4,000,000 4.28 01/07/98 4,000,000
Warrick County PCRB for Aluminum Company of America Series 1992(A-1)
5,000,000 4.25 01/07/98 5,000,000
- ---------------------------------------------------------------------------------------------------
$ 70,335,000
- ---------------------------------------------------------------------------------------------------
IOWA--2.5%
Chillicothe PCRB for Midwest Power Systems Series 1993 A
(A-1/VMIG1)
$ 900,000 3.85% 01/07/98 $ 900,000
Louisa County PCRB for Iowa-Illinois Gas & Electric Co./Midamerican Energy
Co. Series 1986 A(A-1)
15,400,000 4.00 01/07/98 15,400,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
IOWA (CONTINUED)
Muscatine County VRDN for Monsanto Corp. Series 1992(P-1)
$ 1,000,000 3.80% 01/07/98 $ 1,000,000
Salix PCRB VRDN for Midwest Power Systems Inc. Series 1993 (A-1/VMIG1)
21,795,000 3.85 01/07/98 21,795,000
- --------------------------------------------------------------------------------------------------
$ 39,095,000
- --------------------------------------------------------------------------------------------------
KENTUCKY--2.3%
Calvert VRDN for Air Products and Chemicals Inc. Project Series 1993 B (A-
1)
$ 1,000,000 4.20% 01/07/98 $ 1,000,000
Kentucky Turnpike Authority Refunding Bonds 1987A Series 1997 Fr/ri-17
(Financial Security Assurance Inc.)(A-1+/VMIG1)
5,000,000 3.90 01/07/98 5,000,000
Mason County Floating/Fixed Rate PCRB for East Kentucky Power Facility
Series 1984 B (National Rural Utilities Cooperative Finance Corp.)(A-1+/P-
1)
14,350,000 3.85 01/07/98 14,350,000
Mason County Variable/Fixed Rate PCRB Pooled for East Kentucky Power
(CFC)(A-1+/P-1)
5,650,000 3.85 01/07/98 5,650,000
Trimble County PCRB for Louisville Gas and Electric Co. Series 1996 A(A-
1+/VMIG1)
10,000,000 3.85 02/12/98 10,000,000
- --------------------------------------------------------------------------------------------------
$ 36,000,000
- --------------------------------------------------------------------------------------------------
LOUISIANA--0.9%
Ascension Parish PCRB for Vulcan Materials Co. Series 1996
(A-1+/VMIG1)
$ 8,200,000 3.80% 01/07/98 $ 8,200,000
Parish of Iberville VRDN for Air Products and Chemicals Inc. Project
Series 1992 (A-1)
6,200,000 4.20 01/07/98 6,200,000
- --------------------------------------------------------------------------------------------------
$ 14,400,000
- --------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.1%
Massachusetts Bay Transportation Authority VRDN Series 1984 A(A-1+)
$ 4,200,000 3.75% 03/01/98 $ 4,200,000
Massachusetts Health & Education Authority Eagle Tax-exempt Trust for
Harvard University Series 972104(A1+C)
12,500,000 4.27 01/07/98 12,500,000
- --------------------------------------------------------------------------------------------------
$ 16,700,000
- --------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
15
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT DIVERSIFIED PORTFOLIO (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MICHIGAN--1.1%
Michigan Job Development Authority for Mazda Motor Manufacturing VRDN
(Sumitomo Bank LOC)(VMIG1)
$11,100,000 4.65%(c) 01/07/98 $ 11,100,000
State of Michigan GO Notes(SP-1+/MIG1)
6,000,000 4.50 09/30/98 6,032,697
- ---------------------------------------------------------------------------------------------------
$ 17,132,697
- ---------------------------------------------------------------------------------------------------
MINNESOTA--1.2%
Becker PCRB for Northern States Power Co. Series 1992 A (A-1+/VMIG1)
$ 8,000,000 3.70% 04/08/98 $ 8,000,000
Minnesota Education Facility Authority for Carleton College(VMIG1)
4,175,000 3.65 01/07/98 4,175,000
White Bear Lake IDA Series 1993 for Weyerhaeuser Co.(A-1)
6,800,000 4.20 01/07/98 6,800,000
- ---------------------------------------------------------------------------------------------------
$ 18,975,000
- ---------------------------------------------------------------------------------------------------
MISSISSIPPI--1.0%
Canton IDRB Series 1995 for Levi Strauss & Co. (Bank of America LOC)(A1+)
$10,000,000 3.65% 01/07/98 $ 10,000,000
Grenada County Refunding RB VRDN for Georgia Pacific Corp. Series 1994
(Sumitomo Bank LOC)(A1)
5,000,000 4.50 01/07/98 5,000,000
- ---------------------------------------------------------------------------------------------------
$ 15,000,000
- ---------------------------------------------------------------------------------------------------
MISSOURI--1.6%
Kansas City Cloversett IDA MF Hsg. RB Series 1988 VRDN (Boatmen's Bank of
Kansas City LOC)(A-1+)
$ 8,635,000 4.35%(c) 01/07/98 $ 8,635,000
Missouri Health & Education Facility Authority VRDN (MBIA)(A-1+)
10,500,000 3.70 01/07/98 10,500,000
Monsanto Corporation State Environmental Improvement and Energy Resources
Authority Series 1993 (Monsanto)(P-1)
5,000,000 3.80 01/07/98 5,000,000
- ---------------------------------------------------------------------------------------------------
$ 24,135,000
- ---------------------------------------------------------------------------------------------------
NEVADA--2.0%
Clark County VRDN for Nevada Airport System Series 1993A (MBIA)(A-1+/VMIG1)
$30,700,000 3.65%(b) 01/07/98 $ 30,700,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW JERSEY--1.9%
New Jersey TRANS Series 1998A(A-1+/P-1)
$20,000,000 3.75% 03/11/98 $ 20,000,000
9,300,000 3.75 05/08/98 9,300,000
- ---------------------------------------------------------------------------------------------------
$ 29,300,000
- ---------------------------------------------------------------------------------------------------
NEW MEXICO--1.2%
Albuquerque RB for Sisters of Charity Series 1992(A-1+/VMIG1)
$ 6,000,000 4.15% 01/07/98 $ 6,000,000
New Mexico TRANS Series 1997(SP-1+/VMIG1)
13,000,000 4.50 06/30/98 13,040,075
- ---------------------------------------------------------------------------------------------------
$ 19,040,075
- ---------------------------------------------------------------------------------------------------
NEW YORK--4.6%
Brentwood Union Free School District Tax Anticipation Notes of 1997(MIG1)
$ 5,000,000 4.25% 06/30/98 $ 5,009,923
New York City GO RANS Fiscal 1998 Series A (National Westminster Bank
/Morgan Guaranty Trust/Bayerische Landesbank Girozentrale/ Westdeutsche
Landesbank Girozentrale/Societe Generale/Landesbank LOC)(A-1+/MIG1)
31,000,000 4.50 06/30/98 31,105,347
New York City Health & Hospitals Corporation, Health System Bonds, 1997
Series B(Canadian Imperial Bank of Commerce)(A-1+/VMIG1)
6,800,000 3.55 01/07/98 6,800,000
New York City Water Finance Authority CP Series 5 Lob A (Bayerische
Landesbank Girozentrale/Westdeutsche Landesbank Girozentrale/Landesbank
Hessen-thueringen Girozentrale)
(A-1+/P-1)
15,000,000 3.80 03/24/98 15,000,000
New York State Floating Rate Trust Receipts Series 1997(VMIG1)
10,125,000 4.00 01/07/98 10,125,000
New York State Housing Finance Agency for Normandie Court Housing RB Series
1987 A (Fleet Bank LOC)(VMIG1)
1,000,000 4.00 01/07/98 1,000,000
New York State Triborough Bridge & Tunnel Authority VRDN Series 1994
(FGIC)(A-1+/VMIG1)
1,000,000 3.55 01/07/98 1,000,000
- ---------------------------------------------------------------------------------------------------
$ 70,040,270
- ---------------------------------------------------------------------------------------------------
NORTH CAROLINA--0.3%
Rockingham County IDA PCRB Series 1992 for Philip Morris Company(A-1/P-1)
$ 3,960,000 4.00% 01/07/98 $ 3,960,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OHIO--2.9%
Franklin County Hospital RB for Holy Cross Health System Series 1995(A-
1+/VMIG1)
$17,500,000 4.15% 01/07/98 $ 17,500,000
Hamilton County Adjustable Rate Hospital Facilities RB Series 1997 B for
The Health Alliance of Greater Cincinnati (MBIA)(A-1+/VMIG1)
26,675,000 3.70(c) 01/07/98 26,675,000
- -----------------------------------------------------------------------------------------------
$ 44,175,000
- -----------------------------------------------------------------------------------------------
OKLAHOMA--0.7%
Muskogee PCRB for Oklahoma Gas and Electric Co. Series 1997 A(A-1+/VMIG1)
$10,000,000 3.90% 01/07/98 $ 10,000,000
- -----------------------------------------------------------------------------------------------
OREGON--0.7%
Clackamas County Hospital TRB Series 1984(A-1+)
$ 4,110,000 3.75% 04/01/98 $ 4,110,000
Lane County PCRB VRDN for Weyerhaeuser Company Series 1994
(A-1)
6,500,000 4.20(c) 01/07/98 6,500,000
- -----------------------------------------------------------------------------------------------
$ 10,610,000
- -----------------------------------------------------------------------------------------------
PENNSYLVANIA--3.1%
Pennsylvania GO Bond Eagle Tax Exempt Trust Class A Series 1994 (AMBAC)(A-
1+C)
$14,400,000 4.27% 01/07/98 $ 14,400,000
Pennsylvania TRANS Series 1997-1998(SP-1+/MIG1)
27,000,000 4.50 06/30/98 27,096,053
Philadelphia School District TRANS Series 1997- 98
(Commerzbank)(SP-1+/MIG1)
6,000,000 4.50 06/30/98 6,017,947
- -----------------------------------------------------------------------------------------------
$ 47,514,000
- -----------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.7%
York County Floating/Fixed Rate PCRB Pooled Series 1984-North Carolina
Electric Membership Corp. VRDN (CFC)(A-1+/MIG1)
$ 1,100,000 3.85% 01/07/98 $ 1,100,000
8,925,000 3.85 01/07/98 8,925,000
- -----------------------------------------------------------------------------------------------
$ 10,025,000
- -----------------------------------------------------------------------------------------------
SOUTH DAKOTA--0.7%
Puttable Floating Option Receipts Series PT-73(A1+C)
$10,240,000 4.25% 01/07/98 $ 10,240,000
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEXAS--18.0%
Belton VRDN Series 1993 (Texas Commerce Bank LOC)(P-1)
$ 3,450,000 3.70% 01/07/98 $ 3,450,000
Brazos Harbor IDA VRDN Series 1996 for Monsanto Company
(P-1)
3,500,000 3.80 01/07/98 3,500,000
Brazos River Authority PCRB Series 1994 for Monsanto Company
(A-1/P-1)
5,100,000 3.80 01/07/98 5,100,000
Brazos River Authority VRDN for Monsanto Company(P-1)
5,300,000 3.80 01/07/98 5,300,000
Harris County Health Facility Development Adjustable RB for School of The
Incarnate Word Series 1997 A(A-1+C/VMIG1)
12,500,000 3.70 03/13/98 12,500,000
Harris County Hospital RB for Childrens Hospital Series 1989
B-2(VMIG1)
12,900,000 3.70 01/07/98 12,900,000
Houston GO CP Notes Series A(A-1+/P-1)
25,000,000 3.75 05/13/98 25,000,000
Lower Colorado River Authority CP Notes Series C(A-1+/P-1)
3,500,000 3.75 05/15/98 3,500,000
Nueces River IDA PCRB UPDATE Series 1984 for San Miguel (National Rural
Utilities Cooperative Finance Corp.)(A-1+/VMIG1)
50,700,000 3.70 03/10/98 50,700,000
San Antonio Electric & Gas Systems CP Notes Series A(A-1+/P-1)
15,000,000 3.75 01/15/98 15,000,000
11,000,000 3.75 05/01/98 11,000,000
6,000,000 3.75 05/26/98 6,000,000
San Antonio Electric & Gas System Revenue & Refunding Bonds New Series
1997 Sg 104 & Sg 105(A1+C)
33,000,000 4.25 01/07/98 33,000,000
State of Texas TRANS CP Series 1997B(A-1+/P-1)
5,000,000 3.70 02/25/98 5,000,000
Texas TRANS Series 1997 A(SP-1+/MIG1)
75,600,000 4.75 08/31/98 76,038,639
Travis County Health Facilities Development Variable Rate RB for Charity
Obligation Group Series 1997E(A-1+/VMIG1)
5,100,000 3.65 01/07/98 5,100,000
Waco Health Facilities Development Co. Variable Rate RB for Charity
Obligated Group Series 1997E(A-1+/VMIG1)
4,200,000 3.65 01/07/98 4,200,000
- -----------------------------------------------------------------------------------------------
$ 277,288,639
- -----------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT DIVERSIFIED PORTFOLIO (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UTAH--0.3%
Utah State RB for University of Utah Series 1997A(A-1+/VMIG1)
$ 5,000,000 3.85% 01/07/98 $ 5,000,000
- -----------------------------------------------------------------------------------------------
VIRGINIA--8.5%
Chesapeake IDA PCRB for Virginia Electric & Power Co. Series 1985(A-1/P-1)
$22,000,000 3.80% 03/10/98 $ 22,000,000
Chesterfield County IDA PCRB for Virginia Electric & Power Co. Series
1985(A-1/P-1)
8,000,000 3.85 03/02/98 8,000,000
Chesterfield County IDA PCRB for Virginia Electric & Power Co. Series
1987A(A-1/P-1)
5,000,000 3.80 03/10/98 5,000,000
Chesterfield County IDA PCRB for Virginia Electric & Power Co. Series 1987
C(A-1)
1,000,000 3.90 02/10/98 1,000,000
Chesterfield County PCRB for Virginia Electric & Power Co. Series 1985(A-
1/P-1)
5,200,000 3.90 02/10/98 5,200,000
Louisa PCRB for Virginia Electric & Power Co. Series 1984(A-1/P-1)
3,700,000 3.95 02/13/98 3,700,000
4,000,000 3.80 02/26/98 4,000,000
4,000,000 3.80 02/27/98 4,000,000
4,000,000 3.85 03/17/98 4,000,000
4,000,000 3.85 03/30/98 4,000,000
Richmond VRDN Public Utility Revenue Notes Series A(A-1+/MIG1)
14,000,000 4.20 01/07/98 14,000,000
Roanoke VRDN for Carilion Health Systems Hospital Series A (A-1+/VMIG1)
33,700,000 4.10 01/07/98 33,700,000
Spotsylvania IDA PCRB Series 1993 for Carlisle Corp. (Suntrust Bank
LOC)(AA3)
6,500,000 4.20 01/07/98 6,500,000
York County IDA PCRB for Virginia Electric & Power Co. Series 1985(A-1)
9,400,000 3.90 02/09/98 9,400,000
5,600,000 3.80 03/11/98 5,600,000
- -----------------------------------------------------------------------------------------------
$ 130,100,000
- -----------------------------------------------------------------------------------------------
WASHINGTON--2.1%
Port of Grays Harbor IDA VRDN for Weyerhaeuser Project Series 1992(A-1)
$ 1,000,000 4.20% 01/07/98 $ 1,000,000
Port of Grays Harbor IDA VRDN for Weyerhaeuser Project Series 1993(A-1)
5,850,000 4.20 01/07/98 5,850,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WASHINGTON (CONTINUED)
Union Gap City IDA VRDN for Weyerhaeuser Project Series 1992
(A-1)
1,600,000 4.20 01/07/98 1,600,000
Washington Health Care Facilities Authority VRDN Series 1996 (Morgan
Guaranty Trust LOC)(VMIG1)
$ 3,000,000 5.10% 01/02/98 $ 3,000,000
Washington Public Power Supply Project Electric RB Series 1993-1A (Bank
of America LOC)(A-1+/VMIG1)
9,000,000 3.75 01/07/98 9,000,000
Washington Public Power Supply System RB Series 1993-1A-2 (Bank of
America National Trust & Savings Association)(A-1+/VMIG1)
9,300,000 3.75 01/07/98 9,300,000
Washington VRDN for Hutchinson Cancer Research Centre Series 1991 A
(Morgan Guaranty Trust LOC)(VMIG1)
3,160,000 5.10 01/02/98 3,160,000
- ---------------------------------------------------------------------------------------------
$ 32,910,000
- ---------------------------------------------------------------------------------------------
WISCONSIN--1.9%
State of Wisconsin Operating Notes Series 1997(SP-1+/MIG1)
$ 6,700,000 4.50% 06/15/98 $ 6,720,268
Wisconsin Health & Educational Facilities Authority Variable Rate RB
Series 1997 (Toronto Dominion Bank)(A-1+/VMIG1)
7,000,000 4.10 01/07/98 7,000,000
Wisconsin Operating Notes Series 1997-2(SP 1+/MIG1)
15,000,000 4.50 06/15/98 15,050,537
- ---------------------------------------------------------------------------------------------
$ 28,770,805
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $1,592,350,288(a)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
(b) When-issued security
(c) Portions of these securities are being segregated for when-issued
securities.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those type of securities.
Security ratings are unaudited.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT CALIFORNIA PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA-98.2%
California GO CP (A-1/P-1)
$ 5,000,000 3.70% 03/09/98 $ 5,000,000
4,600,000 3.75 03/13/98 4,600,000
California Health Facilities Authority for Kaiser Permanente Series 1993 A
RB(A-1+/VMIG1)
2,000,000 3.45 01/07/98 2,000,000
California Health Facility Finance Authority RB Series 1990 A VRDN
(Rabobank Nederland LOC)(A-1+/VMIG1)
7,300,000 3.50 01/07/98 7,300,000
California PCRB for Pacific Gas & Electric Series 1996F (Banque Nationale
de Paris LOC)(A-1)
28,100,000 4.75 01/02/98 28,100,000
California Pollution Control Financing Authority for Pacific Gas & Electric
TRB Series 1996E (Morgan Guaranty LOC)(A-1+)
4,200,000 3.60 03/02/98 4,200,000
10,000,000 3.65 05/14/98 10,000,000
California Pollution Control Financing Authority for Southern California
Edison Adjustable TRB Series 1986 D(A-1/VMIG1)
2,600,000 4.20 01/02/98 2,600,000
California Pollution Control Financing Authority for Southern California
Edison TRB Series 1986 A(A-1/VMIG1)
10,400,000 4.20 01/02/98 10,400,000
California Pollution Control Financing Authority for Southern California
Edison TRB Series 1986 B(A-1/VMIG1)
5,000,000 4.20 01/02/98 5,000,000
California Pollution Control Financing Authority for Southern California
Edison TRB Series 1986 C(A-1/VMIG1)
2,800,000 4.20 01/02/98 2,800,000
California Revenue Anticipation Notes Series 1997 (SP 1+/MIG1)
10,000,000 4.50 06/30/98 10,031,007
California School Cash Reserve Program, 1997 Pool Bonds Series A(AMBAC)(SP
1+/MIG1)
14,900,000 4.75 07/02/98 14,965,638
California State Puttable Floating Option Receipts Series
Pt-1001 (FGIC)(A-1+)
18,870,000 4.20 01/07/98 18,870,000
California Statewide Communities Development Authority for Kaiser
Foundation Hospital 1995 COPS(A-1+/MIG1)
5,200,000 3.45 01/07/98 5,200,000
California Statewide Communities Development Authority Refunding RB Series
1995(A-1+)
700,000 3.45 01/07/98 700,000
California Statewide Communities Development Authority Refunding RB Series
1995A-2(A-1+)
8,000,000 3.45 01/07/98 8,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
California Statewide Communities Development Authority Series 1995A-1(A-1+)
$14,200,000 3.45% 01/07/98 $ 14,200,000
City of Berkely TRANS Series 1997 (MIG1)
14,500,000 4.25 09/09/98 14,540,294
City of Fresno MF Hsg. Revenue Refunding Bonds Series 1996 A (First
Interstate Bank of California LOC)(VMIG1)
3,315,000 3.65 01/07/98 3,315,000
City of Irwindale IDRB Series 1984 for Toys-R-Us VRDN (Bankers Trust
LOC)(A1)
2,000,000 4.28 01/07/98 2,000,000
City of Los Angeles VRDN MF Hsg. Museum Terrace-84H (Bank of America
LOC)(VMIG1)
4,000,000 3.65 01/07/98 4,000,000
City of Newport Beach Floating/Fixed Rate Health Facilities Memorial
Hospital Facility VRDN(A-1+/VMIG1)
10,050,000 5.00 01/02/98 10,050,000
City of Newport Beach VRDN RB Series 1996 B(A-1+)
1,000,000 5.00 01/02/98 1,000,000
City of San Diego MF Hsg. for Lacima Apartments VRDN (Citibank LOC)(VMIG1)
12,725,000 3.90 01/07/98 12,725,000
City of San Diego MF Hsg. for Nobel Court Apartments VRDN (Citibank
LOC)(VMIG1)
11,355,000 3.90 01/07/98 11,355,000
City of San Diego VRDN MF Hsg. RB Series 1985 (Swiss Bank LOC)(VMIG1)
15,700,000 3.85 01/07/98 15,700,000
Contra Costa MF Hsg. for Lakeshore Apartments VRDN(A-1+)
4,500,000 3.35 01/07/98 4,500,000
East Bay Municipal Utility District Water & Wastewater CP (A-1+/P-1)
9,300,000 3.70 04/08/98 9,300,000
6,000,000 3.65 04/09/98 6,000,000
Fremont MF Hsg. RB Series 1985 D (Krediet Bank LOC)(VMIG1)
14,400,000 3.90 01/07/98 14,400,000
Huntington Beach City Monthly MF Hsg. VRDN Series 1985 A (Bank of America
LOC)(VMIG1)
7,500,000 4.00 01/07/98 7,500,000
Kings County Housing Authority MF Hsg. Refunding RB Series 1996 A (Wells
Fargo) (VMIG1)
6,655,000 3.65 01/07/98 6,655,000
Los Angeles County Metro TRANS Authority VRDN (MBIA)(A-1+/MIG1)
8,095,000 3.85 01/07/98 8,095,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT CALIFORNIA PORTFOLIO (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
Los Angeles Metro Transportation Authority CP Series A (National
Westminster Bank Plc/Bayerische Vereinsbank Ag/Canadian Imperial Bank of
Commerce)(A-1/P-1)
$10,000,000 3.70% 04/22/98 $ 10,000,000
Los Angeles TRANS Series 1997-98 A (SP 1+/MIG1)
26,100,000 4.50 06/30/98 26,179,939
Los Angeles Unified School District TRANS Series 1997-98 A (SP 1+/MIG1)
5,000,000 4.50 10/01/98 5,022,979
Los Angeles Unified School District Variable Rate Certificates of
Participation (Belmont Learning Complex) 1997 Series A(Commerzbank
AG)(VMIG1)
10,000,000 3.40 01/07/98 10,000,000
Los Angeles Wastewater System CP Revenue Notes(Morgan Guaranty Trust
Company of New York/Union Bank of Switzerland)(A-1+/P-1)
4,000,000 3.80 02/18/98 4,000,000
MSR Public Power Agency RB Series 1997 D (MBIA)(A-1+/VMIG1)
19,000,000 3.85 01/07/98 19,000,000
MSR Public Power Agency RB Series 1997 E (MBIA)(A-1+/VMIG1)
5,000,000 3.85 01/07/98 5,000,000
Newport Beach VRDN RB Series 1996 A(A-1+)
5,300,000 5.00 01/02/98 5,300,000
Newport Beach VRDN RB Series 1996 C For Hoag Memorial Hospital (A-1+)
19,600,000 5.00 01/02/98 19,600,000
Northern California Power Agency Geothermal Project Number 3 Adjustable
Rate RB Series 1996 A (AMBAC)(A-1+/VMIG1)
8,500,000 3.35 01/07/98 8,500,000
Orange County Apartment Development for Seaside Meadow RB Series 1984C
(Krediet Bank LOC)(A-1/VMIG1)
24,000,000 3.90 01/07/98 24,000,000
Orange County Apartment Development Revenue Refunding Bonds, Larkspur
Canyon Apartments Issue A of 1997(AAA)
6,635,000 3.35 01/07/98 6,635,000
Palo Alto Unified School District Series 1997 Sga 53, Municipal Securities
Trust Receipts(A-1+)
9,830,000 3.60 01/07/98 9,830,000
Sacramento County 1990 COP Admin-Center Courthouse Project VRDN (Union Bank
of Switzerland LOC)(A-1+/VMIG1)
5,800,000 3.80 01/07/98 5,800,000
Sacramento County MF Hsg. Revenue Refunding Bonds for Stone Creek
Apartments (FNMA) (A-1+)
5,950,000 3.95 01/07/98 5,950,000
Sacramento County TRANS Series 1997 (SP 1+/MIG1)
3,000,000 4.50 09/30/98 3,015,464
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
San Bernardino County VRDN--Woodview Apartments Series 1985 (Swiss Bank
LOC)(VMIG1)
$ 6,500,000 3.85% 01/07/98 $ 6,500,000
San Diego City MF Hsg. Revenue Refunding Bonds, Series 1993E (Carmel Del
Mar Apartments Project)(Citibank NA)(A-1+)
3,000,000 4.00 01/07/98 3,000,000
San Diego County MF Hsg. for Country Hills VRDN (FNMA)(A-1+)
10,100,000 3.40 01/07/98 10,100,000
San Francisco Redevelopment Agency VRDN MFH RB for Bayside Village Series
1985 A (Industrial Bank of Japan Limited LOC) (VMIG1)
10,000,000 4.25 01/07/98 10,000,000
San Leandro MF Hsg. VRDN Series 1985 B-Haas Avenue Apartments (Bank of
America LOC)(VMIG1)
3,900,000 3.65 01/07/98 3,900,000
San Diego County Sales Tax Revenue CP Series A(A-1+/P-1)
10,800,000 3.80 02/13/98 10,800,000
2,300,000 3.60 03/02/98 2,300,000
3,000,000 3.75 03/09/98 3,000,000
Southern California Metropolitan Water District Revenue Refunding Bonds
Series 1996 A (AMBAC)(A-1+/VMIG1)
5,940,000 3.85 01/07/98 5,940,000
Southern California Public Power Authority 1991 Subordinated Revenue
Refunding Bonds (AMBAC)(A-1+/VMIG1)
9,100,000 3.35 01/07/98 9,100,000
Southern California Public Power Authority Power Project RB Series 1996 B
(AMBAC)(A-1+/VMIG1)
5,900,000 3.35 01/07/98 5,900,000
Southern California Public Power Authority Power Project RB Series 1996 C
(AMBAC)(A-1+/VMIG1)
12,300,000 3.35 01/07/98 12,300,000
Southern California Metro Water District CP Series A (A-1+/P-1)
5,400,000 3.60 03/12/98 5,400,000
2,000,000 3.70 05/12/98 2,000,000
Southern California Metro Water District CP Series B (A-1+/P-1)
13,000,000 3.65 04/09/98 13,000,000
Triunfo Sanitation District VRDN Refunding RB Series 1994 (Banque
Nationale de Paris LOC)(A-1)
3,700,000 3.60 01/07/98 3,700,000
Tulare-Porterville Schools Finance Authority COPS (Union Bank of
California LOC)(A-1/VMIG1)
7,515,000 4.35 01/07/98 7,515,000
University of California CP, Series A (A-1+/P-1)
2,400,000 3.60 04/22/98 2,400,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT
NEW YORK PORTFOLIO
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CALIFORNIA (CONTINUED)
University of California Trust Receipts Series 1997 D (MBIA)(VMIG1)
$10,905,000 3.80% 01/07/98 $10,905,000
- ------------------------------------------------------------------------------------------------
$580,695,321
- ------------------------------------------------------------------------------------------------
PUERTO RICO--1.3%
Commonwealth of Puerto Rico TRANS Series 1998A (SP 1+/MIG1)
$ 1,000,000 4.50% 07/30/98 $ 1,004,555
Puerto Rico Government Development Bank CP (A-1+)
3,200,000 3.65 03/16/98 3,200,000
3,700,000 3.70 05/13/98 3,700,000
- ------------------------------------------------------------------------------------------------
$ 7,904,555
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $588,599,876(a)
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those types of securities.
Security ratings are unaudited.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK--94.8%
Brentwood Union Free School District TANS 1997(MIG1)
$ 3,250,000 4.25% 06/30/98 $ 3,256,450
City of Yonkers IDA RB for Consumers (Credit Local De France LOC)(VMIG1)
2,600,000 3.50 01/02/98 2,600,000
City of Yonkers IDA Series 1991 Civic Facility RB (Credit Local De France
LOC)(VMIG1)
2,800,000 3.50 01/02/98 2,800,000
Great Neck North Water Authority Water System RB Series 1993 A VRDN
(FGIC)(A-1+/VMIG1)
6,100,000 3.70 01/07/98 6,100,000
Guggenheim Foundation (West Deutsche/Landesbank Girozentrale LOC)(A-
+/VMIG1)
3,900,000 4.75 01/02/98 3,900,000
Metropolitan Museum of Art Variable Rate Interest Bonds (A-1+/VMIG1)
1,485,000 3.50 01/07/98 1,485,000
Municipal Assistance Corporation for The City of New York, Series K,
Subseries K-2 (Bayerische Landesbank Girozentrale LOC)(A-1+/VMIG1)
4,700,000 3.55 01/07/98 4,700,000
Nassau County Combined Sewer Districts RB Series 1988A (MBIA)(AAA/AAA)
1,355,000 6.70 07/15/98 1,402,495
Nassau County IDA Civic Facility RB Cold Spring Harbor Labs Series 1989
VRDN (Morgan Guaranty Trust LOC)(A-1+)
900,000 4.85 01/02/98 900,000
Nassau County RANS, Series B (SP-1/MIG1)
5,000,000 4.50 04/10/98 5,008,419
Nassau County TANS, Series 1997C(SP-1)
1,000,000 4.25 12/22/98 1,003,930
New York City GO Bonds Series 1994E (Morgan Guaranty Trust LOC)(A-1/VMIG1)
200,000 5.00 01/02/98 200,000
New York City GO Fiscal 1995 Series B-6 (MBIA)(A-1+/VMIG1)
2,100,000 5.00 01/07/98 2,100,000
New York City GO RANS Fiscal 1998 Series A (National Westminster
Bank/Morgan Guaranty Trust/Bayerische Landesbank Girozentrale/Westdeutsche
Landesbank Girozentrale/Societe Generale/Landesbank LOC)(A-1+/MIG1)
3,000,000 4.50 06/30/98 3,010,088
New York City Health & Hospitals Corporation, Health System Bonds, 1997
Series B (Canadian Imperial Bank of Commerce)(A-1+/VMIG1)
7,500,000 3.55 01/07/98 7,500,000
New York City IDA--Civic Facility RB 1989 National Audubon Society, Inc.
(Credit Local De France LOC)(A-1+)
3,000,000 4.75 01/02/98 3,000,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA TAX-EXEMPT NEW YORK PORTFOLIO (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK (CONTINUED)
New York City IDA for Columbia Grammar Prep School VRDN
(Chase Manhattan Bank LOC)(A-1)
$ 3,200,000 3.60% 01/07/98 $ 3,200,000
New York City Municipal Water Finance Authority CP Notes Series 5 Lot B
(Bayerische Landesbank Girozentrale/Westdeutsche Landesbank
Girozentrale/Landesbank Hessen-thueringen Girozentrale)(A-1+/P-1)
2,500,000 3.75 04/13/98 2,500,000
New York City Municipal Water Finance Authority CP Series 3 (Toronto
Dominion Bank/Bank of Nova Scotia LOC)(A-1+/P-1)
2,500,000 3.75 02/26/98 2,500,000
New York City Water Finance Authority CP Series 4 (Credit Suisse First
Boston)(A-1+/P-1)
1,000,000 3.70 02/27/98 1,000,000
New York City Puttable GO Bonds Fiscal 1995 Series D (MBIA)
(VMIG1)
3,800,000 4.15 01/07/98 3,800,000
New York City Trust for Cultural Resources American Museum of Natural
History Adjustable Rate TRB VRDN (MBIA)(A-1+/VMIG1)
1,000,000 3.55 01/07/98 1,000,000
New York State Energy Research & Development Authority PCRB for Brooklyn
Union Gas Series 1997 A-1 (MBIA)(A-1+/VMIG1)
2,000,000 3.70 01/07/98 2,000,000
New York State Energy Research & Development Authority for Long Island
Lighting Co. VRDN (Toronto Dominion Bank LOC)
(VMIG1)
3,000,000 3.85 01/07/98 3,000,000
New York State Energy Research and Development Authority for Orange and
Rockland Utilities Series 1995 A VRDN (AMBAC)(A-1+/VMIG1)
400,000 3.55 01/02/98 400,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Series 1994 D (Union Bank of Switzerland LOC)(A-
1+/VMIG1)
2,800,000 5.00 01/02/98 2,800,000
New York State Energy Research & Development Authority PCRB Series A & B--
Central Hudson Gas & Electric VRDN (Deutsche Bank LOC)(P-1)
1,300,000 3.95 01/07/98 1,300,000
New York State Floating Rate Trust Receipts Series 1997(A-1C/VMIG1)
300,000 4.00 01/07/98 300,000
New York State Housing Finance Agency for Normandie Court Housing RB
Series 1987 A (Fleet Bank LOC)(VMIG1)
4,800,000 4.00 01/07/98 4,800,000
New York State Local Government Assistance Series 1995 B VRDN (Bank of
Nova Scotia LOC)(A-1+/VMIG1)
3,000,000 3.55 01/07/98 3,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK (CONTINUED)
New York State Local Government Series C VRDN (Landesbank Hessen-
Thueringen Girozentrale LOC)(A-1+/VMIG1)
$ 2,400,000 3.55% 01/07/98 $ 2,400,000
New York State Local Government Series G VRDN (National Westminster Bank
LOC)(A-1+/VMIG1)
300,000 3.55 01/07/98 300,000
New York State Local Government VRDN Series 1995 F (Toronto Dominion Bank
LOC)(A-1+/VMIG1)
1,100,000 3.50 01/07/98 1,100,000
New York State Medical Care Facility Financing Agency for Children's
Hospital of Buffalo RB Series 1991 A (Barclays Bank LOC)(VMIG1)
4,000,000 3.70 01/07/98 4,000,000
New York State Triborough Bridge & Tunnel Authority VRDN (FGIC)(A-
1+/VMIG1)
3,400,000 3.55 01/07/98 3,400,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Series 1985 A (Morgan Guaranty LOC)(A-1+)
3,000,000 3.65 03/15/98 3,000,000
New York State Energy Research & Development Authority PCRB for Orange and
Rockland Utilities Series 1994 A (Financial Guaranty Insurance
Company)(A-1+/VMIG1)
600,000 3.55 01/07/98 600,000
New York State Energy Research & Development Authority RB for Brooklyn
Union Gas Series 1997 Series A-2 (MBIA) (A-1+/VMIG1)
1,800,000 3.60 01/07/98 1,800,000
New York State Environmental Quality 1986 Variable Interest Rate GO Bonds
Series 1997A(Bayerische Landesbank Girozentrale/Landesbank Hessen-
Thueringen Girozentrale)(A-1+/VMIG1)
2,000,000 3.70 04/22/98 2,000,000
3,000,000 3.70 05/26/98 3,000,000
New York State Housing Finance Agency for Related-Liberty View Apartments
Housing Rd Series 1997 A (Federal National Mortgage Association)(A-1+)
5,000,000 3.55 01/07/98 5,000,000
New York State Housing Finance Agency for Tribeca Park Housing RB Series
1997 A (Bayerische Hypotheken-und Wechsel-Bank LOC)(VMIG1)
5,000,000 4.10 01/07/98 5,000,000
Oswego County IDA PCRB Series 1992 for Philip Morris(A-1/P-1)
1,000,000 3.85 01/07/98 1,000,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK (CONTINUED)
Port Authority of New York And New Jersey Floating Rate Trust Receipts
(FSA)(A-1/VMIG1)
$ 6,000,000 4.00% 01/07/98 $ 6,000,000
Rensselaer County IDA RB for Rensselaer Polytechnic Institute Series
1997A(VMIG1)
4,440,000 4.10 01/07/98 4,440,000
Syracuse University IDA VRDN (Morgan Guaranty LOC)(A-1+/VMIG1)
4,300,000 4.75 01/02/98 4,300,000
- ------------------------------------------------------------------------------------------------
$127,906,382
- ------------------------------------------------------------------------------------------------
PUERTO RICO--4.8%
Puerto Rico Government Development Bank, TECP(A-1+/NR)
$ 1,500,000 3.70% 04/09/98 $ 1,500,000
2,000,000 3.70 05/12/98 2,000,000
Puerto Rico Medical & Environmental PCRB Series 1983 A for Key
Pharmaceuticals (Morgan Guaranty) (AAA)
3,000,000 3.75 12/01/98 2,998,627
- ------------------------------------------------------------------------------------------------
$ 6,498,627
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $134,405,009(a)
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those types of securities.
Security ratings are unaudited.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
<TABLE>
<C> <S>
ACES --Adjustable Convertible Extendible Securities
AMBAC --Insured by American Municipal Bond Assurance Corp.
BANS --Bond Anticipation Notes
COPS --Certificates of Participation
CP --Commercial Paper
FGIC --Insured by Financial Guaranty Insurance Co.
GO --General Obligation
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDRB --Industrial Development Revenue Bond
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RANS --Revenue Anticipation Notes
RB --Revenue Bond
TANS --Tax Anticipation Notes
TECP --Tax Exempt Commercial Paper
TRANS --Tax Revenue Anticipation Notes
TRB --Tender Revenue Bond
UPDATE --Unit Priced Daily Adjustable Tax-Exempt Security
VRDN --Variable Rate Demand Note
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA
PRIME MONEY ILA
OBLIGATIONS MARKET GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value
based on amortized cost $974,606,226 $1,147,485,683 $565,903,253
Receivable for investments sold -- -- --
Interest receivable 7,554,296 8,003,135 3,028,806
Cash 78,548 28,630 322,631
Other assets 75,149 66,751 31,348
- ------------------------------------------------------------------------------
TOTAL ASSETS 982,314,219 1,155,584,199 569,286,038
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased -- 14,998,553 11,982,600
Dividends payable 5,409,153 5,942,595 2,555,812
Due to bank -- -- --
Accrued expenses and other liabili-
ties 563,009 550,354 299,510
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 5,972,162 21,491,502 14,837,922
- ------------------------------------------------------------------------------
NET ASSETS:
Paid in capital 976,343,682 1,134,092,697 554,392,483
Accumulated undistributed net in-
vestment income -- -- 2,840
Accumulated undistributed net
realized gain (loss) on investment
transactions (1,625) -- 52,793
- ------------------------------------------------------------------------------
NET ASSETS $976,342,057 $1,134,092,697 $554,448,116
- ------------------------------------------------------------------------------
Net asset value, offering and re-
demption price per unit
(net assets/units outstanding) $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------
UNITS OUTSTANDING:
ILA units 866,405,891 806,095,979 460,423,182
ILA Administration units 28,147,490 307,480,205 10,182,126
ILA Service units 78,319,515 20,516,513 83,787,175
ILA B units 1,573,829 -- --
ILA C units 1,896,957 -- --
- ------------------------------------------------------------------------------
Total units of beneficial interest
outstanding, $.001 par value (un-
limited number of units autho-
rized) 976,343,682 1,134,092,697 554,392,483
- ------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA ILA ILA ILA
TREASURY TREASURY ILA TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
OBLIGATIONS INSTRUMENTS FEDERAL DIVERSIFIED CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$819,773,645 $715,872,520 $2,694,905,170 $1,592,350,288 $588,599,876 $134,405,009
-- -- -- -- -- 1,002,737
2,580,192 11,406,880 7,279,210 10,043,125 4,101,398 877,902
13,224 335,893 219,601 2,475,073 532,189 --
10,726 24,199 37,011 78,912 17,602 6,207
- ---------------------------------------------------------------------------------------
822,377,787 727,639,492 2,702,440,992 1,604,947,398 593,251,065 136,291,855
- ---------------------------------------------------------------------------------------
-- -- 75,000,000 61,275,000 -- --
3,306,307 2,983,665 11,601,478 5,082,002 1,635,248 368,540
-- -- -- -- -- 988,622
398,205 344,285 739,651 624,558 250,642 52,453
- ---------------------------------------------------------------------------------------
3,704,512 3,327,950 87,341,129 66,981,560 1,885,890 1,409,615
- ---------------------------------------------------------------------------------------
818,673,229 724,307,077 2,615,099,480 1,537,792,596 591,383,369 134,887,125
4,678 2,506 -- 362,642 10,495 1,634
(4,632) 1,959 383 (189,400) (28,689) (6,519)
- ---------------------------------------------------------------------------------------
$818,673,275 $724,311,542 $2,615,099,863 $1,537,965,838 $591,365,175 $134,882,240
- ---------------------------------------------------------------------------------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------
590,278,995 330,237,533 2,050,535,778 1,479,581,838 591,021,540 102,890,525
124,230,332 98,664,287 530,026,646 27,967,106 360,320 31,995,090
104,163,902 295,405,257 34,537,056 30,510,544 1,509 1,510
-- -- -- -- -- --
-- -- -- -- -- --
- ---------------------------------------------------------------------------------------
818,673,229 724,307,077 2,615,099,480 1,538,059,488 591,383,369 134,887,125
- ---------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
25
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA
PRIME MONEY ILA
OBLIGATIONS MARKET GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $71,347,525 $69,192,244 $35,986,975
- ------------------------------------------------------------------------------
EXPENSES:
Management fees 4,412,869 4,269,169 2,258,653
Transfer agent fees 535,142 487,902 258,132
Custodian fees 270,096 202,633 121,357
Professional fees 48,881 24,075 29,152
Trustees' fees 17,422 9,957 8,107
Other 140,409 79,371 44,270
- ------------------------------------------------------------------------------
TOTAL EXPENSES 5,424,819 5,073,107 2,719,671
Less--Expenses reimbursable and fees
waived by Goldman Sachs (160,669) (592,281) (30,990)
- ------------------------------------------------------------------------------
Net Expenses 5,264,150 4,480,826 2,688,681
Administration unit fees 117,600 510,535 66,034
Service unit fees 300,300 40,053 342,976
- ------------------------------------------------------------------------------
NET EXPENSES AND UNIT FEES 5,682,050 5,031,414 3,097,691
- ------------------------------------------------------------------------------
NET INVESTMENT INCOME 65,665,475 64,160,830 32,889,284
- ------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS 7,264 7,828 39,273
- ------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $65,672,739 $64,168,658 $32,928,557
- ------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA ILA ILA ILA
TREASURY TREASURY ILA TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
OBLIGATIONS INSTRUMENTS FEDERAL DIVERSIFIED CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$42,476,661 $41,956,511 $150,831,476 $60,259,120 $18,148,019 $4,024,935
- -----------------------------------------------------------------------------
2,682,436 2,802,009 9,555,781 5,788,344 1,803,245 394,631
306,564 320,230 1,092,179 661,525 206,085 45,100
151,972 151,227 402,941 119,196 48,325 20,563
22,843 17,511 50,420 47,886 12,163 5,498
8,079 4,584 19,867 17,105 3,589 985
33,642 71,848 122,624 152,488 101,159 25,739
- -----------------------------------------------------------------------------
3,205,536 3,367,409 11,243,812 6,786,544 2,174,566 492,516
(6,756) (1,632,054) (3,970,362) (1,544,933) (21,406) (119,295)
- -----------------------------------------------------------------------------
3,198,780 1,735,355 7,273,450 5,241,611 2,153,160 373,221
311,981 296,919 1,119,368 119,510 508 46,589
361,567 1,020,955 209,156 102,409 2 2
- -----------------------------------------------------------------------------
3,872,328 3,053,229 8,601,974 5,463,530 2,153,670 419,812
- -----------------------------------------------------------------------------
38,604,333 38,903,282 142,229,502 54,795,590 15,994,349 3,605,123
- -----------------------------------------------------------------------------
68,700 83,128 74,776 (15,310) 1,331 --
- -----------------------------------------------------------------------------
$38,673,033 $38,986,410 $142,304,278 $54,780,280 $15,995,680 $3,605,123
- -----------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
27
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA
PRIME MONEY ILA
OBLIGATIONS MARKET GOVERNMENT
PORTFOLIO (a) PORTFOLIO PORTFOLIO
--------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 65,665,475 $ 64,160,830 $ 32,889,284
Net realized gain (loss)
on investment transac-
tions 7,264 7,828 39,273
- -------------------------------------------------------------------------------
Net increase in net as-
sets resulting from op-
erations 65,672,739 64,168,658 32,928,557
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income
ILA units (59,354,126) (47,350,587) (27,429,780)
ILA Administration units (1,861,296) (15,644,221) (905,728)
ILA Service units (4,418,670) (1,166,022) (4,550,936)
ILA B units (26,790) -- --
ILA C units (4,593) -- --
Net realized gain on in-
vestment transactions
ILA units (7,654) (6,079) (48,379)
ILA Administration units (240) (2,008) (1,597)
ILA Service units (570) (150) (8,027)
ILA B units (3) -- --
ILA C units (1) -- --
- -------------------------------------------------------------------------------
Total distributions to
unitholders (65,673,943) (64,169,067) (32,944,447)
- -------------------------------------------------------------------------------
FROM UNIT TRANSACTIONS
(AT $1.00 PER UNIT):
Proceeds from sales of
units 8,100,238,207 10,177,000,201 3,631,302,781
Reinvestment of dividends
and distributions 36,672,387 54,788,884 17,235,209
Cost of units repurchased (8,424,145,429) (10,086,895,886) (3,919,007,935)
- -------------------------------------------------------------------------------
Increase (decrease) in
net assets resulting
from unit transactions (287,234,835) 144,893,199 (270,469,945)
- -------------------------------------------------------------------------------
Total increase (de-
crease) (287,236,039) 144,892,790 (270,485,835)
NET ASSETS:
Beginning of year 1,263,578,096 989,199,907 824,933,951
- -------------------------------------------------------------------------------
End of year $ 976,342,057 $ 1,134,092,697 $ 554,448,116
- -------------------------------------------------------------------------------
Accumulated undistributed
net investment income -- -- $ 2,840
- -------------------------------------------------------------------------------
SUMMARY OF UNIT TRANSAC-
TIONS (AT $1.00 PER
UNIT)
ILA UNITS:
Units sold 6,992,549,668 6,229,278,910 3,133,684,985
Reinvestment of divi-
dends and distributions 32,469,384 40,419,776 13,509,545
Units repurchased (7,313,358,850) (6,166,699,293) (3,381,375,693)
- -------------------------------------------------------------------------------
(288,339,798) 102,999,393 (234,181,163)
- -------------------------------------------------------------------------------
ILA ADMINISTRATION UNITS:
Units sold 305,758,205 3,772,593,876 76,180,173
Reinvestment of divi-
dends and distributions 1,666,739 14,007,620 255,167
Units repurchased (303,053,312) (3,736,379,689) (102,298,068)
- -------------------------------------------------------------------------------
4,371,632 50,221,807 (25,862,728)
- -------------------------------------------------------------------------------
ILA SERVICE UNITS:
Units sold 793,008,962 175,127,415 421,437,623
Reinvestment of divi-
dends and distributions 2,516,141 361,488 3,470,497
Units repurchased (801,916,230) (183,816,904) (435,334,174)
- -------------------------------------------------------------------------------
(6,391,127) (8,328,001) (10,426,054)
- -------------------------------------------------------------------------------
Net increase (decrease)
in units (290,359,293)* 144,893,199 (270,469,945)
- -------------------------------------------------------------------------------
</TABLE>
* In addition, ILA B units had sales, reinvestments of dividends and
distributions and repurchases of 6,341,071, 19,157 and 5,132,727 units,
respectively, for a net increase of 1,227,501 units. ILA C units had sales,
reinvestments of dividends and distributions and repurchases of 2,580,301,
966 and 684,310 units, respectively, for a net increase of 1,896,957 units.
(a) ILA Prime Obligations Portfolio C unit activity commenced on August 15,
1997.
(b) ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New York Portfolio
Service unit activity commenced on September 15, 1997.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA ILA
ILA ILA TAX- TAX- TAX-
TREASURY TREASURY ILA EXEMPT EXEMPT EXEMPT
OBLIGATIONS INSTRUMENTS FEDERAL DIVERSIFIED CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO (b) PORTFOLIO (b)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 38,604,333 $ 38,903,282 $ 142,229,502 $ 54,795,590 $ 15,994,349 $ 3,605,123
68,700 83,128 74,776 (15,310) 1,331 --
- -----------------------------------------------------------------------------------------------------
38,673,033 38,986,410 142,304,278 54,780,280 15,995,680 3,605,123
- -----------------------------------------------------------------------------------------------------
(27,001,884) (20,917,629) (106,705,052) (52,227,688) (15,984,157) (2,645,413)
(5,544,143) (4,217,185) (30,190,717) (1,423,227) (10,180) (959,697)
(6,053,628) (13,765,962) (5,333,733) (1,144,675) (12) (13)
-- -- -- -- -- --
-- -- -- -- -- --
(72,833) (51,900) (4,171) -- -- --
(14,954) (10,463) (1,180) -- -- --
(16,329) (34,156) (209) -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
(38,703,771) (38,997,295) (142,235,062) (54,795,590) (15,994,349) (3,605,123)
- -----------------------------------------------------------------------------------------------------
5,211,063,367 3,670,371,899 16,814,872,375 9,843,836,580 3,353,570,112 827,650,114
13,130,596 16,821,105 103,222,618 43,365,293 14,638,737 3,317,213
(5,212,556,500) (4,193,476,260) (17,593,694,622) (9,951,681,538) (3,217,463,359) (810,579,568)
- -----------------------------------------------------------------------------------------------------
11,637,463 (506,283,256) (675,599,629) (64,479,665) 150,745,490 20,387,759
- -----------------------------------------------------------------------------------------------------
11,606,725 (506,294,141) (675,530,413) (64,494,975) 150,746,821 20,387,759
807,066,550 1,230,605,683 3,290,630,276 1,602,460,813 440,618,354 114,494,481
- -----------------------------------------------------------------------------------------------------
$ 818,673,275 $ 724,311,542 $ 2,615,099,863 $ 1,537,965,838 $ 591,365,175 $ 134,882,240
- -----------------------------------------------------------------------------------------------------
$ 4,678 $ 2,506 -- $ 362,642 $ 10,495 $ 1,634
- -----------------------------------------------------------------------------------------------------
3,424,838,381 2,560,753,797 12,019,743,098 9,577,662,569 3,352,291,159 495,921,548
11,264,434 15,705,121 86,047,218 42,436,074 14,638,445 2,353,341
(3,420,432,815) (2,955,211,656) (12,358,958,269) (9,655,040,327) (3,216,403,921) (465,562,390)
- -----------------------------------------------------------------------------------------------------
15,670,000 (378,752,738) (253,167,953) (34,941,684) 150,525,683 32,712,499
- -----------------------------------------------------------------------------------------------------
878,884,012 330,854,584 4,080,488,784 87,602,648 1,277,453 331,727,066
510,538 973,977 15,900,268 171,471 283 963,862
(864,080,649) (370,865,445) (4,360,940,804) (118,904,272) (1,059,438) (345,017,178)
- -----------------------------------------------------------------------------------------------------
15,313,901 (39,036,884) (264,551,752) (31,130,153) 218,298 (12,326,250)
- -----------------------------------------------------------------------------------------------------
907,340,974 778,763,518 714,640,493 178,571,363 1,500 1,500
1,355,624 142,007 1,275,132 757,748 9 10
(928,043,036) (867,399,159) (873,795,549) (177,736,939) -- --
- -----------------------------------------------------------------------------------------------------
(19,346,438) (88,493,634) (157,879,924) 1,592,172 1,509 1,510
- -----------------------------------------------------------------------------------------------------
11,637,463 (506,283,256) (675,599,629) (64,479,665) 150,745,490 20,387,759
- -----------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
29
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA
PRIME MONEY ILA
OBLIGATIONS MARKET GOVERNMENT
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 75,135,513 $ 50,329,934 $ 35,679,612
Net realized gain (loss)
on investment transac-
tions 72,405 72,865 62,662
- -------------------------------------------------------------------------------
Net increase in net as-
sets resulting from op-
erations 75,207,918 50,402,799 35,742,274
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO
UNITHOLDERS FROM:
Net investment income
ILA units (67,076,054) (38,261,044) (29,556,990)
ILA Administration units (2,206,827) (10,545,315) (2,048,010)
ILA Service units (5,850,540) (1,523,575) (4,074,612)
ILA B units (2,092) -- --
Net realized gain on in-
vestment transactions
ILA units (65,059) (54,983) (38,029)
ILA Administration units (2,127) (15,267) (2,635)
ILA Service units (5,640) (2,206) (5,242)
- -------------------------------------------------------------------------------
Total distributions to
unitholders (75,208,339) (50,402,390) (35,725,518)
- -------------------------------------------------------------------------------
FROM UNIT TRANSACTIONS (AT
$1.00 PER UNIT):
Proceeds from sales of
units 9,633,671,566 8,281,604,075 5,115,245,365
Reinvestment of dividends
and distributions 40,414,429 38,191,105 17,312,306
Cost of units repurchased (9,962,009,233) (8,092,253,028) (5,011,078,568)
- -------------------------------------------------------------------------------
Increase (decrease) in
net assets resulting
from unit transactions (287,923,238) 227,542,152 121,479,103
- -------------------------------------------------------------------------------
Total increase (decrease) (287,923,659) 227,542,561 121,495,859
NET ASSETS:
Beginning of year 1,551,501,755 761,657,346 703,438,092
- -------------------------------------------------------------------------------
End of year $ 1,263,578,096 $ 989,199,907 $ 824,933,951
- -------------------------------------------------------------------------------
Accumulated undistributed
net investment income -- -- --
- -------------------------------------------------------------------------------
SUMMARY OF UNIT TRANSAC-
TIONS (AT $1.00 PER
UNIT):
ILA UNITS:
Units sold 8,756,241,159 5,161,953,773 4,490,979,392
Reinvestment of dividends
and distributions 36,833,028 30,348,683 13,978,786
Units repurchased (8,899,537,496) (5,063,361,343) (4,380,790,567)
- -------------------------------------------------------------------------------
(106,463,309) 128,941,113 124,167,611
- -------------------------------------------------------------------------------
ILA ADMINISTRATION UNITS:
Units sold 318,656,203 2,902,067,359 220,574,807
Reinvestment of dividends
and distributions 1,520,549 7,510,848 283,223
Units repurchased (359,456,201) (2,816,742,074) (232,371,387)
- -------------------------------------------------------------------------------
(39,279,449) 92,836,133 (11,513,357)
- -------------------------------------------------------------------------------
ILA SERVICE UNITS:
Units sold 558,266,701 217,582,943 403,691,166
Reinvestment of dividends
and distributions 2,060,072 331,574 3,050,297
Units repurchased (702,853,581) (212,149,611) (397,916,614)
- -------------------------------------------------------------------------------
(142,526,808) 5,764,906 8,824,849
- -------------------------------------------------------------------------------
Net increase (decrease) in
units (288,269,566)* 227,542,152 121,479,103
- -------------------------------------------------------------------------------
</TABLE>
* In addition, ILA B units had sales, reinvestments of dividends and
distributions and repurchases of 507,503, 780 and 161,955 units,
respectively, for a net increase of 346,328 units.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ILA ILA ILA ILA ILA
TREASURY TREASURY ILA TAX-EXEMPT TAX-EXEMPT TAX-EXEMPT
OBLIGATIONS INSTRUMENTS FEDERAL DIVERSIFIED CALIFORNIA NEW YORK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 44,242,234 $ 50,019,031 $ 137,805,192 $ 49,128,456 $ 12,042,847 $ 3,053,285
195,578 416,602 (4,477) (12,968) 15 (4,539)
- -----------------------------------------------------------------------------------------------------
44,437,812 50,435,633 137,800,715 49,115,488 12,042,862 3,048,746
- -----------------------------------------------------------------------------------------------------
(32,818,890) (30,911,761) (101,011,206) (46,819,418) (12,036,826) (2,289,010)
(4,742,767) (4,651,770) (30,041,532) (1,375,597) (6,021) (764,275)
(6,680,577) (14,455,500) (6,752,454) (933,441) -- --
-- -- -- -- -- --
(124,367) (251,459) -- -- -- --
(17,973) (37,841) -- -- -- --
(25,316) (117,591) -- -- -- --
- -----------------------------------------------------------------------------------------------------
(44,409,890) (50,425,922) (137,805,192) (49,128,456) (12,042,847) (3,053,285)
- -----------------------------------------------------------------------------------------------------
5,362,879,167 5,282,794,697 15,965,974,823 9,518,523,372 2,958,021,573 648,758,829
13,347,956 20,444,542 79,358,869 35,078,864 11,445,149 2,949,980
(5,492,732,128) (4,850,904,367) (15,106,127,095) (9,392,133,030) (2,875,637,134) (654,470,394)
- -----------------------------------------------------------------------------------------------------
(116,505,005) 452,334,872 939,206,597 161,469,206 93,829,588 (2,761,585)
- -----------------------------------------------------------------------------------------------------
(116,477,083) 452,344,583 939,202,120 161,456,238 93,829,603 (2,766,124)
923,543,633 778,261,100 2,351,428,156 1,441,004,575 346,788,751 117,260,605
- -----------------------------------------------------------------------------------------------------
$ 807,066,550 $ 1,230,605,683 $ 3,290,630,276 $ 1,602,460,813 $ 440,618,354 $ 114,494,481
- -----------------------------------------------------------------------------------------------------
-- -- -- $ 362,642 $ 10,495 $ 1,634
- -----------------------------------------------------------------------------------------------------
3,696,243,017 3,783,423,031 11,171,686,790 9,264,641,627 2,957,305,487 340,781,821
11,811,603 19,300,481 66,486,820 34,471,658 11,444,982 2,236,468
(3,844,547,762) (3,680,022,103) (10,666,427,699) (9,127,243,309) (2,875,001,835) (363,376,230)
- -----------------------------------------------------------------------------------------------------
(136,493,142) 122,701,409 571,745,911 171,869,976 93,748,634 (20,357,941)
- -----------------------------------------------------------------------------------------------------
659,581,577 470,006,128 3,606,492,816 142,908,870 716,086 307,977,008
855,243 1,082,829 11,506,068 298,114 167 713,512
(644,240,509) (402,096,387) (3,340,378,274) (132,882,806) (635,299) (291,094,164)
- -----------------------------------------------------------------------------------------------------
16,196,311 68,992,570 277,620,610 10,324,178 80,954 17,596,356
- -----------------------------------------------------------------------------------------------------
1,007,054,573 1,029,365,538 1,187,795,217 110,972,875 -- --
681,110 61,232 1,365,981 309,092 -- --
(1,003,943,857) (768,785,877) (1,099,321,122) (132,006,915) -- --
- -----------------------------------------------------------------------------------------------------
3,791,826 260,640,893 89,840,076 (20,724,948) -- --
- -----------------------------------------------------------------------------------------------------
(116,505,005) 452,334,872 939,206,597 161,469,206 93,829,588 (2,761,585)
- -----------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
31
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------- ---------------------------------------
1. ORGANIZATION
Effective May 1, 1997, the Goldman Sachs Money Market Trust was reorganized
from a Massachusetts business trust to a Delaware business trust named the
Goldman Sachs Trust (the "Trust"). The Trust includes the Goldman Sachs--
Institutional Liquid Assets Portfolios, collectively "ILA". The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. ILA consists of nine portfolios: Prime
Obligations, Money Market, Government, Treasury Obligations, Treasury
Instruments, Federal, Tax-Exempt Diversified, Tax-Exempt California and Tax-
Exempt New York. All of the portfolios are diversified except for the Tax-
Exempt California and Tax-Exempt New York Portfolios. ILA offers three classes
of units for each of its portfolios: ILA units, ILA Administration units and
ILA Service units. In addition, the Prime Obligations Portfolio offers ILA B
and ILA C units. The investment objective of the Funds is to maximize current
income to the extent consistent with the preservation of capital and
maintenance of liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by ILA. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the reported amounts.
A. Investment Valuation--
ILA uses the amortized-cost method for valuing portfolio securities, which
approximates market value. Under this method, all investments purchased at a
discount or premium are valued by amortizing the difference between the
original purchase price and maturity value of the issue over the period to
maturity.
B. Interest Income--
Interest income is determined on the basis of interest accrued, premium
amortized and discount earned.
C. Federal Taxes--
It is each portfolio's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
each year substantially all investment company taxable and tax-exempt income to
its unitholders. Accordingly, no federal tax provisions are required.
The characterization of distributions to unitholders for financial reporting
purposes is determined in accordance with federal income tax rules. Therefore,
the source of the Portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital,
depending on the type of book/tax differences that may exist.
At December 31, 1997 (tax year end), the following portfolios had capital loss
carryforwards for U.S. Federal tax purposes of approximately:
<TABLE>
<CAPTION>
YEARS OF
PORTFOLIO AMOUNT EXPIRATION
--------- -------- ------------
<S> <C> <C>
Tax-Exempt Diversified $189,400 1998 to 2005
Tax-Exempt New York 6,519 1999 to 2004
Tax-Exempt California 28,689 2000 to 2003
</TABLE>
These amounts are available to be carried forward to offset future capital
gains to the extent permitted by applicable laws or regulations.
D. Expenses--
Expenses incurred by ILA which do not specifically relate to an individual
portfolio of ILA are allocated to the portfolios based on each portfolio's
relative average net assets for the period.
Unitholders of ILA Administration, ILA Service, ILA B and ILA C units bear all
expenses and fees paid to service and distribution organizations for their
services
---------------------------------------
- ---------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
with respect to such units as well as other expenses (subject to expense
limitations) which are directly attributable to such units.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser pursuant to
an Investment Management Agreement (the "Agreement"). Under the Agreement,
GSAM, subject to general supervision by the Trust's Board of Trustees, manages
the portfolios and provides for the administration of ILA's other affairs. As
compensation for the services rendered under the Agreement and the assumption
of the expenses related thereto, GSAM is entitled to a fee, computed daily and
payable monthly, at an annual rate equal to .35% of each portfolio's average
daily net assets. For the year ended December 31, 1997, GSAM has voluntarily
agreed to waive a portion of its management fees for the Money Market, Treasury
Instruments, Federal, Tax-Exempt Diversified and Tax-Exempt New York
Portfolios, respectively.
Goldman Sachs also serves as ILA's transfer agent under a Transfer Agency
Agreement for a fee. In addition, Goldman Sachs acts as ILA's distributor under
a Distribution Agreement for which it receives no compensation except for the
ILA B and ILA C units of Prime Obligations Portfolio. Amounts due to Goldman
Sachs are included in "Accrued expenses and other liabilities" in the
accompanying Statements of Assets and Liabilities.
GSAM has voluntarily agreed that if the sum of a portfolio's expenses
(including the advisory fee, but excluding interest, taxes, brokerage
commissions, litigation and indemnification expenses, administration,
authorized dealer service, distribution and service plan fees and other
extraordinary expenses) exceeds on an annualized basis .42% (.41% prior to May
1, 1997) of such portfolio's net assets, the portfolio will be reimbursed in
the amount of such excess monthly.
For the year ended December 31, 1997, GSAM has voluntarily agreed to reimburse
the Money Market, Treasury Instruments, Federal, Tax-Exempt Diversified and
Tax-Exempt New York Portfolios to the extent that each portfolio's expenses, as
defined above, exceed .37%, .22%, .27%, .32% and .33%, respectively, of the
average net assets per annum. Amounts due from Goldman Sachs at December 31,
1997 are included in "Other assets"in the accompanying Statements of Assets and
Liabilities.
The ILA B and ILA C units of Prime Obligations Portfolio have adopted a
Distribution Plan (the "Distribution Plan") pursuant to Rule 12b-1. Under the
Distribution Plan, Goldman Sachs is entitled to a quarterly fee for
distribution services equal, on an annual basis, up to .75% of ILA B and ILA C
units average daily net assets.
The ILA B and ILA C units of Prime Obligations Portfolio have also adopted an
Authorized Dealer Service Plan (the "Service Plan") pursuant to which Goldman
Sachs and Authorized Dealers are compensated for providing personal and account
maintenance services. ILA B and ILA C units pay a fee under this Service Plan
equal, on an annual basis, up to .25% of ILA B and C units average daily net
assets.
---------------------------------------
- ---------------------------------------
33
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
3. AGREEMENTS (continued)
The chart below outlines the fee waivers and expense reimbursements for the
year ended December 31, 1997 and amounts owed to and due from Goldman Sachs at
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Amounts
Amounts due
Management Expense due to from
Fee Reimburse- Goldman Goldman
Portfolio Waived ments Total Sachs Sachs
<S> <C> <C> <C> <C> <C>
Prime
Obligations
Portfolio -- 161 161 460 --
- ------------------------------------------------------------
Money Market
Portfolio 525 67 592 421 --
- ------------------------------------------------------------
Government
Portfolio -- 31 31 230 --
- ------------------------------------------------------------
Treasury
Obligations
Portfolio -- 7 7 302 --
- ------------------------------------------------------------
Treasury
Instruments
Portfolio 1,552 80 1,632 180 --
- ------------------------------------------------------------
Federal
Portfolio 3,925 45 3,970 552 --
- ------------------------------------------------------------
Tax-Exempt
Diversified
Portfolio 1,544 1 1,545 563 --
- ------------------------------------------------------------
Tax-Exempt
California
Portfolio -- 21 21 197 --
- ------------------------------------------------------------
Tax-Exempt New
York Portfolio 94 25 119 34 5
</TABLE>
4. ADMINISTRATION AND SERVICE PLANS
ILA has adopted Administration and Service Plans. These plans allow for ILA
Administration units and ILA Service units, respectively, to compensate service
organizations for providing varying levels of account administration and
unitholder liaison services to their customers who are beneficial owners of
such units. The Administration and Service Plans provide for compensation to
the service organizations in an amount up to .15% and .40% (on an annualized
basis), respectively, of the average daily net asset value of the respective
units.
5. LINE OF CREDIT FACILITY
ILA participates in a $250,000,000 uncommitted, unsecured revolving line of
credit facility to be used solely for temporary or emergency purposes. Under
the most restrictive arrangement, each Portfolio must own securities having a
market value in excess of 300% of the total bank borrowings. The interest rate
on the borrowings is based on the Federal Funds rate. During the year ended
December 31, 1997, ILA did not have any borrowings under this facility.
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping by a custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNTS
The ILA Portfolios, together with other registered investment companies having
management agreements with GSAM or its affiliates, may transfer uninvested cash
balances into joint accounts, the daily aggregate balances of which are
invested in one or more repurchase agreements. The underlying securities for
the repurchase agreements are U.S. Treasury obligations.
As of December 31, 1997, the Prime Obligations, Money Market, Government and
Treasury Obligations Portfolios had investments in the following joint account
of $2,000,000, $32,000,000, $114,300,000 and $275,500,000 in principal amount,
respectively. As of December 31, 1997, the repurchase agreements in this joint
account, along with the corresponding underlying securities
- --------------------------------------- ---------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
7. JOINT REPURCHASE AGREEMENT ACCOUNTS (continued)
(including the type of security, market value, interest rate and maturity
date), were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS
Chase Manhattan Securities, dated 12/31/97, repurchase price $200,061,111
(total collateral value $204,001,955 consisting of U.S. Treasury Notes:
5.50%-8.75%, 02/15/00-08/31/00)
$ 200,000,000 5.50% 01/02/98 $200,000,000
Donaldson, Lufkin & Jenrette, Inc., dated 12/31/97, repurchase price
$510,185,583 (total collateral value $520,200,021 consisting of U.S.
Treasury Notes: 5.125%-8.125%, 01/31/98-02/15/04; U.S. Treasury Stripped
Interest only Securities: 02/15/98-02/15/04; U.S. Treasury Stripped
Principal Security: 08/15/01; U.S. Treasury Bill: 05/14/98)
510,000,000 6.55 01/02/98 510,000,000
Swiss Bank Corp., dated 12/31/97, repurchase price $735,367,495 (total
collateral value $749,834,669 consisting of U.S. Treasury Notes: 4.75%-
8.50%, 02/15/98-11/15/05; U.S. Treasury Inflation Indexed Bond: 3.375%,
01/15/07; U.S. Treasury Bills: 01/15/98-10/15/98; U.S. Treasury Bonds:
10.75%-11.125%, 08/15/03-08/15/05)
735,100,000 6.55 01/02/98 735,100,000
Swiss Bank Corp., dated 12/31/97, repurchase price $300,091,667 (total
collateral value $306,013,333 consisting of U.S. Treasury Notes: 4.75%-
8.50%, 02/15/98-11/15/05; U.S. Treasury Inflation Indexed Bond: 3.375%,
01/15/07; U.S. Treasury Bills: 01/15/98-10/15/98; U.S. Treasury Bonds:
10.75%-11.125%, 08/15/03-08/15/05)
300,000,000 5.50 01/02/98 300,000,000
Salomon-Smith Barney, Inc., dated 12/31/97, repurchase price
$1,000,369,444 (total collateral value $1,020,528,930 consisting of U.S.
Treasury Stripped Interest only Securities: 02/15/98-11/15/04; U.S.
Treasury Stripped Principal only Securities: 5.75%-11.625%, 02/15/98-
11/15/04; U.S. Treasury Bill: 10/15/98)
1,000,000,000 6.65 01/02/98 1,000,000,000
- ---------------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $2,745,100,000
- ---------------------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATION
In accordance with Statement Of Position 93-2, the Tax-Exempt Diversified
Portfolio have reclassified $70,300 from paid-in capital to accumulated
undistributed net realized gain (loss) on investment transactions.
9. OTHER MATTERS
Pursuant to an SEC exemptive order, certain of the Portfolios may enter into
certain principal transactions, including repurchase agreements, with Goldman,
Sachs & Co. subject to certain limitations which include the following: 25% of
eligible security transactions, as defined, and 10% of repurchase agreement
transactions.
---------------------------------------
- ---------------------------------------
35
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Unit Outstanding Throughout Each Period
Prime Obligations Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
-----------------------------------
Net asset Net realized Total Net asset
value at Net gain on income from value at
beginning investment investment investment Distributions end Total
of period income transactions operations to unitholders of period return(a)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0524 -- $0.0524 $(0.0524) $1.00 5.38%
1997-ILA
Administration
units........... 1.00 0.0511 -- 0.0511 (0.0511) 1.00 5.22
1997-ILA Service
units........... 1.00 0.0485 -- 0.0485 (0.0485) 1.00 4.96
1997-ILA B
units........... 1.00 0.0433 -- 0.0433 (0.0433) 1.00 4.33
1997-ILA C
units(b)........ 1.00 0.0365 -- 0.0365 (0.0365) 1.00 4.41(d)
1996-ILA units.. 1.00 0.0511 -- 0.0511 (0.0511) 1.00 5.22
1996-ILA
Administration
units........... 1.00 0.0497 -- 0.0497 (0.0497) 1.00 5.06
1996-ILA Service
units........... 1.00 0.0474 -- 0.0474 (0.0474) 1.00 4.80
1996-ILA B
units(b)........ 1.00 0.0262 -- 0.0262 (0.0262) 1.00 3.97(d)
1995-ILA units.. 1.00 0.0566 -- 0.0566 (0.0566) 1.00 5.79
1995-ILA
Administration
units........... 1.00 0.0551 -- 0.0551 (0.0551) 1.00 5.63
1995-ILA Service
units........... 1.00 0.0522 -- 0.0522 (0.0522) 1.00 5.37
1994-ILA units.. 1.00 0.0394 -- 0.0394 (0.0394) 1.00 4.07
1994-ILA
Administration
units........... 1.00 0.0379 -- 0.0379 (0.0379) 1.00 3.91
1994-ILA Service
units........... 1.00 0.0365 -- 0.0365 (0.0365) 1.00 3.66
1993-ILA units.. 1.00 0.0291 0.0002 0.0293 (0.0293) 1.00 2.97
1993-ILA
Administration
units........... 1.00 0.0275 0.0003 0.0278 (0.0278) 1.00 2.82
1993-ILA Service
units........... 1.00 0.0250 0.0001 0.0251 (0.0252) 1.00 2.56
1992-ILA units.. 1.00 0.0364 0.0010 0.0374 (0.0374) 1.00 3.75
1992-ILA
Administration
units........... 1.00 0.0339 0.0010 0.0349 (0.0349) 1.00 3.60
1992-ILA Service
units........... 1.00 0.0311 0.0010 0.0321 (0.0320) 1.00 3.34
1991-ILA units.. 1.00 0.0591 0.0003 0.0594 (0.0594) 1.00 6.10
1991-ILA
Administration
units........... 1.00 0.0568 0.0003 0.0571 (0.0571) 1.00 5.94
1991-ILA Service
units........... 1.00 0.0558 0.0003 0.0561 (0.0561) 1.00 5.68
1990-ILA units.. 1.00 0.0793 -- 0.0793 (0.0793) 1.00 8.21
1990-ILA
Administration
units(c)........ 1.00 0.0438 -- 0.0438 (0.0438) 1.00 7.81(d)
1990-ILA Service
units(c)........ 1.00 0.0425 -- 0.0425 (0.0425) 1.00 7.56(d)
1989-ILA units.. 1.00 0.0890 -- 0.0890 (0.0890) 1.00 9.27
1988-ILA units.. 1.00 0.0714 -- 0.0714 (0.0714) 1.00 7.48
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end of expenses to income to
average net average net period average net average net
assets assets (in 000's) assets assets
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.42% 5.24% $ 866,445 0.43% 5.23%
1997-ILA
Administration
units........... 0.57 5.11 28,110 0.58 5.10
1997-ILA Service
units........... 0.82 4.85 78,316 0.83 4.84
1997-ILA B
units........... 1.42 4.33 1,574 1.43 4.32
1997-ILA C
units(b)........ 1.42(d) 4.39(d) 1,897 1.43(d) 4.38(d)
1996-ILA units.. 0.41 5.11 1,154,787 0.43 5.09
1996-ILA
Administration
units........... 0.56 4.97 23,738 0.58 4.95
1996-ILA Service
units........... 0.81 4.74 84,707 0.83 4.72
1996-ILA B
units(b)........ 1.41(d) 4.09(d) 346 1.43(d) 4.07(d)
1995-ILA units.. 0.41 5.66 1,261,251 0.43 5.64
1995-ILA
Administration
units........... 0.56 5.51 63,018 0.58 5.49
1995-ILA Service
units........... 0.81 5.22 227,233 0.83 5.20
1994-ILA units.. 0.40 3.94 1,963,846 0.42 3.92
1994-ILA
Administration
units........... 0.55 3.79 149,234 0.57 3.77
1994-ILA Service
units........... 0.80 3.65 170,453 0.82 3.63
1993-ILA units.. 0.40 2.91 2,332,771 0.42 2.89
1993-ILA
Administration
units........... 0.55 2.75 189,431 0.57 2.73
1993-ILA Service
units........... 0.80 2.50 137,804 0.82 2.48
1992-ILA units.. 0.40 3.64 3,444,591 0.42 3.62
1992-ILA
Administration
units........... 0.55 3.39 257,321 0.57 3.37
1992-ILA Service
units........... 0.80 3.11 22,044 0.82 3.09
1991-ILA units.. 0.40 5.91 3,531,736 0.42 5.89
1991-ILA
Administration
units........... 0.55 5.68 198,417 0.57 5.66
1991-ILA Service
units........... 0.80 5.58 18,789 0.82 5.56
1990-ILA units.. 0.38 7.93 2,833,541 0.38 7.93
1990-ILA
Administration
units(c)........ 0.55(d) 7.62(d) 209,272 0.55(d) 7.62(d)
1990-ILA Service
units(c)........ 0.80(d) 7.25(d) 19,039 0.80(d) 7.25(d)
1989-ILA units.. 0.40 8.90 3,761,964 0.40 8.90
1988-ILA units.. 0.40 7.14 3,799,628 0.40 7.14
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) ILA Class B and C unit activity commenced during May of 1996 and August of
1997, respectively.
(c) ILA Administration and Service unit activity commenced during June of
1990.
(d) Annualized.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Money Market Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
-----------------------------------
Net asset Net realized Total Net asset
value at Net gain on income from Distributions value at
beginning investment investment investment to end Total
of period income transactions operations unitholders of period return(a)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0531 -- $0.0531 $(0.0531) $1.00 5.43%
1997-ILA
Administration
units........... 1.00 0.0515 -- 0.0515 (0.0515) 1.00 5.28
1997-ILA Service
units........... 1.00 0.0490 -- 0.0490 (0.0490) 1.00 5.01
1996-ILA units.. 1.00 0.0515 0.0001 0.0516 (0.0516) 1.00 5.27
1996-ILA
Administration
units........... 1.00 0.0500 0.0001 0.0501 (0.0501) 1.00 5.12
1996-ILA Service
units........... 1.00 0.0475 0.0001 0.0476 (0.0476) 1.00 4.86
1995-ILA units.. 1.00 0.0571 -- 0.0571 (0.0571) 1.00 5.85
1995-ILA
Administration
units........... 1.00 0.0555 -- 0.0555 (0.0555) 1.00 5.69
1995-ILA Service
units........... 1.00 0.0529 -- 0.0529 (0.0529) 1.00 5.43
1994-ILA units.. 1.00 0.0401 -- 0.0401 (0.0401) 1.00 4.13
1994-ILA
Administration
units........... 1.00 0.0388 -- 0.0388 (0.0388) 1.00 3.98
1994-ILA Service
units........... 1.00 0.0364 -- 0.0364 (0.0364) 1.00 3.72
1993-ILA units.. 1.00 0.0296 0.0003 0.0299 (0.0299) 1.00 3.03
1993-ILA
Administration
units........... 1.00 0.0281 0.0003 0.0284 (0.0284) 1.00 2.88
1993-ILA Service
units........... 1.00 0.0257 0.0002 0.0259 (0.0259) 1.00 2.62
1992-ILA units.. 1.00 0.0368 0.0004 0.0372 (0.0372) 1.00 3.76
1992-ILA
Administration
units........... 1.00 0.0356 0.0004 0.0360 (0.0360) 1.00 3.61
1992-ILA Service
units........... 1.00 0.0358 0.0006 0.0364 (0.0364) 1.00 3.35
1991-ILA units.. 1.00 0.0591 0.0004 0.0595 (0.0595) 1.00 6.12
1991-ILA
Administration
units........... 1.00 0.0574 0.0004 0.0578 (0.0578) 1.00 5.96
1991-ILA Service
units........... 1.00 0.0547 0.0004 0.0551 (0.0551) 1.00 5.70
1990-ILA units.. 1.00 0.0793 0.0001 0.0794 (0.0794) 1.00 8.24
1990-ILA
Administration
units(c)........ 1.00 0.0424 0.0001 0.0425 (0.0425) 1.00 7.86(b)
1990-ILA Service
units(c)........ 1.00 0.0438 -- 0.0438 (0.0438) 1.00 7.61(b)
1989-ILA units.. 1.00 0.0885 0.0001 0.0886 (0.0886) 1.00 9.31
1988-ILA units.. 1.00 0.0751 -- 0.0751 (0.0751) 1.00 7.66
FOR THE PERIOD DECEMBER 2, 1987 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- ---------------------------------------------------------------------------------
1987-ILA units.. 1.00 0.0063 -- 0.0063 (0.0063) 1.00 7.38(b)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net
Ratio of net Net investment
Ratio of net investment assets at Ratio of net income to
expenses to income to end expenses to average
average net average net of period average net net
assets assets (in 000's) assets assets
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.37% 5.31% $ 806,096 0.42% 5.26%
1997-ILA
Administration
units........... 0.52 5.15 307,480 0.57 5.10
1997-ILA Service
units........... 0.77 4.90 20,517 0.82 4.85
1996-ILA units.. 0.36 5.15 703,097 0.43 5.08
1996-ILA
Administration
units........... 0.51 5.00 257,258 0.58 4.93
1996-ILA Service
units........... 0.76 4.75 28,845 0.83 4.68
1995-ILA units.. 0.36 5.71 574,155 0.42 5.65
1995-ILA
Administration
units........... 0.51 5.55 164,422 0.57 5.49
1995-ILA Service
units........... 0.76 5.29 23,080 0.82 5.23
1994-ILA units.. 0.35 4.01 559,470 0.43 3.93
1994-ILA
Administration
units........... 0.50 3.88 145,867 0.58 3.80
1994-ILA Service
units........... 0.75 3.61 21,862 0.83 3.53
1993-ILA units.. 0.35 2.96 699,604 0.43 2.88
1993-ILA
Administration
units........... 0.50 2.81 150,452 0.58 2.73
1993-ILA Service
units........... 0.75 2.57 11,166 0.83 2.49
1992-ILA units.. 0.35 3.68 884,571 0.43 3.60
1992-ILA
Administration
units........... 0.50 3.56 187,445 0.58 3.48
1992-ILA Service
units........... 0.75 3.58 15,114 0.83 3.50
1991-ILA units.. 0.35 5.91 1,153,191 0.42 5.84
1991-ILA
Administration
units........... 0.50 5.74 210,330 0.57 5.67
1991-ILA Service
units........... 0.75 5.47 56,586 0.82 5.40
1990-ILA units.. 0.35 7.93 924,141 0.40 7.88
1990-ILA
Administration
units(c)........ 0.50(b) 7.63(b) 204,477 0.55(b) 7.58(b)
1990-ILA Service
units(c)........ 0.75(b) 7.46(b) 38,128 0.80(b) 7.41(b)
1989-ILA units.. 0.35 8.85 1,295,389 0.40 8.80
1988-ILA units.. 0.27 7.51 701,105 0.40 7.38
FOR THE PERIOD DECEMBER 2, 1987 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- ---------------------------------------------------------------------------------
1987-ILA units.. 0.15(b) 7.62(b) 183,633 0.40(b) 7.37(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June of
1990.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Government Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
-----------------------------------
Net
Net assets realized Total Net asset
value at Net gain on income from value at
beginning investment investment investment Distributions end Total
of period income transactions operations to unitholders of period return(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0516 -- $0.0516 $(0.0516) $1.00 5.31%
1997-ILA
Administration
units........... 1.00 0.0499 -- 0.0499 (0.0498) 1.00 5.15
1997-ILA Service
units........... 1.00 0.0478 -- 0.0478 (0.0478) 1.00 4.89
1996-ILA units.. 1.00 0.0504 0.0001 0.0505 (0.0504) 1.00 5.15
1996-ILA
Administration
units........... 1.00 0.0489 0.0001 0.0490 (0.0489) 1.00 4.99
1996-ILA Service
units........... 1.00 0.0463 0.0001 0.0464 (0.0463) 1.00 4.73
1995-ILA units.. 1.00 0.0562 0.0002 0.0564 (0.0564) 1.00 5.77
1995-ILA
Administration
units........... 1.00 0.0549 0.0002 0.0551 (0.0551) 1.00 5.62
1995-ILA Service
units........... 1.00 0.0519 0.0002 0.0521 (0.0521) 1.00 5.35
1994-ILA units.. 1.00 0.0378 0.0002 0.0380 (0.0380) 1.00 3.94
1994-ILA
Administration
units........... 1.00 0.0362 0.0002 0.0364 (0.0364) 1.00 3.79
1994-ILA Service
units........... 1.00 0.0350 0.0002 0.0352 (0.0352) 1.00 3.53
1993-ILA units.. 1.00 0.0282 0.0008 0.0290 (0.0291) 1.00 2.94
1993-ILA
Administration
units........... 1.00 0.0267 0.0008 0.0275 (0.0276) 1.00 2.79
1993-ILA Service
units........... 1.00 0.0242 0.0006 0.0248 (0.0250) 1.00 2.53
1992-ILA units.. 1.00 0.0338 0.0027 0.0365 (0.0364) 1.00 3.70
1992-ILA
Administration
units........... 1.00 0.0325 0.0027 0.0352 (0.0351) 1.00 3.55
1992-ILA Service
units........... 1.00 0.0309 0.0030 0.0339 (0.0336) 1.00 3.29
1991-ILA units.. 1.00 0.0567 0.0011 0.0578 (0.0578) 1.00 5.91
1991-ILA
Administration
units........... 1.00 0.0545 0.0011 0.0556 (0.0556) 1.00 5.75
1991-ILA Service
units........... 1.00 0.0522 0.0011 0.0533 (0.0533) 1.00 5.49
1990-ILA units.. 1.00 0.0779 0.0003 0.0782 (0.0782) 1.00 8.11
1990-ILA
Administration
units(c)........ 1.00 0.0439 0.0004 0.0443 (0.0443) 1.00 7.74(b)
1990-ILA Service
units(c)........ 1.00 0.0359 0.0002 0.0361 (0.0363) 1.00 7.42(b)
1989-ILA units.. 1.00 0.0877 0.0001 0.0878 (0.0878) 1.00 9.15
1988-ILA units.. 1.00 0.0716 0.0002 0.0718 (0.0718) 1.00 7.42
1987-ILA units.. 1.00 0.0622 0.0001 0.0623 (0.0624) 1.00 6.43
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end expenses to income to
average net average net of period average net average net
assets assets (in 000's) assets assets
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.42% 5.16% $460,457 0.42% 5.16%
1997-ILA
Administration
units........... 0.57 4.98 10,192 0.57 4.98
1997-ILA Service
units........... 0.82 4.78 83,799 0.82 4.78
1996-ILA units.. 0.41 5.04 694,651 0.44 5.01
1996-ILA
Administration
units........... 0.56 4.89 36,055 0.59 4.86
1996-ILA Service
units........... 0.81 4.63 94,228 0.84 4.60
1995-ILA units.. 0.41 5.62 570,469 0.43 5.60
1995-ILA
Administration
units........... 0.56 5.49 47,558 0.58 5.47
1995-ILA Service
units........... 0.81 5.19 85,401 0.83 5.17
1994-ILA units.. 0.40 3.78 881,520 0.44 3.74
1994-ILA
Administration
units........... 0.55 3.62 95,483 0.59 3.58
1994-ILA Service
units........... 0.80 3.50 156,930 0.84 3.46
1993-ILA units.. 0.40 2.82 1,315,378 0.43 2.79
1993-ILA
Administration
units........... 0.55 2.67 161,845 0.58 2.64
1993-ILA Service
units........... 0.80 2.42 101,272 0.83 2.39
1992-ILA units.. 0.40 3.38 1,785,472 0.42 3.36
1992-ILA
Administration
units........... 0.55 3.25 461,542 0.57 3.23
1992-ILA Service
units........... 0.80 3.09 56,389 0.82 3.07
1991-ILA units.. 0.40 5.67 2,103,627 0.43 5.64
1991-ILA
Administration
units........... 0.55 5.45 464,060 0.58 5.42
1991-ILA Service
units........... 0.80 5.22 200,176 0.83 5.19
1990-ILA units.. 0.39 7.79 2,203,756 0.39 7.79
1990-ILA
Administration
units(c)........ 0.55(b) 7.49(b) 296,313 0.55(b) 7.49(b)
1990-ILA Service
units(c)........ 0.80(b) 7.15(b) 132,888 0.80(b) 7.15(b)
1989-ILA units.. 0.40 8.77 2,268,330 0.40 8.77
1988-ILA units.. 0.40 7.16 2,197,796 0.40 7.16
1987-ILA units.. 0.40 6.22 2,243,870 0.40 6.22
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June and
July of 1990, respectively.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Treasury Obligations Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
-----------------------------------
Net asset Net realized Total Net asset
value at Net gain on income from Distributions value at
beginning investment investment investment to end Total
of period income transactions operations unitholders of period return(a)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0514 $0.0001 $0.0515 $(0.0513) $1.00 5.26%
1997-ILA
Administration
units........... 1.00 0.0500 0.0001 0.0501 (0.0508) 1.00 5.10
1997-ILA Service
units........... 1.00 0.0474 0.0001 0.0475 (0.0478) 1.00 4.84
1996-ILA units.. 1.00 0.0498 0.0002 0.0500 (0.0500) 1.00 5.11
1996-ILA
Administration
units........... 1.00 0.0483 0.0003 0.0486 (0.0486) 1.00 4.95
1996-ILA Service
units........... 1.00 0.0459 0.0001 0.0460 (0.0460) 1.00 4.69
1995-ILA units.. 1.00 0.0551 0.0007 0.0558 (0.0558) 1.00 5.73
1995-ILA
Administration
units........... 1.00 0.0537 0.0007 0.0544 (0.0544) 1.00 5.57
1995-ILA Service
units........... 1.00 0.0511 0.0007 0.0518 (0.0518) 1.00 5.31
1994-ILA units.. 1.00 0.0377 -- 0.0377 (0.0377) 1.00 3.91
1994-ILA
Administration
units........... 1.00 0.0368 -- 0.0368 (0.0368) 1.00 3.75
1994-ILA Service
units........... 1.00 0.0340 -- 0.0340 (0.0340) 1.00 3.49
1993-ILA units.. 1.00 0.0279 0.0006 0.0285 (0.0286) 1.00 2.89
1993-ILA
Administration
units........... 1.00 0.0264 0.0006 0.0270 (0.0270) 1.00 2.74
1993-ILA Service
units........... 1.00 0.0239 0.0006 0.0245 (0.0246) 1.00 2.48
1992-ILA units.. 1.00 0.0339 0.0025 0.0364 (0.0362) 1.00 3.65
1992-ILA
Administration
units........... 1.00 0.0320 0.0023 0.0343 (0.0343) 1.00 3.49
1992-ILA Service
units........... 1.00 0.0294 0.0024 0.0318 (0.0318) 1.00 3.23
1991-ILA units.. 1.00 0.0557 0.0018 0.0575 (0.0575) 1.00 5.90
1991-ILA
Administration
units........... 1.00 0.0540 0.0018 0.0558 (0.0558) 1.00 5.74
1991-ILA Service
units........... 1.00 0.0515 0.0018 0.0533 (0.0533) 1.00 5.48
1990-ILA units.. 1.00 0.0772 0.0002 0.0774 (0.0774) 1.00 8.05
1990-ILA
Administration
units(c)........ 1.00 0.0413 0.0002 0.0415 (0.0415) 1.00 7.67(b)
1990-ILA Service
units(c)........ 1.00 0.0417 0.0003 0.0420 (0.0421) 1.00 7.42(b)
1989-ILA units.. 1.00 0.0864 0.0005 0.0869 (0.0869) 1.00 9.06
1988-ILA units.. 1.00 0.0704 0.0004 0.0708 (0.0708) 1.00 7.30
1987-ILA units.. 1.00 0.0617 0.0002 0.0619 (0.0619) 1.00 6.32
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end expenses to income to
average net average net of period average net average net
assets assets (in 000's) assets assets
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.42% 5.12% $ 590,381 0.42% 5.12%
1997-ILA
Administration
units........... 0.57 4.99 124,159 0.57 4.99
1997-ILA Service
units........... 0.82 4.73 104,133 0.82 4.73
1996-ILA units.. 0.41 4.98 574,734 0.43 4.96
1996-ILA
Administration
units........... 0.56 4.83 108,850 0.58 4.81
1996-ILA Service
units........... 0.81 4.59 123,483 0.83 4.57
1995-ILA units.. 0.41 5.51 711,209 0.43 5.49
1995-ILA
Administration
units........... 0.56 5.37 92,643 0.58 5.35
1995-ILA Service
units........... 0.81 5.11 119,692 0.83 5.09
1994-ILA units.. 0.40 3.77 713,816 0.44 3.73
1994-ILA
Administration
units........... 0.55 3.68 97,626 0.59 3.64
1994-ILA Service
units........... 0.80 3.40 108,972 0.84 3.35
1993-ILA units.. 0.40 2.79 969,565 0.43 2.76
1993-ILA
Administration
units........... 0.55 2.64 121,327 0.58 2.61
1993-ILA Service
units........... 0.80 2.39 185,506 0.83 2.36
1992-ILA units.. 0.40 3.39 1,328,036 0.43 3.36
1992-ILA
Administration
units........... 0.55 3.20 152,804 0.58 3.17
1992-ILA Service
units........... 0.80 2.94 183,208 0.83 2.91
1991-ILA units.. 0.40 5.57 1,709,321 0.43 5.54
1991-ILA
Administration
units........... 0.55 5.40 146,795 0.58 5.37
1991-ILA Service
units........... 0.80 5.15 154,419 0.83 5.12
1990-ILA units.. 0.39 7.72 1,816,991 0.39 7.72
1990-ILA
Administration
units(c)........ 0.55(b) 7.42(b) 132,088 0.55(b) 7.42(b)
1990-ILA Service
units(c)........ 0.80(b) 7.11(b) 148,323 0.80(b) 7.11(b)
1989-ILA units.. 0.40 8.64 1,769,974 0.40 8.64
1988-ILA units.. 0.40 7.04 1,657,215 0.40 7.04
1987-ILA units.. 0.40 6.17 1,693,767 0.40 6.17
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June of
1990, respectively.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Treasury Instruments Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
-----------------------------------
Net asset Net realized Total Net asset
value at Net gain on income from Distributions value at
beginning investment investment investment to end Total
of period income transactions operations unitholders of period return(a)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0502 $0.0001 $0.0503 $(0.0503) $1.00 5.17%
1997-ILA
Administration
units........... 1.00 0.0488 0.0001 0.0489 (0.0489) 1.00 5.01
1997-ILA Service
units........... 1.00 0.0463 0.0001 0.0464 (0.0464) 1.00 4.75
1996-ILA units.. 1.00 0.0496 0.0004 0.0500 (0.0500) 1.00 5.10
1996-ILA
Administration
units........... 1.00 0.0482 0.0004 0.0486 (0.0486) 1.00 4.95
1996-ILA Service
units........... 1.00 0.0456 0.0004 0.0460 (0.0460) 1.00 4.68
1995-ILA units.. 1.00 0.0550 0.0006 0.0556 (0.0556) 1.00 5.70
1995-ILA
Administration
units........... 1.00 0.0534 0.0007 0.0541 (0.0540) 1.00 5.54
1995-ILA Service
units........... 1.00 0.0500 0.0005 0.0505 (0.0505) 1.00 5.28
1994-ILA units.. 1.00 0.0397 0.0001 0.0398 (0.0398) 1.00 4.01
1994-ILA
Administration
units........... 1.00 0.0397 0.0001 0.0398 (0.0398) 1.00 3.85
1994-ILA Service
units........... 1.00 0.0371 0.0001 0.0372 (0.0372) 1.00 3.59
1993-ILA units.. 1.00 0.0288 0.0006 0.0294 (0.0294) 1.00 2.98
1993-ILA
Administration
units........... 1.00 0.0273 0.0006 0.0279 (0.0279) 1.00 2.83
1993-ILA Service
units........... 1.00 0.0248 0.0006 0.0254 (0.0254) 1.00 2.57
1992-ILA units.. 1.00 0.0338 0.0012 0.0350 (0.0350) 1.00 3.54
1992-ILA
Administration
units........... 1.00 0.0326 0.0012 0.0338 (0.0338) 1.00 3.38
1992-ILA Service
units........... 1.00 0.0275 0.0011 0.0286 (0.0286) 1.00 3.13
FOR THE PERIOD JANUARY 30, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- ---------------------------------------------------------------------------------
1991-ILA units.. 1.00 0.0486 0.0013 0.0499 (0.0499) 1.00 5.75(b)
1991-ILA
Administration
units (c)....... 1.00 0.0210 0.0010 0.0220 (0.0220) 1.00 5.21(b)
1991-ILA Service
units (c)....... 1.00 0.0473 0.0009 0.0482 (0.0482) 1.00 5.33(b)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end expenses to income to
average net average net of period average net average net
assets assets (in 000's) assets assets
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.22% 5.02% $330,241 0.42% 4.82%
1997-ILA
Administration
units........... 0.37 4.88 98,667 0.57 4.68
1997-ILA Service
units........... 0.62 4.63 295,404 0.82 4.43
1996-ILA units.. 0.21 4.96 708,999 0.43 4.74
1996-ILA
Administration
units........... 0.36 4.82 137,706 0.58 4.60
1996-ILA Service
units........... 0.61 4.56 383,901 0.83 4.34
1995-ILA units.. 0.21 5.50 586,294 0.44 5.27
1995-ILA
Administration
units........... 0.36 5.34 68,713 0.59 5.11
1995-ILA Service
units........... 0.61 5.00 123,254 0.84 4.77
1994-ILA units.. 0.20 3.96 547,351 0.43 3.73
1994-ILA
Administration
units........... 0.35 3.97 64,388 0.58 3.74
1994-ILA Service
units........... 0.60 3.72 74,451 0.83 3.49
1993-ILA units.. 0.20 2.88 456,411 0.44 2.64
1993-ILA
Administration
units........... 0.35 2.73 26,553 0.59 2.49
1993-ILA Service
units........... 0.60 2.48 34,014 0.84 2.24
1992-ILA units.. 0.18 3.38 422,506 0.45 3.11
1992-ILA
Administration
units........... 0.33 3.26 6,915 0.60 2.99
1992-ILA Service
units........... 0.58 2.75 29,522 0.85 2.48
FOR THE PERIOD JANUARY 30, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- ---------------------------------------------------------------------------------
1991-ILA units.. 0.10(b) 5.28(b) 424,436 0.45(b) 4.93(b)
1991-ILA
Administration
units (c)....... 0.25(b) 4.77(b) 17,649 0.60(b) 4.42(b)
1991-ILA Service
units (c)....... 0.50(b) 5.13(b) 9,430 0.85(b) 4.78(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during July and
January of 1991, respectively.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Federal Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
-----------------------------------
Net asset Net realized Total Net asset
value at Net gain on income from Distributions value at
beginning investment investment investment to end Total
of period income transactions operations unitholders of period return(a)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0526 -- $0.0526 $(0.0526) $1.00 5.40%
1997-ILA
Administration
units........... 1.00 0.0511 -- 0.0511 (0.0511) 1.00 5.24
1997-ILA Service
units........... 1.00 0.0483 -- 0.0483 (0.0483) 1.00 4.98
1996-ILA units.. 1.00 0.0513 -- 0.0513 (0.0513) 1.00 5.24
1996-ILA
Administration
units........... 1.00 0.0498 -- 0.0498 (0.0498) 1.00 5.09
1996-ILA Service
units........... 1.00 0.0473 -- 0.0473 (0.0473) 1.00 4.83
1995-ILA units.. 1.00 0.0569 -- 0.0569 (0.0569) 1.00 5.83
1995-ILA
Administration
units........... 1.00 0.0550 -- 0.0550 (0.0550) 1.00 5.67
1995-ILA Service
units........... 1.00 0.0522 -- 0.0522 (0.0522) 1.00 5.41
1994-ILA units.. 1.00 0.0407 -- 0.0407 (0.0407) 1.00 4.11
1994-ILA
Administration
units........... 1.00 0.0388 -- 0.0388 (0.0388) 1.00 3.95
1994-ILA Service
units........... 1.00 0.0392 -- 0.0392 (0.0392) 1.00 3.69
1993-ILA units.. 1.00 0.0296 -- 0.0296 (0.0296) 1.00 3.00
1993-ILA
Administration
units........... 1.00 0.0281 -- 0.0281 (0.0281) 1.00 2.84
1993-ILA Service
units (c)....... 1.00 0.0157 -- 0.0157 (0.0157) 1.00 2.56(b)
1992-ILA units.. 1.00 0.0358 -- 0.0358 (0.0358) 1.00 3.61
1992-ILA
Administration
units........... 1.00 0.0340 -- 0.0340 (0.0340) 1.00 3.46
1991-ILA units.. 1.00 0.0576 -- 0.0576 (0.0576) 1.00 5.94
1991-ILA
Administration
units........... 1.00 0.0542 -- 0.0542 (0.0542) 1.00 5.78
1991-ILA Service
units (c)....... 1.00 0.0196 -- 0.0196 (0.0196) 1.00 5.55(b)
1990-ILA units.. 1.00 0.0772 -- 0.0772 (0.0772) 1.00 8.06
1990-ILA
Administration
units (d)....... 1.00 0.0205 -- 0.0205 (0.0205) 1.00 7.39(b)
FOR THE PERIOD MAY 22, 1989 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- -----------------------------------------------------------------------------
1989-ILA units.. 1.00 0.0516 -- 0.0516 (0.0516) 1.00 7.62(b)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end expenses to income to
average net average net of period average net average net
assets assets (in 000's) assets assets
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.27% 5.26% $2,050,559 0.41% 5.12%
1997-ILA
Administration
units........... 0.42 5.11 530,001 0.56 4.97
1997-ILA Service
units........... 0.67 4.83 34,540 0.81 4.69
1996-ILA units.. 0.26 5.13 2,303,677 0.43 4.96
1996-ILA
Administration
units........... 0.41 4.98 794,537 0.58 4.81
1996-ILA Service
units........... 0.66 4.73 192,416 0.83 4.56
1995-ILA units.. 0.26 5.69 1,731,935 0.42 5.53
1995-ILA
Administration
units........... 0.41 5.50 516,917 0.57 5.34
1995-ILA Service
units........... 0.66 5.22 102,576 0.82 5.06
1994-ILA units.. 0.25 4.07 1,625,567 0.42 3.90
1994-ILA
Administration
units........... 0.40 3.88 329,896 0.57 3.71
1994-ILA Service
units........... 0.65 3.92 15,539 0.82 3.75
1993-ILA units.. 0.25 2.96 1,430,292 0.42 2.79
1993-ILA
Administration
units........... 0.40 2.81 362,401 0.57 2.64
1993-ILA Service
units (c)....... 0.65(b) 2.54(b) 1,425 0.82(b) 2.37(b)
1992-ILA units.. 0.25 3.58 1,600,989 0.42 3.41
1992-ILA
Administration
units........... 0.40 3.40 312,792 0.57 3.23
1991-ILA units.. 0.25 5.76 1,656,232 0.42 5.59
1991-ILA
Administration
units........... 0.40 5.42 291,810 0.57 5.25
1991-ILA Service
units (c)....... 0.65(b) 5.56(b) -- 0.82(b) 5.39(b)
1990-ILA units.. 0.25 7.72 1,368,765 0.40 7.57
1990-ILA
Administration
units (d)....... 0.40(b) 7.25(b) 90,748 0.55(b) 7.10(b)
FOR THE PERIOD MAY 22, 1989 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- -----------------------------------------------------------------------------
1989-ILA units.. 0.19(b) 8.41(b) 455,230 0.40(b) 8.20(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b)Annualized.
(c) ILA Service unit activity commenced during April of 1991; no shares were
outstanding during the period from August 7, 1991 through May 15, 1993.
(d) ILA Administration unit activity commenced during September of 1990.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt Diversified Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
------------------------------------
Net asset Net realized Total Net asset
value at Net gain (loss) income from value at
beginning investment on investment investment Distributions end Total
of period income transactions operations to unitholders of period return(a)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0333 -- $0.0333 $(0.0333) $1.00 3.39%
1997-ILA
Administration
units........... 1.00 0.0316 -- 0.0316 (0.0316) 1.00 3.23
1997-ILA Service
units........... 1.00 0.0297 -- 0.0297 (0.0297) 1.00 2.97
1996-ILA units.. 1.00 0.0320 -- 0.0320 (0.0320) 1.00 3.25
1996-ILA
Administration
units........... 1.00 0.0306 -- 0.0306 (0.0306) 1.00 3.09
1996-ILA Service
units........... 1.00 0.0279 -- 0.0279 (0.0279) 1.00 2.84
1995-ILA units.. 1.00 0.0365 -- 0.0365 (0.0365) 1.00 3.72
1995-ILA
Administration
units........... 1.00 0.0351 -- 0.0351 (0.0352) 1.00 3.57
1995-ILA Service
units........... 1.00 0.0324 -- 0.0324 (0.0325) 1.00 3.31
1994-ILA units.. 1.00 0.0264 -- 0.0264 (0.0264) 1.00 2.71
1994-ILA
Administration
units........... 1.00 0.0250 -- 0.0250 (0.0250) 1.00 2.55
1994-ILA Service
units........... 1.00 0.0220 -- 0.0220 (0.0220) 1.00 2.30
1993-ILA units.. 1.00 0.0222 -- 0.0222 (0.0222) 1.00 2.25
1993-ILA
Administration
units........... 1.00 0.0207 -- 0.0207 (0.0207) 1.00 2.09
1993-ILA Service
units........... 1.00 0.0183 -- 0.0183 (0.0183) 1.00 1.84
1992-ILA units.. 1.00 0.0277 -- 0.0277 (0.0277) 1.00 2.82
1992-ILA
Administration
units........... 1.00 0.0266 -- 0.0266 (0.0266) 1.00 2.67
1992-ILA Service
units........... 1.00 0.0243 -- 0.0243 (0.0243) 1.00 2.41
1991-ILA units.. 1.00 0.0424 -- 0.0424 (0.0424) 1.00 4.33
1991-ILA
Administration
units........... 1.00 0.0406 -- 0.0406 (0.0406) 1.00 4.17
1991-ILA Service
units........... 1.00 0.0386 -- 0.0386 (0.0386) 1.00 3.91
1990-ILA units.. 1.00 0.0550 (0.0001) 0.0549 (0.0549) 1.00 5.64
1990-ILA
Administration
units (c)....... 1.00 0.0301 -- 0.0301 (0.0300) 1.00 5.43(b)
1990-ILA Service
units (c)....... 1.00 0.0259 -- 0.0259 (0.0259) 1.00 5.17(b)
1989-ILA units.. 1.00 0.0591 (0.0001) 0.0590 (0.0590) 1.00 6.07
1988-ILA units.. 1.00 0.0487 0.0003 0.0490 (0.0490) 1.00 5.03
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end of expenses to income to
average net average net period average net average net
assets assets (in 000's) assets assets
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.32% 3.33% $1,479,486 0.41% 3.24%
1997-ILA
Administration
units........... 0.47 3.16 27,967 0.56 3.07
1997-ILA Service
units........... 0.72 2.97 30,513 0.81 2.88
1996-ILA units.. 0.31 3.20 1,514,443 0.41 3.10
1996-ILA
Administration
units........... 0.46 3.06 59,097 0.56 2.96
1996-ILA Service
units........... 0.71 2.79 28,921 0.81 2.69
1995-ILA units.. 0.31 3.65 1,342,585 0.42 3.54
1995-ILA
Administration
units........... 0.46 3.51 48,773 0.57 3.40
1995-ILA Service
units........... 0.71 3.24 49,647 0.82 3.13
1994-ILA units.. 0.30 2.64 1,434,965 0.41 2.53
1994-ILA
Administration
units........... 0.45 2.50 97,778 0.56 2.39
1994-ILA Service
units........... 0.70 2.20 36,492 0.81 2.09
1993-ILA units.. 0.30 2.22 1,769,477 0.41 2.11
1993-ILA
Administration
units........... 0.45 2.08 99,896 0.56 1.97
1993-ILA Service
units........... 0.70 1.83 45,172 0.81 1.72
1992-ILA units.. 0.30 2.77 1,333,925 0.42 2.65
1992-ILA
Administration
units........... 0.45 2.66 50,225 0.57 2.54
1992-ILA Service
units........... 0.70 2.43 29,534 0.82 2.31
1991-ILA units.. 0.32 4.24 1,044,986 0.42 4.14
1991-ILA
Administration
units........... 0.47 4.06 37,567 0.57 3.96
1991-ILA Service
units........... 0.72 3.86 52,399 0.82 3.76
1990-ILA units.. 0.40 5.50 603,895 0.40 5.50
1990-ILA
Administration
units (c)....... 0.55(b) 5.40(b) 42,498 0.55(b) 5.40(b)
1990-ILA Service
units (c)....... 0.80(b) 5.16(b) 56,810 0.80(b) 5.16(b)
1989-ILA units.. 0.40 5.91 688,556 0.40 5.91
1988-ILA units.. 0.40 4.87 907,782 0.40 4.87
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during June and
July of 1990, respectively.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt California Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
------------------------------------
Net asset Net realized Total Net asset
value at Net gain (loss) income from value at
beginning investment on investment investment Distributions end Total
of period income transactions operations to unitholders of period return(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0310 -- $0.0310 $(0.0310) $1.00 3.15%
1997-ILA
Administration
units........... 1.00 0.0298 -- 0.0298 (0.0301) 1.00 3.00
1997-ILA Service
units (d)....... 1.00 0.0085 -- 0.0085 (0.0080) 1.00 2.87(b)
1996-ILA units.. 1.00 0.0299 -- 0.0299 (0.0299) 1.00 3.03
1996-ILA
Administration
units........... 1.00 0.0284 -- 0.0284 (0.0284) 1.00 2.88
1995-ILA units.. 1.00 0.0349 -- 0.0349 (0.0350) 1.00 3.55
1995-ILA
Administration
units........... 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.40
1994-ILA units.. 1.00 0.0250 -- 0.0250 (0.0250) 1.00 2.53
1994-ILA
Administration
units........... 1.00 0.0233 -- 0.0233 (0.0233) 1.00 2.37
1993-ILA units.. 1.00 0.0206 -- 0.0206 (0.0206) 1.00 2.09
1993-ILA
Administration
units........... 1.00 0.0191 -- 0.0191 (0.0191) 1.00 1.93
1993-ILA Service
units........... 1.00 0.0166 -- 0.0166 (0.0166) 1.00 1.68
1992-ILA units.. 1.00 0.0256 (0.0001) 0.0255 (0.0256) 1.00 2.62
1992-ILA
Administration
units........... 1.00 0.0235 (0.0002) 0.0233 (0.0235) 1.00 2.47
1992-ILA Service
units (c)....... 1.00 0.0081 -- 0.0081 (0.0081) 1.00 1.99(b)
1991-ILA units.. 1.00 0.0388 -- 0.0388 (0.0388) 1.00 3.92
1991-ILA
Administration
units........... 1.00 0.0376 -- 0.0376 (0.0376) 1.00 3.80
1990-ILA units.. 1.00 0.0511 (0.0001) 0.0510 (0.0511) 1.00 5.24
1990-ILA
Administration
units (c)....... 1.00 0.0042 -- 0.0042 (0.0042) 1.00 5.14(b)
1989-ILA units.. 1.00 0.0573 (0.0001) 0.0572 (0.0572) 1.00 5.93
FOR THE PERIOD OCTOBER 3, 1988 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- --------------------------------------------------------------------------------
1988-ILA units.. 1.00 0.0139 -- 0.0139 (0.0139) 1.00 5.81(b)
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Ratio of net Net Ratio of net
Ratio of net investment assets at Ratio of net investment
expenses to income to end of expenses to income to
average net average net period average net average net
assets assets (in 000's) assets assets
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.42% 3.10% $591,003 0.42% 3.10%
1997-ILA
Administration
units........... 0.57 2.98 360 0.57 2.98
1997-ILA Service
units (d)....... 0.82(b) 2.90(b) 2 0.82(b) 2.90(b)
1996-ILA units.. 0.41 2.99 440,476 0.42 2.98
1996-ILA
Administration
units........... 0.56 2.84 142 0.57 2.83
1995-ILA units.. 0.41 3.49 346,728 0.41 3.49
1995-ILA
Administration
units........... 0.56 3.32 61 0.56 3.32
1994-ILA units.. 0.40 2.50 227,399 0.41 2.49
1994-ILA
Administration
units........... 0.55 2.33 790 0.56 2.32
1993-ILA units.. 0.40 2.06 229,839 0.44 2.02
1993-ILA
Administration
units........... 0.55 1.91 1,425 0.59 1.87
1993-ILA Service
units........... 0.76 1.66 -- 0.84 1.54
1992-ILA units.. 0.40 2.56 161,868 0.47 2.49
1992-ILA
Administration
units........... 0.55 2.35 31 0.62 2.28
1992-ILA Service
units (c)....... 0.80(b) 2.03(b) 3 0.87(b) 1.96(b)
1991-ILA units.. 0.40 3.88 102,494 0.47 3.81
1991-ILA
Administration
units........... 0.55 3.76 13 0.62 3.69
1990-ILA units.. 0.40 5.11 106,972 0.40 5.11
1990-ILA
Administration
units (c)....... 0.55(b) 5.33(b) 68 0.55(b) 5.33(b)
1989-ILA units.. 0.40 5.73 112,463 0.40 5.73
FOR THE PERIOD OCTOBER 3, 1988 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- --------------------------------------------------------------------------------
1988-ILA units.. 0.24(b) 5.74(b) 41,028 0.38(b) 5.60(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during December of
1990 and August of 1992, respectively. No service shares were outstanding
for the years ended December 31, 1994, 1995 and 1996.
(d) ILA Service unit activity re-commenced during September of 1997.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Tax-Exempt New York Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from investment operations
------------------------------------
Net asset Net realized Total Net asset
value at Net gain (loss) income from value at
beginning investment on investment investment Distributions end Total
of period income transactions operations to unitholders of period return(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. $1.00 $0.0325 -- $0.0325 $(0.0325) $1.00 3.29%
1997-ILA
Administration
units........... 1.00 0.0310 -- 0.0310 (0.0310) 1.00 3.14
1997-ILA Service
units(c)........ 1.00 0.0089 -- 0.0089 (0.0089) 1.00 3.02(b)
1996-ILA units.. 1.00 0.0301 -- 0.0301 (0.0301) 1.00 3.05
1996-ILA
Administration
units........... 1.00 0.0288 -- 0.0288 (0.0288) 1.00 2.90
1995-ILA units.. 1.00 0.0344 -- 0.0344 (0.0344) 1.00 3.51
1995-ILA
Administration
units........... 1.00 0.0328 -- 0.0328 (0.0328) 1.00 3.35
1994-ILA units.. 1.00 0.0262 -- 0.0262 (0.0262) 1.00 2.56
1994-ILA
Administration
units........... 1.00 0.0247 -- 0.0247 (0.0247) 1.00 2.41
1993-ILA units.. 1.00 0.0221 -- 0.0221 (0.0221) 1.00 2.21
1993-ILA
Administration
units........... 1.00 0.0205 -- 0.0205 (0.0205) 1.00 2.05
1992-ILA units.. 1.00 0.0265 -- 0.0265 (0.0265) 1.00 2.71
1992-ILA
Administration
units........... 1.00 0.0253 -- 0.0253 (0.0253) 1.00 2.55
FOR THE PERIOD FEBRUARY 15, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- ----------------------------------------------------------------------------------
1991-ILA units.. 1.00 0.0347 (0.0002) 0.0345 (0.0347) 1.00 4.02(b)
1991-ILA
Administration
units (c)....... 1.00 0.0330 -- 0.0330 (0.0330) 1.00 3.87(b)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net Net Ratio of Ratio of net
Ratio of net investment assets at net investment
expenses to income to end expenses to income to
average net average net of period average net average net
assets assets (in 000's) assets assets
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-ILA units.. 0.33% 3.24% $102,887 0.43% 3.14%
1997-ILA
Administration
units........... 0.48 3.09 31,993 0.58 2.99
1997-ILA Service
units(c)........ 0.73(b) 3.04(b) 2 0.83(b) 2.94(b)
1996-ILA units.. 0.32 3.01 70,175 0.43 2.90
1996-ILA
Administration
units........... 0.47 2.88 44,319 0.58 2.77
1995-ILA units.. 0.30 3.44 90,537 0.44 3.30
1995-ILA
Administration
units........... 0.45 3.28 26,724 0.59 3.14
1994-ILA units.. 0.24 2.62 84,517 0.47 2.39
1994-ILA
Administration
units........... 0.39 2.47 38,970 0.62 2.24
1993-ILA units.. 0.10 2.21 48,367 0.51 1.80
1993-ILA
Administration
units........... 0.25 2.05 20,306 0.66 1.64
1992-ILA units.. 0.10 2.65 16,844 0.57 2.18
1992-ILA
Administration
units........... 0.25 2.53 14,641 0.72 2.06
FOR THE PERIOD FEBRUARY 15, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31,
- ----------------------------------------------------------------------------------
1991-ILA units.. 0.10(b) 3.96(b) 11,070 0.76(b) 3.30(b)
1991-ILA
Administration
units (c)....... 0.25(b) 3.90(b) 19,198 0.91(b) 3.24(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) ILA Administration and Service unit activity commenced during February of
1991 and September of 1997, respectively.
- ------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------- ---------------------------------------
To the Unitholders and Board of Trustees of the Goldman Sachs Trust--
Institutional Liquid Assets:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Trust--Institutional Liquid Assets (a Delaware business trust
comprising the Prime Obligations, Money Market, Government, Treasury
Obligations, Treasury Instruments, Federal, Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios), including the statements of
investments as of December 31, 1997, and the related statements of operations
for the year then ended, and the statements of changes in net assets and the
financial highlights for the periods presented. These financial statements and
the financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Goldman Sachs Trust--
Institutional Liquid Assets as of December 31, 1997, the results of their
operations for the year then ended, the changes in their net assets and the
financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1998
45
<PAGE>
VOTING RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
The proposals described below were submitted to a vote of unitholders of
Goldman Sachs Institutional Liquid Assets Portfolios (the "Trust") at a Special
Meeting of Unitholders held on April 1, 1997 and reconvened on April 24, 1997
(the "Meeting"):
- --------------------------------------------------------------------------------
PROPOSAL NO. 1--ELECTION OF TRUSTEES:
- --------------------------------------------------------------------------------
At the Meeting, Ashok Bakhru, David B. Ford, Douglas Grip, John McNulty, Mary
McPherson, Richard Strubel, Alan Shuch, Jackson Smart and William Springer were
elected to the Trust's Board of Trustees. In electing trustees, the Trust's
unitholders voted as follows:(/1/)
<TABLE>
<CAPTION>
DIRECTOR FOR AGAINST ABSTAIN BROKER NON-VOTES
-------- ------------------ ------- --------------- ----------------
<S> <C> <C> <C> <C>
Ashok Bakhru....... 13,198,134,650.489 0 317,290,085.860 0
David B. Ford...... 13,196,882,310.419 0 318,542,425.630 0
Douglas Grip....... 13,198,421,139.119 0 317,003,596.930 0
John McNulty....... 13,192,692,508.499 0 322,752,227.550 0
Mary McPherson..... 13,198,375,102.859 0 317,049,663.190 0
Alan Shuch......... 13,196,888,161.369 0 318,536,574.680 0
Jackson Smart...... 13,186,250,475.539 0 329,174,260.510 0
William Springer... 13,186,378,105.759 0 329,046,630.290 0
Richard Strubel.... 13,198,268,677.579 0 317,155,058.470 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 2--RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING
DECEMBER, 31, 1997:
- --------------------------------------------------------------------------------
At the Meeting, the Trust's unitholders approved Proposal No. 2 as
follows:(/1/)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- -------------- --------------- ----------------
<S> <C> <C> <C>
12,740,448,563.959 86,008,900.390 688,967,266.700 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 4(B)--APPROVAL OF AN AMENDMENT TO THE TRUST'S DECLARATION OF TRUST
TO PERMIT INVESTMENT OF EACH FUND'S ASSETS IN ANOTHER OPEN-END
INVESTMENT COMPANY:
- --------------------------------------------------------------------------------
At the Meeting, the Trust's unitholders approved Proposal No. 4(B) as
follows:(/1/)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- --------------- --------------- ----------------
<S> <C> <C> <C>
11,979,828,027.249 666,114,085.840 869,482,622.960 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 3--APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION PURSUANT TO
WHICH EACH PORTFOLIO OF THE TRUST WILL BE REORGANIZED AS A SERIES
OF THE GOLDMAN SACHS TRUST, A DELAWARE BUSINESS TRUST:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each of the Trust's portfolios (each, a
"Fund" and collectively, the "Funds") approved Proposal No. 3 as follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 712,565,921.869 242,943.290 25,505,695.170 0
Money Market............ 516,823,831.590 6,970,819.070 24,410,496.820 0
Government.............. 334,703,511.900 123,461,589.610 1,839,434.100 0
Treasury Obligations.... 468,748,245.020 52,349.040 42,433,478.980 0
Treasury Instruments.... 651,998,108.070 65,348,426.590 5,827,507.150 0
Federal................. 1,726,207,313.730 7,203,981.770 54,770,148.540 0
Tax-Exempt Diversified.. 668,379,114.130 16,024,005.530 109,560,527.870 0
Tax-Exempt California... 208,489,888.900 5,523.230 14,115,586.820 0
Tax-Exempt New York..... 55,095,994.960 195,516.090 7,800,334.690 0
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 4--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS TO PERMIT EACH FUND TO INVEST SUBSTANTIALLY ALL OF
ITS ASSETS IN ANOTHER OPEN-END INVESTMENT COMPANY:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 4 as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 647,870,547.009 59,650,745.650 30,793,267.670 0
Money Market............ 511,963,094.500 10,565,134.560 25,676,918.420 0
Government.............. 400,141,597.240 58,041,127.440 1,821,810.930 0
Treasury Obligations.... 436,391,496.290 5,008,378.970 69,834,197.780 0
Treasury Instruments.... 651,998,108.070 65,348,426.590 5,827,507.150 0
Federal................. 1,722,092,130.160 15,994,193.540 50,095,120.340 0
Tax-Exempt Diversified.. 660,773,671.500 23,733,454.350 109,456,521.680 0
Tax-Exempt California... 203,615,442.560 4,607,172.950 14,388,383.440 0
Tax-Exempt New York..... 54,956,961.700 575,338.300 7,559,545.740 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(A)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO ISSUER DIVERSIFICATION:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(A) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 663,362,748.369 44,081,414.130 30,870,397.830 0
Money Market............ 514,239,550.690 9,059,065.940 24,906,530.850 0
Government.............. 389,415,820.100 68,527,347.690 2,061,367.820 0
Treasury Obligations.... 463,827,823.350 5,008,378.970 42,397,870.720 0
Treasury Instruments.... 665,723,563.120 51,622,971.540 5,827,507.150 0
Federal................. 1,728,433,466.310 9,475,231.770 50,272,745.960 0
Tax-Exempt Diversified.. 667,406,339.950 16,862,490.800 109,694,816.780 0
Tax-Exempt California... 208,174,431.280 1,076,891.910 13,359,675.760 0
Tax-Exempt New York..... 55,150,009.260 0 7,941,836.480 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(B)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO BORROWING, MARGIN PURCHASES
AND PLEDGING ASSETS:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(B) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 651,887,355.399 55,504,550.190 30,922,654.740 0
Money Market............ 492,734,444.380 9,700,670.670 45,770,032.430 0
Government.............. 322,830,104.650 69,348,909.140 67,825,521.820 0
Treasury Obligations.... 463,621,255.690 5,214,946.630 42,397,870.720 0
Treasury Instruments.... 613,391,610.620 109,262,637.520 519,793.670 0
Federal................. 1,688,341,705.150 34,314,305.930 65,525,432.960 0
Tax-Exempt Diversified.. 595,302,477.970 88,094,689.320 110,566,480.240 0
Tax-Exempt California... 205,716,433.050 2,873,454.090 14,021,111.810 0
Tax-Exempt New York..... 55,056,709.090 93,300.170 7,941,836.480 0
</TABLE>
47
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(C)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO UNDERWRITING:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(C) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 663,326,119.079 44,063,126.200 30,925,315.050 0
Money Market............ 508,616,005.340 9,059,065.940 30,530,076.200 0
Government.............. 323,233,872.990 68,824,654.510 67,946,008.110 0
Treasury Obligations.... 468,060,179.510 606,867.450 42,567,026.080 0
Treasury Instruments.... 632,424,779.150 51,622,971.540 39,126,291.120 0
Federal................. 1,721,111,336.850 5,645,294.300 61,424,812.890 0
Tax-Exempt Diversified.. 661,349,711.030 22,401,707.950 110,212,228.550 0
Tax-Exempt California... 206,245,319.340 1,015,093.840 15,350,585.770 0
Tax-Exempt New York..... 55,150,009.260 0 7,941,836.480 0
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(D)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS RELATING TO INVESTMENTS IN REAL ESTATE, OIL AND
GAS:
</TABLE>
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(D) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 640,385,552.729 66,995,565.360 30,933,442.240 0
Money Market............ 508,443,121.040 9,243,481.870 30,518,544.570 0
Government.............. 322,664,193.140 69,164,900.990 68,175,441.480 0
Treasury Obligations.... 436,391,496.290 32,275,550.670 42,567,026.080 0
Treasury Instruments.... 623,254,542.890 56,930,685.020 42,988,813.900 0
Federal................. 1,697,204,506.430 29,337,113.840 61,639,823.770 0
Tax-Exempt Diversified.. 659,879,346.410 23,873,811.490 110,210,489.630 0
Tax-Exempt California... 206,410,527.450 1,675,179.170 14,525,292.330 0
Tax-Exempt New York..... 53,382,698.610 1,767,310.650 7,941,836.480 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(E)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO INVESTMENTS IN COMMODITIES:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(E) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 662,306,969.869 45,127,069.290 30,880,521.170 0
Money Market............ 486,910,529.510 31,086,343.760 30,208,274.210 0
Government.............. 322,759,975.990 69,323,646.950 67,920,912.670 0
Treasury Obligations.... 436,560,651.650 32,275,550.670 42,397,870.720 0
Treasury Instruments.... 623,254,542.890 51,622,971.540 48,296,527.380 0
Federal................. 1,712,077,298.400 14,464,321.870 61,639,823.770 0
Tax-Exempt Diversified.. 664,706,879.770 18,456,351.640 110,800,416.120 0
Tax-Exempt California... 206,291,830.450 3,022,235.750 13,296,932.750 0
Tax-Exempt New York..... 55,056,709.090 93,300.170 7,941,836.480 0
</TABLE>
48
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(F)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO THE ISSUANCE OF SENIOR
SECURITIES:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(F) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 666,760,538.409 40,610,456.340 30,943,565.580 0
Money Market............ 508,256,805.590 9,647,467.020 30,300,874.870 0
Government.............. 319,497,687.690 68,601,458.610 71,905,389.310 0
Treasury Obligations.... 464,244,863.920 4,591,338.400 42,397,870.720 0
Treasury Instruments.... 636,979,997.940 51,622,971.540 34,571,072.330 0
Federal................. 1,655,884,823.010 54,542,671.620 77,753,949.410 0
Tax-Exempt Diversified.. 661,636,399.680 22,134,203.520 110,193,044.330 0
Tax-Exempt California... 207,652,033.350 1,157,408.330 13,801,557.270 0
Tax-Exempt New York..... 55,150,009.260 0 7,941,836.480 0
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(G)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL INVESTMENT
RESTRICTIONS RELATING TO SHORT SALES OF SECURITIES:
</TABLE>
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(G) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 633,661,812.479 73,785,010.330 30,867,737.520 0
Money Market............ 470,662,407.590 30,994,535.020 46,548,204.870 0
Government.............. 318,784,978.900 69,397,554.330 71,822,002.380 0
Treasury Obligations.... 436,184,928.630 32,651,273.690 42,397,870.720 0
Treasury Instruments.... 665,723,563.120 51,622,971.540 5,827,507.150 0
Federal................. 1,640,265,983.120 64,442,160.340 83,473,300.580 0
Tax-Exempt Diversified.. 600,755,583.190 82,493,105.650 110,714,958.690 0
Tax-Exempt California... 205,507,408.730 3,302,032.950 13,801,557.270 0
Tax-Exempt New York..... 53,465,471.480 1,684,537.780 7,941,836.480 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(H)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO INVESTMENTS IN OPTIONS:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(H) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 665,972,905.509 41,473,917.300 30,867,737.520 0
Money Market............ 486,107,497.980 30,982,828.190 31,114,821.310 0
Government.............. 318,888,036.380 69,035,878.400 72,080,620.830 0
Treasury Obligations.... 436,560,651.650 32,275,550.670 42,397,870.720 0
Treasury Instruments.... 665,723,563.120 51,622,971.540 5,827,507.150 0
Federal................. 1,654,139,453.480 55,955,350.840 78,086,639.720 0
Tax-Exempt Diversified.. 650,093,862.920 33,129,570.460 110,740,214.150 0
Tax-Exempt California... 204,847,324.400 3,962,117.280 13,801,557.270 0
Tax-Exempt New York..... 53,382,698.610 1,767,310.650 7,941,836.480 0
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(I)--APPROVAL OF AN AMENDMENT TO EACH FUND'S FUNDAMENTAL
INVESTMENT RESTRICTIONS RELATING TO EXERCISE CONTROL:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 5(I) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ----------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Prime Obligations....... 641,214,201.709 66,222,497.760 30,877,860.860 0
Money Market............ 507,763,441.520 9,326,123.520 31,115,582.440 0
Government.............. 319,387,893.800 68,568,127.330 72,048,514.480 0
Treasury Obligations.... 464,244,863.920 4,591,338.400 42,397,870.720 0
Treasury Instruments.... 651,998,108.070 65,348,426.590 5,827,507.150 0
Federal................. 1,702,540,158.730 7,894,110.110 77,747,175.200 0
Tax-Exempt Diversified.. 661,147,907.340 22,893,587.050 109,922,153.140 0
Tax-Exempt California... 206,410,855.230 2,331,265.150 13,868,878.570 0
Tax-Exempt New York..... 53,465,471.480 1,684,537.780 7,941,836.480 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 6--APPROVAL OF A CHANGE IN THE FUNDAMENTAL INVESTMENT POLICIES OF
THE TAX-EXEMPT DIVERSIFIED, TAX-EXEMPT CALIFORNIA AND TAX-EXEMPT
NEW YORK PORTFOLIOS:
- --------------------------------------------------------------------------------
At the Meeting, the unitholders of each Fund approved Proposal No. 6 as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- --------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Tax-Exempt Diversified.. 667,228,981.130 16,402,187.130 110,332,479.270 0
Tax-Exempt California... 209,206,940.510 0 13,404,058.440 0
Tax-Exempt New York..... 53,696,767.540 139,033.260 9,256,044.940 0
</TABLE>
(1) The voting results for proposal No. 1, 2 and 4(B) reflect the vote of the
unitholders of the Trust and the unitholders of Goldman Sachs Financial
Square Funds.
50
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------- --------------------------------------
(THIS PAGE INTENTIONALLY LEFT BLANK)
--------------------------------------
- --------------------------------------
51
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust--Money Market Funds,
Institutional Liquid Assets Prospectus which contains facts concerning each
Fund's objectives and policies, management, expenses and other information.
- --------------------------------------------------------------------------------
52
<PAGE>
TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan. A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
James A. Fitzpatrick, Vice President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Goldman
Sachs
Goldman Sachs Funds
One New York Plaza, 41st Floor
New York, NY 10004
<PAGE>
Goldman Sachs Trust
FINANCIAL SQUARE FUNDS
. Prime Obligations Fund
. Money Market Fund
. Premium Money Market Fund
. Treasury Obligations Fund
. Treasury Instruments fund
. Government Fund
. Federal Fund
. Tax-Free Money Market Fund
Goldman
Sachs
ANNUAL REPORT
December 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- -------------------------------- --------------------------------
DEAR SHAREHOLDERS:
We welcome this opportunity to provide you with a summary of the trends and
key events that affected the economy and the Goldman Sachs Financial Square
Funds in 1997. It was another strong year for the funds, as all of them--with
the exception of three new Financial Square Funds, which do not yet possess 12-
month performance return information (see new fund information below)--
outperformed their respective IBC Financial Data, Inc. averages. Assets in the
Financial Square Funds totaled $19.3 billion as of December 31, 1997.
THREE NEW FINANCIAL SQUARE FUNDS AVAILABLE
We are pleased to inform you that three new Financial Square Funds became
available during the fiscal year. Each fund's objective is to maximize current
income to the extent consistent with the preservation of capital and the
maintenance of liquidity by investing exclusively in high-quality money market
instruments.
.FINANCIAL SQUARE FEDERAL FUND
Investment Strategy: In seeking to achieve its objective, the fund invests in
U.S. Government securities and U.S. Treasury securities. The fund does not
invest in repurchase agreements.
AAAm Rating: The fund is rated AAAm by Standard & Poor's Ratings Group, and
appears on the National Association of Insurance Commissioners Approved List
of Class I Money Market Funds.
.FINANCIAL SQUARE TREASURY INSTRUMENTS FUND
Investment Strategy: In seeking to achieve its objective, the fund invests in
securities issued or guaranteed by the U.S. Treasury, which are backed by the
full faith and credit of the U.S. Government, the interest from which is
typically exempt from most state income taxes. The fund does not invest in
repurchase agreements.
AAAm Rating: The fund is rated AAAm by Standard & Poor's Ratings Group, and
Aaa by Moody's Investor Services, Inc., and appears on the National
Association of Insurance Commissioners Approved List of Exempt Money Market
Funds.
.FINANCIAL SQUARE PREMIUM MONEY MARKET FUND
Investment Strategy: In seeking to achieve its objective, the fund intends to
invest only in securities that are rated in the highest category for short-
term debt obligations by the requisite number of nationally recognized
statistical rating organizations. The fund can also invest in securities
which are unrated, but only if they are deemed to be of comparable quality by
the fund's Trustees.
AAAm Rating: The fund is rated AAAm by Standard & Poor's Ratings Group and
Aaa by Moody's Investors Services, Inc., and appears on the National
Association of Insurance Commissioners Approved List of Class I Money Market
Funds.
1997 IN REVIEW
Over the first quarter, the U.S. economy demonstrated significant strength,
with no sign of slowing. Employment data pointed to continued growth as
unemployment rates dropped, average hourly earnings rose and real consumer
spending surged. In March, in a show of concern over the pace of economic
growth, the Federal Reserve Board chose to raise short-term rates by 25 basis
points. When all was said and done, first quarter's real gross domestic product
(GDP) posted a robust 4.9% increase--although this was attributed to an
increase in inventories, typically a precursor of slower growth.
Economic data early in the second quarter, including New Home Sales, the
Employment Cost Index (ECI), GDP and durable goods, continued to point to
ongoing momentum in the economy. By June, there was no overwhelming evidence
that the economy had slowed to a sustainable growth pace. Nevertheless, Fed
officials seemed impressed with a slowdown in the pace of broad price measures,
and opted to maintain a neutral stance. Early third-quarter data initially
suggested that any slowdown perceived by the Fed represented a modified
correction from the first quarter's rapid growth, not the
--------------------------------
- --------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- --------------------------------------- ---------------------------------------
onset of a weaker trend. However, as the quarter progressed, subdued
inflationary pressures and a slower pace of economic growth further lowered the
probability that Fed officials would tighten monetary policy in the months that
remained in 1997.
In the final months of the fiscal year, financial turmoil in Asia's equity
markets spilled into the U.S. However, a number of factors, including Federal
Reserve Chairman Alan Greenspan's testimony and U.S. investors' overall
reaction to the market, quickly restored confidence that the U.S. market would
not suffer a significant downturn. Not surprisingly, at its November meeting,
the Fed chose to leave monetary policy on hold. As the fourth quarter drew to a
close, central bankers continued to be torn between their anxiety over
excessively rapid demand growth and rising wages on the domestic front and
their worries that the Asian crisis could spread to new regions and have a
negative impact on U.S. output and earnings prospects. Consequently, Fed
officials chose to maintain their "wait-and-see" stance on monetary policy and
await future market developments.
[GRAPH APPEARS HERE]
HISTORICAL YIELD CURVE (LIBOR)
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
1 month 5.50 5.72
3 months 5.56 5.81
6 months 5.60 5.84
9 months 5.69 5.91
12 months 5.79 5.97
</TABLE>
The Federal funds rate began the year at 5.25% and ended the year at 5.50%. The
slope of the LIBOR yield curve steepened significantly over the course of the
year. By the end of 1997, the spread between one- and 12-month LIBOR moved to
plus 25 basis points.
Source: Goldman Sachs Fixed Income Database, reflecting London Interbank
Offered Rate (LIBOR).
SUMMARY FOR FINANCIAL SQUARE FUNDS INSTITUTIONAL SHARES* AS OF 12/31/97
<TABLE>
<CAPTION>
SEC SEC
7-DAY 7-DAY 30-DAY WEIGHTED AVG.
FINANCIAL SQUARE CURRENT EFFECTIVE AVERAGE MATURITY
FUNDS YIELD YIELD YIELD (DAYS)
---------------- ------- --------- ------- -------------
<S> <C> <C> <C> <C>
Prime
Obligations.... 5.64% 5.80% 5.61% 44
Money Market.... 5.65 5.81 5.62 38
Premium Money
Market......... 5.69 5.85 5.62 35
Treasury
Obligations.... 5.57 5.72 5.50 36
Treasury
Instruments.... 5.10 5.23 5.12 39
Government...... 5.62 5.78 5.55 42
Federal......... 5.54 5.69 5.50 35
Tax-Free Money
Market......... 3.88 3.95 3.58 47
</TABLE>
*Financial Square Funds offer four separate classes of shares (Institutional,
Preferred, Administration and Service), each of which is subject to different
fees and expenses that affect performance and entitle shareholders to different
services. The Preferred, Administration and Service shares offer financial
institutions the opportunity to receive a fee for providing administrative
support services. The Preferred shares pay 0.10%, Administration shares pay
0.25%, and the Service shares pay 0.50%. Performance reflects fee waivers and
expense reimbursements. Had fees not been waived or expenses reimbursed
performance would be reduced. Past performance is no guarantee of future
results. Yields will vary. An investment in any one of the Financial Square
Funds is neither insured nor guaranteed by the U.S. Government nor is there any
assurance that the Funds will be able to maintain a stable net asset value of
$1.00 per share. More complete information, including management fees and
expenses, is included in the funds' prospectus or may be obtained by calling
Goldman Sachs Funds at 1-800-621-2550.
STRATEGY
Taxable. The funds began the fiscal period with a short laddered structure
intended to be advantageous in the event of a steepening yield curve. In March,
the Fed's decision to tighten led us to extend the funds' weighted average
maturities. Despite a market rally over the next several months, we maintained
these longer weighted average maturities due to a benign inflationary
environment and a "wait-and-see" Fed. In the second
---------------------------------------
- ---------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
half of the fiscal year, a period of Fed inactivity caused us to slightly
extend the funds' durations to the upper end of the neutral range in seeking to
capture incremental yield. We maintained this stance throughout November and
December.
Tax-Exempt. Early in the year, the tax-exempt money market funds assumed
defensive weighted average maturities, as we anticipated higher short-term
rates in the near future. As expected, this scenario played itself out in March
when the Fed tightened, and was magnified in April when larger than expected
tax payments caused the market to back up further. During the second half of
the year, we began to extend the weighted average maturities of the funds as
the likelihood of further Fed tightening faded.
DOMESTIC CREDIT TRENDS POSITIVE
Domestic credit quality in 1997 continued its positive trend. It was the
third consecutive year of extraordinary stock market growth and record mergers
and acquisitions. It was the seventh straight year of growth for the U.S.
economy, with high employment, low inflation and relatively stable, low
interest rates. U.S. corporations and financial institutions reported strong
earnings as a result of the strong economic environment as well as from
previous cost-cutting and consolidation moves.
The improvement in credit strength was broad-based, except in the consumer
credit sector, which continued its downward trend. Consumer bankruptcy filings
set another record high of 1.3 million cases in 1997. Credit card loan
delinquencies, however, began to stabilize by the end of the year. These
consumer credit problems had a negative impact on the financial sector,
including serious problems in the sub-prime auto lending industry. The Credit
Department's experienced team of financial institutions analysts closely
monitored consumer credit quality trends.
THE CREDIT PICTURE ABROAD: ASIA IN TROUBLE, EMU ON COURSE
The international credit environment in 1997 was dominated by the Asian
financial crisis and the apparent resolution of European Monetary Union's (EMU)
likely course. Thailand's forced currency devaluation in July set off a
financial fire that found ample fuel in the region's highly leveraged
economies. Even higher-rated securities were affected; for example, Hong Kong
weathered various shocks flowing from Southeast Asia. At the time this report
was written, there were no Asian-issued holdings in any of the Financial Square
money market funds.
In Europe, the second half of the year presented a more positive picture than
the first part of the year. A "euroland" of 11 countries now appears on track,
with almost every government producing better than expected fiscal results and
unexpectedly strong economies. Yields and asset prices have begun to achieve a
measure of convergence across the Continent, while the rating agencies have
begun to clarify their (differing) approaches to creditworthiness under the
euro. Just as important, political resistance to EMU has been effectively
controlled despite stubbornly high unemployment. The combination of Europe's
improving performance and the U.S.'s continuing robust health has helped to
mute the broader contagion effects from Asia so far, though such effects may
become more potent if Asia's trouble continues well into 1998.
The year ahead will likely be more difficult for the domestic economy, with
the uncertain outlook in Europe and Asia. The Goldman Sachs Credit Department,
with its analysts based in London, Tokyo, Frankfurt and New York, as well as
extensive technological assets and credit expertise, will continue to
anticipate and monitor global developments and apply its conservative credit
standards to the money market funds.
OUTLOOK AND STRATEGIES FOR 1998
The pivotal factor in the U.S. economic outlook for 1998 is the tug of war
between the trade drag from Asia and the strength of the domestic economy. Asia
will most likely dominate the first half of the year while the tight U.S. labor
market is likely to have an impact in the second half of the year.
---------------------------------------
- ---------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
This view is dependent upon the behavior of the U.S. stock market, which has
boosted spending in both households and businesses in recent years. A decline
in the stock market could hurt consumer spending and keep the Fed on hold
throughout the year.
Providing there are no new disturbances relative to the Asian markets or
domestic financial asset prices, we anticipate that the Fed will hold off on
making policy changes for some time to come. With no signs of inflation and the
U.S. dollar ever stronger with respect to foreign markets, Chairman Greenspan
and the Fed have good reason to "wait and see" how events unfold overseas
before making any decisions that could prove destabilizing in the short term
and whose long-term impact would be uncertain.
With the Fed on hold for the near term, we expect to position the funds with
neutral weighted average maturities. However, a steepening yield curve would
give us the incentive to extend the weighted average maturities on all funds,
as any Fed tightening in 1998 is likely to be modest.
In closing, we thank you for your support and for making 1997 a year of
record assets for the Financial Square money market funds. As in the past, we
will continue to look for additional ways to improve our services, while
seeking to provide you with competitive performance. We welcome your
suggestions and questions, and look forward to another strong year in 1998.
Sincerely,
/s/ Kaysie Uniacke
Kaysie Uniacke
Portfolio Manager
February 2, 1998
4
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE PRIME OBLIGATIONS FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS--33.4%
BANK HOLDING COMPANIES
Bankers Trust Securities Corp.
$ 50,000,000 5.67% 06/09/98 $ 48,747,875
Corestates Bank, N.A.
30,000,000 5.93 01/02/98 30,000,000
BUSINESS CREDIT INSTITUTIONS
CIT Group Holdings, Inc.
100,000,000 5.63 04/29/98 98,154,611
General Electric Capital Corp.
50,000,000 5.60 01/28/98 49,790,000
40,000,000 5.69 02/12/98 39,734,467
50,000,000 5.69 02/17/98 49,628,569
COMMERCIAL BANKS
CP Trust Certificates Series 1996-1
85,000,000 6.22(a) 03/30/98 85,000,000
HOME BUILDERS
First Data Corp.
35,000,000 5.63 06/16/98 34,091,381
RECEIVABLE/ASSET FINANCINGS
Ciesco LP Series 4-2
25,000,000 5.55 01/23/98 24,913,681
Dakota Certificates of Standard Credit Card Master Trust
40,000,000 5.62 01/15/98 39,912,578
25,000,000 5.62 01/21/98 24,921,944
Enterprise Funding Corp.
44,917,000 5.64 01/16/98 44,811,445
20,598,000 5.61 01/21/98 20,533,803
50,000,000 5.72 01/22/98 49,832,583
17,099,000 5.63 01/30/98 17,021,451
35,610,000 5.71 04/28/98 34,949,167
11,776,000 5.68 05/28/98 11,502,875
Receivables Capital Corp.
50,000,000 5.60 01/14/98 49,898,889
14,643,000 5.61 01/15/98 14,611,054
44,047,000 5.69 02/11/98 43,761,563
WCP Funding Corp.
25,000,000 5.60 01/28/98 24,895,000
25,000,000 5.63 02/10/98 24,843,611
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES
Bear Stearns Companies, Inc.
50,000,000 5.62 01/14/98 49,898,528
15,000,000 5.61 01/28/98 14,936,888
20,000,000 5.62 01/29/98 19,912,578
90,000,000 5.69 02/17/98 89,331,425
JP Morgan Securities, Inc.
50,000,000 5.98(a) 01/09/98 50,000,000
Merrill Lynch & Co., Inc.
45,000,000 5.94 01/02/98 44,998,290
45,000,000 5.96 01/02/98 44,998,322
45,000,000 5.97 08/14/98 45,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS (CONTINUED)
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES (CONTINUED)
Morgan Stanley Dean Witter, Inc.
$ 70,000,000 5.69% 02/23/98 $69,413,614
40,000,000 5.74 03/11/98 39,559,933
80,000,000 5.64 06/01/98 78,107,467
Smith Barney Holdings, Inc.
25,000,000 5.51 01/06/98 24,980,868
50,000,000 5.70 02/11/98 49,675,417
- ------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER AND CORPORATE OBLIGATIONS $1,482,369,877
- ------------------------------------------------------------------------------------------------
BANK NOTES--9.0%
BankBoston, N.A.
$ 20,000,000 5.75% 02/17/98 $ 20,000,000
50,000,000 5.99 08/13/98 50,000,000
25,000,000 5.97 10/21/98 25,000,000
Comerica Bank Detroit
50,000,000 6.00 03/27/98 49,981,112
35,000,000 6.18 05/27/98 34,992,657
FCC National Bank
60,000,000 6.01 07/06/98 59,991,241
First National Bank of Boston, N.A.
50,000,000 5.61 01/06/98 50,000,000
Huntington National Bank
50,000,000 5.82 11/13/98 49,983,429
Morgan Guaranty Trust Co.
60,000,000 6.02 03/25/98 59,987,237
- ------------------------------------------------------------------------------------------------
TOTAL BANK NOTES $ 399,935,676
- ------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES(A)--35.8%
American Express Centurion Bank
$ 25,000,000 5.97% 01/08/98 $ 25,000,000
25,000,000 5.95 01/13/98 25,000,000
25,000,000 5.93 01/20/98 25,000,000
32,000,000 5.94 01/20/98 32,000,000
Amsouth Bank of Alabama, N.A.
50,000,000 5.92 01/28/98 49,992,064
Bank One Columbus, N.A.
50,000,000 5.55 01/06/98 49,985,789
50,000,000 5.57 01/06/98 49,989,068
Bank One Texas
75,000,000 5.55 01/06/98 74,971,266
Comerica Bank Detroit
65,000,000 5.90 01/05/98 64,995,785
75,000,000 5.88 01/15/98 74,985,302
Commonwealth Life Insurance Co.(b)
55,000,000 5.86 09/04/98 55,000,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE PRIME OBLIGATIONS FUND (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (CONTINUED)
Corestates Bank, N.A.
$ 25,000,000 5.93% 01/02/98 $ 25,000,000
45,000,000 5.96 01/02/98 45,000,000
25,000,000 5.65 01/05/98 25,000,000
50,000,000 5.66 01/05/98 50,000,000
10,000,000 5.95 06/05/98 10,000,000
Corestates Capital Corp.
25,000,000 5.93 01/23/98 25,000,000
Dakota Certificates of Standard Credit Card Master Trust
40,000,000 5.69 02/11/98 39,740,789
10,000,000 5.70 02/19/98 9,922,417
33,000,000 5.73 03/10/98 32,642,830
FCC National Bank
40,000,000 5.74 01/02/98 39,982,295
90,000,000 6.16 01/02/98 89,984,959
First Bank FSB
50,000,000 5.86 01/21/98 49,987,048
First Bank, N.A.
65,000,000 5.86 01/21/98 64,987,398
25,000,000 5.87 01/21/98 24,994,940
Ford Motor Credit Corp.
30,000,000 6.30 03/02/98 30,056,644
Merrill Lynch & Co., Inc.
30,000,000 5.95 01/09/98 29,997,734
19,500,000 5.65 08/03/98 19,499,437
Nationsbank Corp.
25,000,000 5.89 01/02/98 25,000,000
New York Life Insurance
40,000,000 5.89 03/03/98 40,000,000
Pacific Mutual Life Insurance Co.
50,000,000 5.66 03/03/98 50,000,000
PNC Bank, N.A.
25,000,000 5.87 01/02/98 24,999,056
75,000,000 6.13 01/02/98 74,972,661
Seattle Washington Tax Series 1994
25,000,000 6.00 01/01/98 25,000,000
SMM Trust Series 1997-X
35,000,000 6.00 12/14/98 35,000,000
Southtrust Bank of Alabama, N.A.
115,000,000 5.91 01/02/98 114,988,979
45,000,000 5.90 09/08/98 44,984,854
Texas State Vet Series 1996 A
14,255,000 6.00 01/01/98 14,255,000
- ------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND NOTES $1,587,916,315
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT--6.6%
Bankers Trust Securities Corp.
$ 50,000,000 5.78% 06/18/98 $ 50,000,000
85,000,000 5.79 06/18/98 85,000,000
Crestar Bank
25,000,000 5.70 01/20/98 25,000,130
First National Bank of Boston, N.A.
30,000,000 5.81 04/22/98 30,000,209
Morgan Guaranty Trust Co.
45,000,000 5.91 03/19/98 44,996,370
Regions Bank
60,000,000 6.00 03/18/98 59,997,612
- ----------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT $ 294,994,321
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--15.9%
Joint Repurchase Agreement Account(c)
$404,500,000 6.40% 01/02/98 $ 404,500,000
Lehman Brothers, Inc., dated 12/31/97, repurchase price $300,100,833
(total collateral value $306,003,497 consisting of FHLMC: 6.00%-10.00%,
09/01/99-10/01/27; FNMA: 6.00%-9.50%, 03/01/99-12/01/27)
300,000,000 6.05 01/02/98 300,000,000
- ----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $ 704,500,000
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $4,469,716,189(d)
</TABLE>
- --------------------------------------------------------------------------------
(a) Variable rate security-base index is either U.S. Treasury Bill, one or
three month LIBOR, one month commercial paper, Federal Funds, or Prime
lending rate.
(b) Portion of this security is when-issued.
(c) Portion of this security is being segregated for a when-issued security.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prefunded date for
those types of securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
6
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE MONEY MARKET FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS--30.5%
BUSINESS CREDIT INSTITUTIONS
General Electric Capital Corp.
$ 30,000,000 5.69% 02/12/98 $ 29,800,850
CHEMICAL COMPANY
Henkel Corp.
10,000,000 5.60 01/14/98 9,979,778
COMMERCIAL BANKS
CP Trust Certificates Series 1996-1
60,000,000 6.22(a) 03/30/98 60,000,000
CP Trust Certificates Series 1996-2
50,000,000 6.24(a) 12/28/98 50,000,000
ELECTRIC COMPANIES
Mitsubishi & Co. USA, Inc.
20,000,000 5.64 01/23/98 19,931,067
25,000,000 5.65 01/26/98 24,901,910
FOREIGN BANKS
Banca CRT Financial Corp.
2,000,000 5.65 01/20/98 1,994,036
13,030,000 5.65 01/23/98 12,985,010
5,500,000 5.65 01/26/98 5,478,420
32,000,000 5.65 01/27/98 31,869,422
Bayerische Vereinsbank AG, New York(b)
100,000,000 5.52 07/02/98 97,224,667
BCI Funding Corp.
25,000,000 5.57 01/14/98 24,949,715
Cades
50,000,000 5.63 05/29/98 48,842,722
45,000,000 5.68 06/10/98 43,864,000
Credit Suisse First Boston, New York
50,000,000 5.52 01/08/98 49,946,333
50,000,000 5.70 01/15/98 49,889,167
Nordbanken North America
70,000,000 5.52 01/12/98 69,881,933
Rose One Plus
26,489,000 5.72 02/10/98 26,320,648
50,000,000 5.72 02/12/98 49,666,333
71,038,000 5.73 02/27/98 70,393,508
20,000,000 5.75 03/11/98 19,779,583
Unifunding Inc.
19,000,000 5.52 01/05/98 18,988,347
RECEIVABLE/ASSET FINANCINGS
Asset Securitization Corp.
11,000,000 5.69 02/24/98 10,906,115
CC USA, Inc.
36,000,000 5.60 01/08/98 35,960,800
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS (CONTINUED)
RECEIVABLE/ASSET FINANCINGS (CONTINUED)
Delaware Funding
$ 60,000,000 5.69% 02/20/98 $ 59,525,833
Enterprise Funding Corp.
37,432,000 5.74 01/13/98 37,360,380
28,191,000 5.73 01/29/98 28,065,362
Eureka Securities
40,000,000 5.69 02/04/98 39,785,044
40,000,000 5.69 02/12/98 39,734,467
Falcon Asset Securitization Corp.
20,675,000 5.74 01/16/98 20,625,552
Windmill Funding Corp.
25,000,000 5.65 01/23/98 24,913,681
50,000,000 5.70 02/05/98 49,722,917
SECURITY AND COMMODITY BROKERS, DEALERS AND SERVICES
Bear Stearns Companies, Inc.
35,000,000 5.62 01/29/98 34,847,011
30,000,000 5.71 02/17/98 29,776,358
25,000,000 5.75 03/09/98 24,732,465
20,000,000 5.74 03/12/98 19,776,778
JP Morgan Securities, Inc.(a)
50,000,000 5.98 01/09/98 50,000,000
Merrill Lynch & Co., Inc.
35,000,000 5.96 01/02/98 34,998,695
10,000,000 5.97 08/14/98 10,000,000
Morgan Stanley Dean Witter, Inc.
70,000,000 5.69 02/23/98 69,413,614
Smith Barney Holdings, Inc.
60,000,000 5.70 02/11/98 59,610,500
- ------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER AND CORPORATE
OBLIGATIONS $1,496,443,021
- ------------------------------------------------------------------------------------------------
BANK NOTES--1.7%
First National Bank of Boston, N.A.
$ 25,000,000 5.82% 05/26/98 $ 25,000,000
25,000,000 6.00 08/17/98 25,000,000
Huntington National Bank
7,000,000 5.82 11/13/98 6,997,680
National Australia Bank, Ltd., New York
26,000,000 5.85 10/05/98 25,993,684
- ------------------------------------------------------------------------------------------------
TOTAL BANK NOTES $ 82,991,364
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN EURODOLLAR--6.1%
Abbey National Treasury Services
$ 25,000,000 5.86% 11/12/98 $ 25,000,000
Bank of Tokyo, Mitsubishi Bank Ltd., New York
65,000,000 5.80 01/26/98 64,998,737
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE MONEY MARKET FUND (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATES OF DEPOSIT - FOREIGN EURODOLLAR (CONTINUED)
Norinchukin Bank, London
$ 30,000,000 6.27% 01/20/98 $ 30,000,235
Royal Bank of Canada, New York
50,000,000 5.81 06/03/98 50,000,000
Sanwa Bank Limited, London
40,000,000 6.12 01/14/98 40,000,143
75,000,000 5.79 01/26/98 75,000,513
Sumitomo Bank, London
13,000,000 5.76 01/16/98 12,999,776
- ---------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN
EURODOLLAR $ 297,999,404
- ---------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEEDOLLAR--13.4%
Bank of Tokyo Mitsubishi, New York
$ 85,000,000 6.00% 01/14/98 $ 85,000,000
Canadian Imperial Bank of Commerce, New York
63,000,000 5.94 03/17/98 62,996,286
Credit Agric Indosuez, New York
60,000,000 5.95 08/13/98 59,982,404
Landesbank Hessen Thuringen
60,000,000 5.93 06/30/98 59,965,794
National Bank of Canada, New York
50,000,000 6.03 03/18/98 49,997,910
Norinchukin Bank, New York
100,000,000 5.73 01/05/98 100,000,109
Rabobank Nederland
50,000,000 6.07 03/26/98 49,995,606
45,000,000 6.05 03/27/98 44,988,000
Sanwa Bank Ltd., New York
31,000,000 5.76 01/22/98 30,999,422
36,000,000 5.76 01/27/98 35,999,488
Societe Generale, New York
25,000,000 6.05 03/24/98 24,997,319
25,000,000 5.91 10/15/98 24,988,723
25,000,000 5.91 10/20/98 24,981,841
- ---------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - YANKEEDOLLAR $ 654,892,902
- ---------------------------------------------------------------------------------------------
TAXABLE MUNICIPAL NOTES--0.6%
Florida Housing Finance Authority
$ 28,400,000 5.90%(a) 01/07/98 $ 28,400,000
- ---------------------------------------------------------------------------------------------
TOTAL TAXABLE MUNICIPAL NOTES $ 28,400,000
- ---------------------------------------------------------------------------------------------
TIME DEPOSIT--4.1%
Wachovia Bank, N.A.
$200,000,000 6.50% 01/02/98 $ 200,000,000
- ---------------------------------------------------------------------------------------------
TOTAL TIME DEPOSIT $ 200,000,000
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES(A)--39.3%
Abbey National
$150,000,000 5.86% 01/15/98 $ 149,946,853
ABN/AMRO Bank, New York
60,000,000 6.17 01/02/98 59,994,732
American Express Centurion Bank
15,000,000 5.93 01/20/98 15,000,000
15,000,000 5.95 01/13/98 15,000,000
15,000,000 5.97 01/08/98 15,000,000
Ameritech Corp.
17,000,000 5.83 01/12/98 17,004,985
Amsouth Bank of Alabama, N.A.
50,000,000 5.91 01/15/98 49,993,001
Bank One Columbus, N.A.
25,000,000 5.57 01/06/98 24,994,534
50,000,000 5.55 01/06/98 49,985,789
Bayerische Landesbank
15,000,000 5.84 01/26/98 14,994,374
Comerica Bank Detroit
55,000,000 5.90 01/05/98 54,996,433
90,000,000 5.88 01/15/98 89,982,362
50,000,000 5.85 01/20/98 49,984,056
12,000,000 5.80 03/11/98 11,994,765
Corestates Bank, N.A.
15,000,000 5.96 01/06/98 15,000,000
50,000,000 5.95 01/29/98 50,000,000
Dakota Certificates of Standard Credit Card Master Trust
10,000,000 5.69 03/10/98 9,960,417
50,000,000 5.73 01/26/98 49,458,833
Dauphin Deposit Bank & Trust
15,000,000 5.66 02/04/98 14,996,569
50,000,000 5.70 01/14/98 50,001,042
Den Danske Bank, New York
50,000,000 5.91 01/16/98 49,997,210
25,000,000 5.92 01/26/98 24,998,206
35,000,000 5.92 01/26/98 34,998,372
FCC National Bank
110,000,000 6.16 01/02/98 109,981,616
40,000,000 5.74 01/28/98 39,982,295
First Bank FSB
50,000,000 5.86 01/21/98 49,987,048
First Bank, N.A.
25,000,000 5.87 01/21/98 24,994,940
50,000,000 5.87 01/21/98 49,989,223
Fleet Financial Group
10,000,000 5.91 02/13/98 10,001,798
General Electric Capital Corp.
90,000,000 5.70 02/02/98 90,000,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (CONTINUED)
Merrill Lynch & Co., Inc.
$ 35,000,000 5.94% 01/13/98 $ 34,998,670
Morgan Stanley Dean Witter(b)
80,000,000 5.54 04/15/98 79,992,280
National Bank of Canada, New York
20,000,000 6.04 03/08/98 20,002,565
Nationsbank Corp.
25,000,000 5.89 03/12/98 25,000,000
24,000,000 6.06 03/24/98 24,009,156
New York Life Insurance
40,000,000 5.89 03/03/98 40,000,000
PNC Bank, N.A.
25,000,000 6.13 01/02/98 24,990,887
Postipankki, Inc.
100,000,000 5.73 02/04/98 100,000,000
SMM Trust Series 1997-X
35,000,000 6.00 01/12/98 35,000,000
Societe Generale, New York
40,000,000 6.19 01/02/98 39,997,340
Southtrust Bank of Alabama, N.A.
150,000,000 5.90 01/12/98 149,967,235
Sunamerica Life Insururance Co.
50,000,000 6.06 01/02/98 50,000,000
U.S. Bank, N.A.
10,000,000 6.24 03/10/98 10,024,395
- ----------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND NOTES $1,927,201,981
- ----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--7.9%
Joint Repurchase Agreement Account(c)
$389,700,000 6.40% 01/02/98 $ 389,700,000
- ----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $ 389,700,000
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $5,077,628,672(d)
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(a) Variable rate security-base index is either U.S. Treasury Bill, one or
three month LIBOR, one month commercial paper, Federal Funds, or Prime
lending rate.
(b) When-issued securities.
(c) Portions of this security is being segragated for when-issued securities.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those types of securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL SQUARE PREMIUM MONEY MARKET FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS--41.7%
Associates Corp. of North America
$ 5,000,000 5.59% 01/26/98 $ 4,980,590
Henkel Corp.
6,000,000 5.60 01/14/98 5,987,867
BUSINESS CREDIT INSTITUTIONS
General Electric Capital Corp.
3,000,000 5.51 01/14/98 2,994,031
2,000,000 5.57 01/22/98 1,993,502
2,000,000 5.69 02/12/98 1,986,723
FOREIGN BANKS
Cades
5,000,000 5.63 05/29/98 4,884,272
Cariplo Finance
5,000,000 5.65 01/08/98 4,994,507
Commonwealth Bank of Australia
5,000,000 5.60 06/18/98 4,869,333
Credit Suisse First Boston, New York
3,000,000 5.52 01/08/98 2,996,780
3,000,000 5.70 01/15/98 2,993,350
RECEIVABLE/ASSET FINANCINGS
Asset Securitization Corp.
4,000,000 5.69 02/24/98 3,965,860
Beta Finance
7,000,000 5.63 06/16/98 6,818,276
CC USA, Inc.
3,000,000 5.53 01/08/98 2,996,774
Ciesco LP
2,000,000 5.55 01/23/98 1,993,217
Delaware Funding Corp.
5,000,000 5.56 01/16/98 4,988,417
Enterprise Funding Corp.
3,000,000 5.72 01/22/98 2,989,990
2,029,000 5.57 01/26/98 2,021,152
IMI Funding Corp., U.S.A.
5,000,000 5.57 01/15/98 4,989,169
International Securitization Corp.
5,000,000 5.75 01/29/98 4,977,639
Sheffield Receivables Corp.
3,000,000 5.61 01/16/98 2,992,988
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER AND CORPORATE OBLIGATIONS (CONTINUED)
RECEIVABLE/ASSET FINANCINGS (CONTINUED)
Siemens Capital Corp.
$5,000,000 5.59% 06/22/98 $ 4,866,461
Swedish Export Credit Corp.
5,000,000 5.59 06/15/98 4,871,896
Windmill Funding
5,000,000 5.65 01/23/98 4,982,736
- --------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER AND CORPORATE OBLIGATIONS $ 92,135,530
- --------------------------------------------------------------------------------------------------
BANK NOTES--1.4%
Wachovia Bank, N.A.
$3,000,000 5.60% 01/12/98 $ 3,000,000
- --------------------------------------------------------------------------------------------------
TOTAL BANK NOTES $ 3,000,000
- --------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - FOREIGN EURODOLLAR--3.2%
Norinchukin Bank, London
$2,000,000 6.27% 01/20/98 $ 2,000,016
Royal Bank of Canada, New York
5,000,000 5.81 06/03/98 5,000,000
- --------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - FOREIGN EURODOLLAR $ 7,000,016
- --------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - YANKEEDOLLAR--8.1%
Bank of Tokyo, Mitsubishi Bank Ltd., New York
$2,000,000 5.85% 01/09/98 $ 2,000,014
3,000,000 6.00 01/14/98 3,000,000
Credit Agric Indosuez, New York
1,000,000 5.95 08/13/98 999,707
Landesbank Hessen Thuringen Gir
3,000,000 5.94 10/23/98 2,998,610
National Bank of Canada, New York
5,875,000 5.71 01/02/98 5,875,001
Norinchukin Bank, New York
3,000,000 5.73 01/05/98 3,000,003
- --------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT - YANKEEDOLLAR $ 17,873,335
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE DEMAND NOTES(B)--9.0%
Comerica Bank Detroit
$ 3,000,000 5.80% 03/11/98 $ 2,998,691
Corestates Bank, N.A.
2,000,000 5.95 01/05/98 2,000,000
Merrill Lynch & Co., Inc.
2,000,000 5.65 01/05/98 1,999,942
Morgan Stanley Dean Witter(a)
5,000,000 5.54 04/15/98 4,999,518
SMM Trust Series 1997-X
2,000,000 6.00 01/01/98 2,000,000
Societe Generale, New York
3,000,000 6.16 01/02/98 2,998,681
Southtrust Bank of Alabama, N.A.
3,000,000 5.90 01/08/98 2,998,990
- ------------------------------------------------------------------------------------------------
TOTAL VARIABLE RATE DEMAND NOTES $ 19,995,822
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--39.3%
BZW Securities, dated 12/31/97, repurchase price $5,001,840 (SLMA:
$5,100,923, 05/21/98)
$ 5,000,000 6.63% 01/02/98 $ 5,000,000
Deutsche Morgan Grenfell, Inc., dated 12/31/97, repurchase price
$5,001,889 (total collateral value $5,100,127 consisting of U.S.
Treasury Bill: 06/11/98; U.S. Treasury Bonds: 11.63%-11.88%, 11/15/02-
11/15/03; U.S. Treasury Notes: 5.75%-7.88%, 01/15/98-08/15/03)
5,000,000 6.80 01/02/98 5,000,000
Joint Repurchase Agreement Account(c)
66,900,000 6.40 01/02/98 66,900,000
Lehman Government Securities, dated 12/31/97, repurchase price
$5,001,836 (total collateral value: $5,100,035, consisting of FNMA:
7.00%-8.50%, 09/01/07-01/01/26)
5,000,000 6.70 01/02/98 5,000,000
UBS Securities, Inc., dated 12/31/97, repurchase price $5,001,795
(U.S. Treasury Note: $5,162,500, 8.13%, 02/15/98)
5,000,000 6.55 01/02/98 5,000,000
- ------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $ 86,900,000
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $226,904,703(d)
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(a) When-issued security.
(b) Variable rate security-base index is either U.S. Treasury Bill, one or
three month LIBOR, one month commercial paper, Federal Funds, or Prime
lending rate.
(c) A portion of this security is being segregated for when-issued securities.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prefunded date for
those types of securities.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE TREASURY OBLIGATIONS FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--15.2%
United States Treasury Notes
$ 70,000,000 6.13% 03/31/98 $ 70,041,209
127,000,000 7.88 04/15/98 127,677,326
110,000,000 6.25 07/31/98 110,335,012
50,000,000 5.88 08/15/98 50,042,411
50,000,000 5.88 10/31/98 50,069,089
25,000,000 5.88 10/31/98 25,025,215
50,000,000 5.75 12/31/98 50,010,854
50,000,000 5.88 01/31/99 50,101,307
- ---------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS $ 533,302,423
- ---------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--85.0%
Bear Stearns Companies, Inc., dated 12/31/97, repurchase price
$165,057,292 (Total collateral value $168,277,838 consisting of U.S.
Treasury Bills: 04/02/98; U.S. Treasury Note: 5.75%, 11/15/00)
$ 165,000,000 6.25% 01/02/98 $ 165,000,000
BZW Securities dated 12/31/97, repurchase price $165,060,729 (total
collateral value $168,300,287 consisting of U.S. Treasury stripped
securities: 02/15/98-11/15/04; U.S. Treasury Notes: 5.13%-8.00%,
11/30/98-08/31/02; U.S. Treasury Bond: 13.75%, 08/15/04)
165,000,000 6.63 01/02/98 165,000,000
CIBC Oppenheimer, Inc., dated 12/31/97, repurchase price $165,059,583
(U.S. Treasury Notes: $168,304,860, 5.50%-6.38%, 02/28/99-08/15/00)
165,000,000 6.50 01/02/98 165,000,000
C.S. First Boston Corp., dated 12/11/97, repurchase price $152,095,208
(U.S. Stripped Securities: $153,054,748. 02/15/98-11/15/04)
150,000,000 5.65 03/10/98 150,000,000
Deutsche Morgan Grenfell, Inc., dated 12/31/97, repurchase price
$165,062,333 (Total collateral value $168,300,705 consisting of U.S.
Treasury Stripped Securities: 08/15/99-08/15/02; U.S. Treasury Notes:
5.63%-7.50%, 11/30/98-11/15/05)
165,000,000 6.80 01/02/98 165,000,000
Goldman, Sachs & Co., dated 12/31/97, repurchase price $165,059,583 (U.S.
Treasury Note: $168,300,521, 5.75%, 09/30/99)
165,000,000 6.50 01/02/98 165,000,000
Joint Repurchase Agreement Account
1,024,200,000 6.40 01/02/98 1,024,200,000
JP Morgan Securities, Inc., dated 12/31/97, repurchase price $165,057,292
(U.S. Treasury Notes: $168,302,651, 6.25%-6.50%, 08/31/01-02/28/02)
165,000,000 6.25 01/02/98 165,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Lehman Government Securities, Inc., dated 12/31/97, repurchase price
$165,059,125 (U.S. Treasury Note: $168,289,206, 5.63%, 11/30/99)
$ 165,000,000 6.45% 01/02/98 $ 165,000,000
Merrill Lynch Government Securities, Inc., dated 12/31/97, repurchase
price $165,059,583 (Total collateral value $168,300,113 consisting of
U.S. Treasury Bills: 01/02/98-12/10/98; U.S. Treasury Bond: 3.50%,
11/15/98; U.S. Treasury Notes: 6.38%-7.75%, 01/15/00-01/31/00; U.S.
Treasury Stripped Securities: 5.75%-9.25%. 05/15/98-11/30/99)
165,000,000 6.50 01/02/98 165,000,000
Morgan Stanley & Co., dated 12/31/97, repurchase price $165,057,292
(U.S. Treasury Notes: $168,302,832, 5.63%-7.88%, 11/30/98-08/15/01)
165,000,000 6.25 01/02/98 165,000,000
Nomura Securities International, Inc., dated 12/31/97, repurchase price
$165,066,458 (U.S. Treasury Notes: $168,305,269, 6.12%-7.75%,
12/21/99-12/31/01)
165,000,000 7.25 01/02/98 165,000,000
UBS Securities, Inc., dated 12/31/97, repurchase price $165,060,042
(U.S. Treasury Notes: $170,525,247, 7.125%-7.5%, 11/15/01-10/15/98)
165,000,000 6.55 01/02/98 165,000,000
- -------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS $2,989,200,000
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $3,522,502,423(a)
- -------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentages shown for each investment category reflects the value of the
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
12
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE TREASURY INSTRUMENTS FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--99.3%
United States Treasury Bills
$ 65,000,000 4.70% 01/22/98 $ 64,821,792
50,000,000 4.75 01/22/98 49,861,458
2,500,000 5.00 01/22/98 2,492,716
23,600,000 5.10 01/22/98 23,529,790
4,600,000 5.15 01/22/98 4,586,181
3,400,000 5.17 01/22/98 3,389,746
8,600,000 5.20 01/22/98 8,573,914
65,000,000 5.12 02/05/98 64,676,760
20,000,000 4.95 02/12/98 19,884,500
13,400,000 5.12 02/12/98 13,319,957
United States Treasury Notes
16,600,000 7.88 01/15/98 16,618,156
8,000,000 5.00 01/31/98 7,996,000
96,800,000 5.63 01/31/98 96,793,075
35,000,000 7.25 02/15/98 35,069,845
10,000,000 5.13 02/28/98 9,990,057
50,000,000 7.88 04/15/98 50,328,250
25,000,000 5.13 04/30/98 24,969,979
20,000,000 6.00 05/31/98 20,033,373
- -------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS $516,935,549
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $516,935,549(a)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
The percentages shown for each category reflect the value of investments in
that category as a percentage of total net assets.
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE GOVERNMENT FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--40.9%
Federal Farm Credit Bank
$ 25,000,000 5.45% 03/03/98 $ 24,975,385
75,000,000 5.80(a) 04/14/98 74,981,276
50,000,000 5.70 12/01/98 49,951,782
35,970,000(b) 5.65 01/04/99 35,917,844
Federal Home Loan Bank
41,000,000 5.83(a) 03/06/98 40,994,655
59,000,000 5.79(a) 03/18/98 58,991,023
100,000,000 5.82(a) 04/14/98 99,980,582
10,000,000 5.72 06/23/98 9,997,563
65,000,000 5.75 07/02/98 64,973,616
40,000,000 5.71 10/01/98 39,990,824
Federal Home Loan Mortgage Corp.
20,000,000 5.72 03/17/98 19,994,674
Federal National Mortgage Association
40,000,000 5.59(a) 01/15/98 39,999,080
34,000,000 5.63 03/13/98 33,622,477
20,000,000 5.71 03/18/98 19,994,586
70,000,000 5.79 03/25/98 69,996,253
40,000,000 6.02 04/15/98 39,988,033
14,505,000 6.08 05/06/98 14,520,047
30,000,000 5.89 05/21/98 29,990,509
100,000,000 5.79(a) 07/15/98 99,966,209
50,000,000 5.75(a) 09/15/98 49,968,842
Student Loan Marketing Association
49,000,000 5.79 09/16/98 48,992,550
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $967,787,810
- ---------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--60.7%
CIBC Oppenheimer, Inc., dated 12/31/97, repurchase price $100,036,111
(U.S. Treasury Notes: $102,002,643, 5.13%-6.00%, 04/30/98-12/31/99)
$ 100,000,000 6.50% 01/02/98 $100,000,000
Deutsche Morgan Grenfell, Inc., dated 12/31/97, repurchase price
$100,037,778 (total collateral value $102,000,788 consisting of
FHLMC: 5.50%-8.50%, 01/15/98-12/01/07; FHLB: 01/16/98; FNMA: 5.50%-
9.50%, 12/01/99-12/01/07; U.S. Treasury bill: 03/05/98; U.S. Treasury
Bond: 8.25%, 05/15/05; U.S. Treasury Notes: 5.63%-7.13%, 02/28/99-
10/31/99; U.S. Treasury stripped securities; 02/15/00-08/15/04; U.S.
Treasury Inflation Indexed Note: 3.38%, 01/15/07)
100,000,000 6.80 01/02/98 100,000,000
Goldman, Sachs & Co., dated 12/10/97, repurchase price $202,818,333
(FNMA: $204,000,000, 6.00%-9.00%, 03/01/99-12/01/07)
200,000,000 5.70 03/09/98 200,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
Joint Repurchase Agreement Account(c)
$336,400,000 6.40% 01/02/98 $ 336,400,000
JP Morgan Securities, Inc., dated 12/31/97, repurchase price $100,036,667
(FNMA: $102,002,181, 6.00%-9.05%, 08/19/99-07/15/02)
100,000,000 6.60 01/02/98 100,000,000
Lehman Government Securities, Inc., dated 12/31/97, repurchase price
$100,036,667 (Total Collateral value $102,001,527 consisting of FHLMC:
6.50%-10.00%, 03/01/01-09/01/26; FNMA: 6.50%-11.50%, 02/01/04-07/01/26)
100,000,000 6.60 01/02/98 100,000,000
Merrill Lynch Government Securities, Inc., dated 12/31/97, repurchase price
$100,036,667 (Total Collateral value $102,001,527 consisting of FFCB:
5.50%-14.05%, 01/02/98-06/02/03; FNMA: 5.10%-8.25%, 05/13/98-11/12/02;
FHLMC: 5.00%-8.14%, 12/15/98-04/20/05; FHLB: 06/20/07)
100,000,000 6.60 01/02/98 100,000,000
Morgan Stanley Group, Inc., dated 10/28/97, repurchase price $202,800,000
(FHLMC: $204,238,009, 5.50%-9.50%, 10/01/98-12/01/27)
200,000,000 5.60 01/26/98 200,000,000
Nomura Securities International, Inc., dated 12/31/97, repurchase price
$100,038,333 (FFCB: $102,001,213, 5.50%-5.65%, 01/02/98-02/02/98)
100,000,000 6.90 01/02/98 100,000,000
UBS Securities, Inc., dated 12/31/97, repurchase price $100,036,389
(U.S. Treasury Note $102,001,048, 8.50%, 02/15/00)
100,000,000 6.55 01/02/98 100,000,000
</TABLE>
<TABLE>
- --------------------------------
<S> <C> <C> <C>
TOTAL REPURCHASE AGREEMENTS $1,436,400,000
- --------------------------------
TOTAL INVESTMENTS $2,404,187,810(d)
- --------------------------------
</TABLE>
(a) Variable rate security-base index is either Federal Funds, Prime lending
rate, or one month LIBOR.
(b) When-issued security.
(c) Portion of this security is being segregated for when-issued securities.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
14
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE FEDERAL FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--102.6%
Federal Farm Credit Bank
$ 20,000,000 5.48% 01/05/98 $ 19,987,822
90,000,000 5.72 01/06/98 89,928,500
29,000,000 5.50 01/06/98 28,977,847
15,000,000 5.45 01/07/98 14,986,375
15,000,000 5.60 01/07/98 14,986,000
25,000,000 5.49 01/09/98 24,969,500
21,700,000 5.47 01/15/98 21,653,839
25,000,000 5.65 01/15/98 24,945,071
20,000,000 5.58 01/28/98 19,916,300
50,000,000(a) 5.53(b) 01/30/98 49,985,210
15,000,000 5.57 02/02/98 14,925,733
9,000,000 5.60 02/02/98 8,955,200
12,300,000 5.65 02/02/98 12,238,227
45,000,000 5.60 02/04/98 44,762,000
23,000,000 5.62 02/05/98 22,874,331
20,000,000 5.60 02/05/98 19,891,111
5,000,000 5.60 02/11/98 4,968,111
5,000,000 5.57 02/12/98 4,967,505
50,000,000(c) 5.65 02/12/98 50,000,000
3,000,000 5.57 02/18/98 2,977,720
10,000,000 5.45 03/03/98 9,990,170
75,000,000 5.80(b) 04/14/98 74,981,276
15,000,000 5.49 06/15/98 14,622,563
125,000,000 5.74(b) 09/02/98 124,929,808
10,000,000 5.75 09/11/98 9,993,762
15,000,000 5.70 12/01/98 14,985,535
Federal Home Loan Bank
23,900,000 4.82 01/02/98 23,896,800
190,000,000 4.90 01/02/98 189,974,139
25,000,000 5.10 01/02/98 24,996,458
5,000,000 5.36 01/02/98 4,999,256
108,100,000 5.68 01/05/98 108,031,777
15,075,000 5.39 01/09/98 15,056,944
5,100,000 5.47 01/09/98 5,093,801
21,309,000 5.75 01/14/98 21,264,754
8,000,000 5.74 01/15/98 7,982,142
29,500,000 5.75 01/21/98 29,405,764
27,000,000 5.46 02/04/98 26,860,770
30,000,000 5.48 02/11/98 29,812,767
25,000,000 5.65 02/11/98 24,839,132
15,000,000 5.49 02/13/98 14,901,727
35,000,000 5.65 02/13/98 34,763,799
25,000,000 5.51 02/18/98 24,816,333
20,000,000 5.65 02/18/98 19,849,333
25,000,000 5.57 03/04/98 24,760,181
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal Home Loan Bank (continued)
$ 10,000,000 5.61% 03/04/98 $ 9,903,383
25,000,000 5.83(b) 03/06/98 24,996,741
2,500,000 5.37 04/01/98 2,466,438
43,430,000 5.37 04/01/98 42,846,952
23,950,000 5.51 04/01/98 23,620,089
50,000,000 5.52 04/01/98 49,310,000
1,100,000 5.37 04/03/98 1,084,904
25,000,000 5.82(b) 04/14/98 24,994,799
20,000,000 5.59 04/22/98 19,655,283
26,900,000 5.47 05/15/98 26,352,301
65,000,000 5.75(b) 07/02/98 64,971,614
50,000,000 5.77(b) 07/07/98 49,975,070
25,000,000 5.74(b) 09/17/98 24,986,044
45,000,000 5.75(b) 10/02/98 44,973,681
20,000,000 5.70 10/23/98 19,985,290
Student Loan Marketing Association
50,000,000 5.10 01/02/98 49,992,917
35,000,000 5.47 01/27/98 34,861,731
15,000,000 5.48 01/27/98 14,940,633
5,430,000 5.54 02/25/98 5,428,550
30,050,000 5.79 09/16/98 30,066,907
Tennessee Valley Authority
46,420,000 5.46 01/12/98 46,342,556
12,100,000 5.64 01/16/98 12,071,565
40,000,000 5.47 02/10/98 39,756,889
25,000,000 5.51 02/20/98 24,808,681
25,000,000 5.57 02/24/98 24,791,125
50,000,000 5.57 03/09/98 49,481,681
35,000,000 5.57 03/11/98 34,626,346
25,000,000 5.58 03/13/98 24,724,875
30,000,000 5.57 03/20/98 29,637,950
- ----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $2,229,360,388
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $2,229,360,388(d)
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) This security is being segregated for when-issued security.
(b) Variable rate security-base index is either Federal Funds, Prime lending
rate, or one month LIBOR.
(c) When-issued security.
(d) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
15
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE TAX-FREE MONEY MARKET FUND
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
ALABAMA--3.1%
Columbia IDB PCRB for Alabama Power Co. Series 1996 A
(A-1/VMIG1)
$ 1,200,000 4.80% 01/02/98 $ 1,200,000
Columbia IDB PCRB for Alabama Power Company Series 1995 B
(A-1/VMIG1)
3,300,000 4.80 01/02/98 3,300,000
Eutaw City IDB PCRB for Mississippi Power Co. Greene County Plant Project
Series 1992 (A-1/VMIG1)
6,550,000 4.25 01/07/98 6,550,000
Gadsden City IDB PCRB for Alabama Power Co. Series 1994
(A-1/VMIG1)
3,950,000 4.80 01/02/98 3,950,000
Homewood City Educational Building Authority RB for Samford University
Series 1996 (Bank of Nova Scotia LOC) (A-1/VMIG1)
1,200,000 4.80 01/02/98 1,200,000
Jefferson County MF Hsg. RB for Hickory Knolls Project Series 1994
(Amsouth Bank LOC) (P-1)
3,910,000 4.25 01/07/98 3,910,000
Mobile IDA PCRB for Alabama Power Series 1993A (A-1/VMIG1)
3,000,000 4.10 01/07/98 3,000,000
Mobile IDA PCRB for Alabama Power Series 1994 (A-1/VMIG1)
3,700,000 4.80 01/02/98 3,700,000
Montgomery Special Care RB Series 1994 A (Amsouth Bank LOC) (VMIG1)
8,000,000 4.20 01/07/98 8,000,000
- -----------------------------------------------------------------------------------------------
$ 34,810,000
- -----------------------------------------------------------------------------------------------
ALASKA--1.0%
Valdez Marine Terminal RB for Exxon Corporation Series 1993 C (A-1+)
$11,200,000 5.00% 01/02/98 $ 11,200,000
- -----------------------------------------------------------------------------------------------
ARKANSAS--0.4%
Crossett City PCRB for Georgia Pacific Corp. Series 1991 VRDN (Suntrust
Bank LOC) (AA3)
$ 4,500,000 4.20% 01/07/98 $ 4,500,000
- -----------------------------------------------------------------------------------------------
CALIFORNIA--1.7%
California School Cash Reserves Program Authority Pool Bonds Series 1997 A
(AMBAC) (SP-1+/MIG1)
$ 4,000,000 4.75% 07/02/98 $ 4,016,979
California State RANS Series 1997 (SP-1+/MIG1)
9,500,000 4.50 06/30/98 9,534,384
Los Angeles County TRANS Series 1997-98 A (SP-1+/MIG1)
6,000,000 4.50 06/30/98 6,017,370
- -----------------------------------------------------------------------------------------------
$ 19,568,733
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
COLORADO--2.2%
Colorado Health Facilities Authority Series 92 C (A-1+/VMIG1)
$15,200,000 4.15% 01/07/98 $ 15,200,000
Denver Airport System Subordinate RB Series 1997 B (Westdeutsche
Landesbank Girozentrale) (A-1+/VMIG1)
7,000,000 4.10 01/07/98 7,000,000
Moffat County PCRB for Pacificorp Series 1994 (AMBAC) (A-1/VMIG1)
3,000,000 5.10 01/02/98 3,000,000
- -----------------------------------------------------------------------------------------------
$ 25,200,000
- -----------------------------------------------------------------------------------------------
CONNECTICUT--1.8%
State of Connecticut 2nd Lien Special TRANS VRDN Series 1 (Commerzbank
Bank LOC) (A-1+/VMIG1)
$20,700,000 3.65% 01/07/98 $ 20,700,000
- -----------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--0.3%
District of Columbia VRDN ACES for Georgetown University Series 1988 B
(Bayerische Landesbank Girozentrale) (A-1+/VMIG1)
$ 600,000 3.80% 01/07/98 $ 600,000
District of Columbia VRDN ACES for Georgetown University Series 1988 C
(Bayerische Landesbank Girozentrale) (A-1+/VMIG1)
2,500,000 3.80 01/07/98 2,500,000
- -----------------------------------------------------------------------------------------------
$ 3,100,000
- -----------------------------------------------------------------------------------------------
FLORIDA--2.4%
Florida Local Government Pooled CP Notes Series A (First Union National
Bank of Florida LOC) (A-1/P-1)
$10,625,000 3.85% 01/14/98 $ 10,625,000
5,500,000 3.75 03/11/98 5,500,000
Putnam County Development Authority Floating/Fixed Rate PCRB for Seminole
Electric Cooperative Series 1984 H (CFC) (A-1+/P-1)
7,845,000 3.85 01/07/98 7,845,000
Putnam County Development Authority Floating/Fixed Rate PCRB for Seminole
Electric Cooperative Series 1984 S (CFC) (A-1+/P-1)
2,715,000 3.85 01/07/98 2,715,000
- -----------------------------------------------------------------------------------------------
$ 26,685,000
- -----------------------------------------------------------------------------------------------
GEORGIA--12.9%
Bartow County IDA PCRB for Georgia Power Co. First Series 1997 (VMIG1)
$ 9,000,000 4.80% 01/02/98 $ 9,000,000
Burke County IDA PCRB for Georgia Power Co. Fifth Series 1995 (VMIG1)
13,370,000 5.05 01/02/98 13,370,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
GEORGIA (CONTINUED)
Burke County IDA PCRB for Georgia Power Co. Second Series 1995 (A-1/VMIG1)
$ 3,700,000 4.80% 01/02/98 $ 3,700,000
Burke County IDA PCRB for Georgia Power Co. Eighth Series 1994 (A-1/VMIG1)
1,600,000 5.05 01/02/98 1,600,000
Burke County IDA PCRB for Georgia Power Co. Ninth Series 1994 (A-1/VMIG1)
7,700,000 5.05 01/02/98 7,700,000
Burke County IDA PCRB for Oglethorpe Power Series 1994 A (FGIC) (A-1+)
13,900,000 4.15 01/07/98 13,900,000
De Kalb County Hospital RB Series 1993B (Suntrust) (VMIG1)
2,230,000 4.20 01/07/98 2,230,000
Effingham County IDA PCRB for Savannah Electric And Power Co. Series 1997
(A-1/VMIG1)
3,000,000 5.05 01/02/98 3,000,000
Floyd County PCRB for Georgia Power Co. First Series 1996 (A-1/VMIG1)
4,000,000 5.05 01/02/98 4,000,000
Georgia Municipal Gas Authority RB for Gas Portfolio II Project Series B
(C.S. First Boston/Morgan Guaranty/Bayerische Landesbank
Girozentrale/Wachovia Bank ABN/AMRO) (A-1+)
19,000,000 3.65 01/07/98 19,000,000
Georgia Municipal Gas Authority RB for Gas Portfolio II Project Series B
(C.S. First Boston/Morgan Guaranty/Bayerische Landesbank Girozentrale)
(A-1+/VMIG1)
29,500,000 3.65 01/07/98 29,500,000
Municipal Electric Authority of Georgia Subordinated General Resolution
Bonds Series 1985 B (C.S. First Boston/Morgan Guaranty/Bayerische
Landesbank Girozentrale LOC)
(A-1+/VMIG1)
7,200,000 3.65 01/07/98 7,200,000
Municipal Electric Authority of Georgia Project One Subordinated Bonds
Series 1994 E (ABN/AMRO Bank) (A-1+/VMIG1)
14,095,000 3.85 01/07/98 14,095,000
Municipal Electric Authority of Georgia Project One Subordinated Bonds
Series 1985 B (C.S. First Boston/Morgan Guaranty/Bayerische Landesbank
Girozentrale LOC) (A-1+/VMIG1)
6,000,000 3.80 05/14/98 6,000,000
Municipal Electric Authority of Georgia Project One Subordinated Bonds
Series 1994 D (A-1+/VMIG1)
4,000,000 3.70 01/07/98 4,000,000
Municipal Electric Authority of Georgia Subordinated General Resolution
Bonds Series 1985 C (C.S. First Boston/Morgan Guaranty/Bayerische
Landesbank Girozentrale LOC) (A-1+/VMIG1)
6,400,000 3.70 01/07/98 6,400,000
- -----------------------------------------------------------------------------------------------
$ 144,695,000
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
IDAHO--1.2%
Idaho Health Facilities RB for Holy Cross Health Systems Series 1995
(A-1/VMIG1)
$13,000,000 4.15% 01/07/98 $ 13,000,000
- -----------------------------------------------------------------------------------------------
ILLINOIS--7.7%
Chicago GO Tender Notes Series 1997 (SP-1+/MIG1)
$17,000,000 3.65% 02/05/98 $ 16,998,432
Illinois Health Facilities Authority VRDN for Central Dupage Hospital
Series 1990 (Rabobank Nederland LOC ) (VMIG1)
6,200,000 5.10 01/02/98 6,200,000
Illinois Health Facilities Authority VRDN for Northwest Community Hospital
Series 1997 (A-1+/VMIG1)
8,400,000 4.15 01/07/98 8,400,000
Illinois Health Facilities Authority VRDN for Resurrection Healthcare
Series 1993 (VMIG1)
18,800,000 5.05 01/02/98 18,800,000
Illinois Health Facilities Authority VRDN Revolving Fund Pooled Finance
Program Series 1985 C (First National Bank of Chicago LOC) (A-1+/VMIG1)
4,000,000 3.80 01/07/98 4,000,000
Illinois Health Facilities Authority VRDN Revolving Fund Pooled Finance
Program Series 1985 D (First National Bank of Chicago LOC) (A-1+/VMIG1)
21,000,000 3.80 01/07/98 21,000,000
Sauget Village PCRB VRDN for Monsanto Series 1992 (P-1)
1,000,000 3.80 01/07/98 1,000,000
Sauget Village PCRB VRDN for Monsanto Series 1993 (P-1)
1,900,000 3.80 01/07/98 1,900,000
Societe Generale Municipal Securities Trust Receipts RB for Chicago Midway
Airport Series 1996 A (MBIA) (A-1+C)
7,540,000 4.25 01/07/98 7,540,000
- -----------------------------------------------------------------------------------------------
$ 85,838,432
- -----------------------------------------------------------------------------------------------
INDIANA--5.6%
Fort Wayne Hospital Authority VRDN for Parkview Memorial Hospital Series
1985 B (Bank of America LOC) (VMIG1)
$ 1,600,000 3.65% 01/07/98 $ 1,600,000
Indiana Health Facility Authority Variable Rate Hospital RB for Daughters
of Charity National Health System
Series 1997 E (A-1+/VMIG1)
14,000,000 3.65 01/07/98 14,000,000
Jasper County PCRB for Nipsco Series 1994 A (A-1/VMIG1)
8,500,000 5.10 01/02/98 8,500,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE TAX-FREE MONEY MARKET FUND (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
INDIANA (CONTINUED)
Jasper County PCRB Nipsco Series 1994 C (A-1/VMIG1)
$21,500,000 5.10% 01/02/98 $ 21,500,000
Princeton City PCRB for PSI Energy Inc. Project Series 1996 (Canadian
Imperial Bank of Commerce) (A-1+/VMIG1)
9,500,000 5.10 01/02/98 9,500,000
Warrick County PCRB for Aluminum Company of America Series 1992 (A-1)
7,475,000 4.25 01/07/98 7,475,000
- -----------------------------------------------------------------------------------------------
$ 62,575,000
- -----------------------------------------------------------------------------------------------
IOWA--2.2%
Chillicothe City PCRB for Midwest Power Systems Series 1993 A (A-1/VMIG1)
$ 2,400,000 3.85% 01/07/98 $ 2,400,000
Louisa County PCRB for Iowa-Illinois Gas & Electric Co./Midamerican Energy
Co. Series 1986 A (A-1)
2,700,000 4.00 01/07/98 2,700,000
Louisa County PCRB for Midwest Power Systems Inc. Series 1994 (A-1/VMIG1)
20,000,000 4.00 01/07/98 20,000,000
- -----------------------------------------------------------------------------------------------
$ 25,100,000
- -----------------------------------------------------------------------------------------------
KENTUCKY--4.7%
Calvert PCRB for Air Products and Chemicals, Inc. Project Series 1993 A
(A-1)
$ 3,000,000 4.20% 01/07/98 $ 3,000,000
Kentucky Turnpike Authority Refunding RB Trust Receipts Series 1987 A
(Financial Security Assurance Inc.) (A-1+/VMIG1)
23,000,000 3.90 01/07/98 23,000,000
Mason County Variable/Fixed Rate PCRB for East Kentucky Power Series 1984
B (CFC) (A-1+/P-1)
23,800,000 3.85 01/07/98 23,800,000
Trimble County PCRB for Louisville Gas and Electric Company Series 1996 A
(A-1+/VMIG1)
2,500,000 3.80 05/12/98 2,500,000
- -----------------------------------------------------------------------------------------------
$ 52,300,000
- -----------------------------------------------------------------------------------------------
MASSACHUSETTS--1.1%
Massachusetts Bay Transportation Authority VRDN Series 1984 A (A-1+/VMIG1)
$ 2,800,000 3.75% 03/01/98 $ 2,800,000
Massachusetts Health & Education Authority COPS for Harvard University
Eagle Tax-Exempt Trust Series 972104, Class A (A-1+C)
10,000,000 4.27 01/07/98 10,000,000
- -----------------------------------------------------------------------------------------------
$ 12,800,000
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
MICHIGAN--1.1%
Michigan Job Development Authority PCRB for Autoalliance International,
Inc. Series 1985 (Sumitomo Bank LOC) (VMIG1)
$ 1,400,000 4.65% 01/07/98 $ 1,400,000
Monroe County Economic Development Corp. Ltd. RB Series 1992 CC (Barclays
Bank LOC) (P1)
6,600,000 5.05 01/02/98 6,600,000
State of Michigan GO Notes (SP-1+/MIG1)
4,000,000 4.50 09/30/98 4,021,798
- -----------------------------------------------------------------------------------------------
$ 12,021,798
- -----------------------------------------------------------------------------------------------
MINNESOTA--0.4%
Port Authority of St. Paul VRDN for Weyerhaeuser Project Series 1993 (A/A-
1)
$ 4,000,000 4.20% 01/07/98 $ 4,000,000
- -----------------------------------------------------------------------------------------------
MISSISSIPPI--1.9%
Grenada County Refunding RB for Georgia Pacific Corp. Series 1994
(Sumitomo Bank LOC) (A1)
$ 1,000,000 4.50% 01/07/98 $ 1,000,000
Perry County PCRB for Leaf River Forest Products Inc. Series 1992 (C.S.
First Boston) (P-1)
20,800,000 5.00 01/02/98 20,800,000
- -----------------------------------------------------------------------------------------------
$ 21,800,000
- -----------------------------------------------------------------------------------------------
MISSOURI--1.1%
Missouri Health & Education Facilities Authority RB Series 1984
(A-1+/VMIG1)
$ 6,400,000 3.70% 01/07/98 $ 6,400,000
Missouri Health & Education Facility Authority Tax-Exempt VRDN Series 1995
B (MBIA) (A-1+)
4,500,000 3.70 01/07/98 4,500,000
Missouri Environmental Improvement and Energy Resources Authority VRDN
PCRB for Monsanto Series 1993 (P-1)
1,500,000 3.80 01/07/98 1,500,000
- -----------------------------------------------------------------------------------------------
$ 12,400,000
- -----------------------------------------------------------------------------------------------
MONTANA--0.3%
Montana Health Facilities Authority Health Care RB Pooled Loan Program
Series 1985 A (FGIC) (A-1+/VMIG1)
$ 3,000,000 4.10% 01/07/98 $ 3,000,000
- -----------------------------------------------------------------------------------------------
NEVADA--2.1%
Clark County VRDN for Nevada Airport System (MBIA) (A-1/VMIG1)
$23,340,000 3.65% 01/07/98 $ 23,340,000
- -----------------------------------------------------------------------------------------------
NEW HAMPSHIRE--1.1%
New Hampshire State Business Finance Authority PCRB for New England Power
Series 1990 B (A-1/VMIG1)
$12,000,000 3.75% 03/20/98 $ 12,000,000
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NEW JERSEY--0.9%
New Jersey TRANS Series 1998 A (A-1+/P-1)
$10,000,000 3.75% 03/11/98 $ 10,000,000
- -----------------------------------------------------------------------------------------------
NEW MEXICO--2.1%
Albuquerque Hospital RB (A-1+/VMIG1)
$ 3,000,000 4.15% 01/07/98 $ 3,000,000
New Mexico TRANS Series 1997 (SP-1+/MIG 1)
20,720,000 4.50 06/30/98 20,785,573
- -----------------------------------------------------------------------------------------------
$ 23,785,573
- -----------------------------------------------------------------------------------------------
NEW YORK--8.7%
Brentwood Union Free School District TRANS Series 1997 (MIG1)
$ 5,000,000 4.25% 06/30/98 $ 5,009,923
Great Neck, NY North Water Authority Water System RB Series 1993 A VRDN
(FGIC) (A-1+/VMIG1)
900,000 3.70 01/07/98 900,000
Municipal Assistance Corp. for The City of New York, Series K, Subseries
K-2 (Bayerische Landesbank Girozentrale LOC) (A-1+/VMIG1)
300,000 3.55 01/07/98 300,000
New York City GO RANS Fiscal 1998 Series A (National Westminster
Bank/Morgan Guaranty Trust/Bayerische Landesbank
Girozentrale/Westdeutsche Landesbank Girozentrale/Societe Generale
Landesbank LOC) (A-1+/MIG1)
50,000,000 4.50 06/30/98 50,175,154
New York City Health & Hospitals Corporation Health System Bonds Series
1997 B (Canadian Imperial Bank of Commerce) (A-1+/VMIG1)
3,000,000 3.55 01/07/98 3,000,000
New York City Municipal Water Finance Authority CP Notes Series 5 A
(Bayerische Landesbank/Westdeutsche Landesbank/Landesbank Hessen-
Thueringen LOC) (A-1+/P-1)
10,000,000 3.80 03/24/98 10,000,000
New York City Puttable Tax-Exempt Receipts GO Bonds Fiscal 1995 Series D
(MBIA) (VMIG1)
7,000,000 4.15 01/07/98 7,000,000
New York City Trust for Cultural Resources Adjustable Rate RB for the
American Museum of Natural History Series 1991B (MBIA) (A-1+/VMIG1)
3,200,000 3.55 01/07/98 3,200,000
New York State Energy Research & Development Authority PCRB for Brooklyn
Union Gas Series 1997 A-1 (MBIA) (A-1+/VMIG1)
6,135,000 3.70 01/07/98 6,135,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
New York State Energy Research & Development Authority PCRB for Brooklyn
Union Gas Series 1997 Series A-2 (MBIA) (A-1+/VMIG1)
$ 700,000 3.60% 01/07/98 $ 700,000
New York State Energy Research & Development Authority PCRB for Orange and
Rockland Utilities Series 1994 A (FGIC) (A-1+/VMIG1)
1,700,000 3.55 01/07/98 1,700,000
New York State Energy Research & Development Authority PCRB Rochester Gas
and Electric Corp. Series 1997 B (MBIA) (A-1+/VMIG1)
5,000,000 3.70 01/07/98 5,000,000
New York State Local Government Assistance Corp. VRDN Series 1995 C
(Landesbank Hessen-Thueringen Girozentrale LOC) (A-1+/VMIG1)
3,100,000 3.55 01/07/98 3,100,000
New York State Local Government Assistance Corp. VRDN Series 1995 F
(Toronto Dominion Bank LOC) (A-1+/VMIG1)
1,000,000 3.50 01/07/98 1,000,000
- -----------------------------------------------------------------------------------------------
$ 97,220,077
- -----------------------------------------------------------------------------------------------
NORTH CAROLINA--2.6%
North Carolina Medical Care Community RB for Moses H. Cone Memorial
Hospital Project Series 1993 (A-1+)
$ 5,000,000 4.15% 01/07/98 $ 5,000,000
Person County PCRB for Carolina Power & Light Series 1992 A (A-1/P-1)
16,400,000 3.90 01/07/98 16,400,000
Rockingham County IDA PCRB for Philip Morris Company Series 1992 (VMIG1)
7,700,000 4.00 01/07/98 7,700,000
- -----------------------------------------------------------------------------------------------
$ 29,100,000
- -----------------------------------------------------------------------------------------------
OHIO--1.2%
Columbus Electric System Series 1984 RB (Union Bank of Switzerland LOC)
(VMIG1)
$11,500,000 3.70% 01/07/98 $ 11,500,000
Franklin County Hospital RB for Holy Cross Health System Series 1995 (A-
1+/VMIG1)
1,400,000 4.15 01/07/98 1,400,000
- -----------------------------------------------------------------------------------------------
$ 12,900,000
- -----------------------------------------------------------------------------------------------
PENNSYLVANIA--3.7%
Delaware County IDA PCRB For BP Oil Inc. Project Series 1985 (A-1+/P-1)
$ 6,600,000 4.90% 01/02/98 $ 6,600,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
FINANCIAL SQUARE TAX-FREE MONEY MARKET FUND (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
Pennsylvania GO Bond Eagle Tax Exempt Trust Class A COPS First Series 1994
(AMBAC) (A-1+C)
$13,000,000 4.27% 01/07/98 $ 13,000,000
Pennsylvania TRANS Series 1997-1998 (SP-1+/MIG1)
18,000,000 4.50 06/30/98 18,064,102
Philadelphia School District TRANS Series 1997- 98 (Commerzbank) (SP-
1+/MIG1)
4,000,000 4.50 06/30/98 4,011,899
- -----------------------------------------------------------------------------------------------
$ 41,676,001
- -----------------------------------------------------------------------------------------------
SOUTH CAROLINA--0.8%
York County Floating/Fixed Rate PCRB Pooled Series 1984-North Carolina
Electric Membership Corp. VRDN (CFC) (A-1+/VMIG1)
$ 8,675,000 3.85% 01/07/98 $ 8,675,000
- -----------------------------------------------------------------------------------------------
TENNESSEE--0.2%
Blount County PCRB for Aluminum Company of America Series 1992 (A-1)
$ 2,450,000 4.25% 01/07/98 $ 2,450,000
- -----------------------------------------------------------------------------------------------
TEXAS--18.6%
Coastal Bend Health Facilities Development Corp. RB Series 1997 (First
National Bank of Chicago) (VMIG1)
$ 1,000,000 4.15% 01/07/98 $ 1,000,000
Gulf Coast Waste Disposal Authority PCRB for Monsanto Series 1996 (P-1)
5,300,000 3.80 01/07/98 5,300,000
Harris County Health Facilities Development Corp. RB for St. Luke's
Episcopal Hospital Series 1997 B (A-1+)
16,300,000 5.00 01/02/98 16,300,000
Harris County Health Facilities Development Corp. RB For Methodist
Hospital Series 1994 (A-1+)
31,500,000 4.90 01/02/98 31,500,000
Harris County Health Facilities Development Corp. Series 1997 A
(A-1+C/VMIG1)
9,000,000 3.70 03/13/98 9,000,000
Harris County Hospital RB for Childrens Hospital Series 1989 B-2 (VMIG1)
5,000,000 3.70 01/07/98 5,000,000
Houston GO CP Notes Series A (A-1+/P-1)
15,000,000 3.75 05/13/98 15,000,000
Lower Colorado River Authority CP Notes Series B (A-1+/P-1)
7,000,000 3.80 04/07/98 7,000,000
10,400,000 3.75 05/15/98 10,400,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
San Antonio Electric & Gas System Revenue & Refunding Bonds New Series
1997 SG 104 & SG 105 (AA/A-1)
$17,000,000 4.25% 01/07/98 $ 17,000,000
San Antonio Electric & Gas Systems CP Notes Series A (A-1+/P-1)
10,000,000 3.75 01/15/98 10,000,000
9,900,000 3.70 04/16/98 9,900,000
10,000,000 3.75 05/26/98 10,000,000
State of Texas TRANS Series 1997 B (A-1+/P-1)
5,000,000 3.70 02/25/98 5,000,000
State of Texas TRANS Series 1997 A (SP-1+/MIG1)
44,310,000 4.75 08/31/98 44,571,573
Travis County Health Facilities Development Variable Rate RB For Charity
Obligation Group Series 1997 E (A-1+/VMIG1)
6,900,000 3.65 01/07/98 6,900,000
Waco Health Facilities Development Co. Variable Rate RB For Charity
Obligation Group Series 1997 E (A-1+/VMIG1)
5,000,000 3.65 01/07/98 5,000,000
- -----------------------------------------------------------------------------------------------
$ 208,871,573
- -----------------------------------------------------------------------------------------------
VIRGINIA--4.7%
Chesterfield County IDA PCRB for Philip Morris Companies, Inc. Series 1992
(A-1/P-1)
$14,700,000 4.00% 01/07/98 $ 14,700,000
Louisa PCRB for Virginia Electric & Power Series 1984 (A-1/VMIG1)
4,000,000 3.85 03/13/98 4,000,000
3,900,000 3.85 03/18/98 3,900,000
4,000,000 3.85 03/31/98 4,000,000
2,000,000 3.85 03/24/98 2,000,000
Richmond VRDN Public Utility Revenue Notes Series A (A-1/VMIG1)
10,000,000 4.20 01/07/98 10,000,000
Roanoke City IDA VRDN for Carilion Health Systems Hospital Series A
(A-1/VMIG1)
4,000,000 4.10 01/07/98 4,000,000
Roanoke City IDA VRDN for Carilion Health Systems Series B (A-1+/VMIG1)
1,000,000 4.10 01/07/98 1,000,000
York County IDA PCRB for Virginia Electric & Power Series 1985
(A-1+/VMIG1)
9,000,000 3.90 02/09/98 9,000,000
- -----------------------------------------------------------------------------------------------
$ 52,600,000
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
WASHINGTON--3.4%
King County Sewer Revenue BANS Series A (A-1/P-1)
$10,000,000 3.75% 04/15/98 $ 10,000,000
4,600,000 3.75 04/16/98 4,600,000
Washington Health Care Facilities Authority Series 1985 B
(A-1+/VMIG1)
5,110,000 5.00 01/02/98 5,110,000
Washington Health Care Facilities Authority Series 1985 D
(A-1+/VMIG1)
3,100,000 5.00 01/02/98 3,100,000
Washington Health Care Facilities Authority Series 1985 E
(A-1+/VMIG1)
4,200,000 5.00 01/02/98 4,200,000
Washington Health Care Facilities Authority VRDN for Fred Hutchinson
Cancer Research Center Series 1991 A (Morgan Guaranty Trust LOC)
(VMIG1)
5,225,000 5.10 01/02/98 5,225,000
Washington Health Care Facilities Authority VRDN for Fred Hutchinson
Cancer Research Center Series 1996 (Morgan Guaranty Trust LOC) (VMIG1)
5,595,000 5.10 01/02/98 5,595,000
- ---------------------------------------------------------------------------------------------
$ 37,830,000
- ---------------------------------------------------------------------------------------------
WISCONSIN--2.8%
Milwaukee IDRB Multi-Modal for Pharmacia & Upjohn, Inc. Series 1994 (P-
1)
$ 8,000,000 4.20% 01/07/98 $ 8,000,000
State of Wisconsin Operating Notes Series 1997 (SP-1+/MIG1)
6,800,000 4.50 06/15/98 6,820,592
State of Wisconsin Operating Notes Series 1997-2 (SP-1+/MIG1)
10,000,000 4.50 06/15/98 10,033,691
Wisconsin Health & Educational Facilities Authority Variable Rate RB
for Wheaton Franciscan Services Series 1997 (Toronto Dominion Bank)
(A-1+/VMIG1)
6,575,000 4.10 01/07/98 6,575,000
- ---------------------------------------------------------------------------------------------
$ 31,429,283
- ---------------------------------------------------------------------------------------------
WYOMING--0.1%
Sweetwater PCRB for Pacificorp Project Series 1990 A (C.S. First Boston
LOC) (VMIG1)
$ 1,500,000 3.65% 01/07/98 $ 1,500,000
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $1,188,671,470(a)
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current reset rate, which is based upon current interest rate indices.
Maturity dates represent either the stated date on the security, the next
interest reset date for floating rate securities, or the prerefunded date for
those types of securities.
Security ratings are unaudited.
The percentages shown for each investment category reflect the value of
investments in that category as a percentage of total net assets.
INVESTMENT ABBREVIATIONS:
<TABLE>
<C> <S>
ACES --Adjustable Convertible Extendible Securities
AMBAC --Insured by American Municipal Bond Assurance Corp.
BANS --Bond Anticipation Note
CFC --Unconditionally Guaranteed by CFC, Cooperative Finance Corp.
COPS --Certificates of Participation
CP --Commercial Paper
FGIC --Insured by Financial Guaranty Insurance Co.
GO --General Obligation
IDA --Industrial Development Authority
IDB --Industrial Development Bond
IDRB --Industrial Development Revenue Bond
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RANS --Revenue Anticipation Notes
RB --Revenue Bond
TRANS --Tax Revenue Anticipation Notes
VRDN --Variable Rate Demand Note
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
21
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME PREMIUM
OBLIGATIONS MONEY MARKET MONEY MARKET
FUND FUND FUND
--------------------------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at
value based on amortized cost $4,469,716,189 $5,077,628,672 $226,904,703
Cash 724,728 -- 70,643
Interest receivable 26,750,497 33,332,928 391,533
Deferred organization expenses,
net -- 12,432 --
Other assets 5,061 293,555 64,141
- ------------------------------------------------------------------------------
TOTAL ASSETS 4,497,196,475 5,111,267,587 227,431,020
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased 35,000,000 177,216,947 4,999,518
Due to bank -- 90,617 --
Dividends payable 22,829,936 28,027,343 1,308,135
Accrued expenses and other
liabilities 1,120,150 1,595,937 102,078
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 58,950,086 206,930,844 6,409,731
- ------------------------------------------------------------------------------
NET ASSETS:
Paid in capital 4,438,254,520 4,904,335,361 221,021,289
Accumulated undistributed net
investment income -- -- --
Accumulated undistributed net
realized gain (loss) on
investments (8,131) 1,382 --
- ------------------------------------------------------------------------------
NET ASSETS $4,438,246,389 $4,904,336,743 $221,021,289
- ------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share
(net assets/shares outstanding) $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------
SHARES OUTSTANDING:
FST shares 3,867,740,474 4,346,515,706 218,192,392
FST Preferred shares 152,770,028 20,258,602 557,827
FST Administration shares 241,610,519 221,253,373 1,456,698
FST Service shares 176,133,499 316,307,680 814,372
- ------------------------------------------------------------------------------
Total shares of beneficial
interest outstanding, $0.001 par
value (unlimited number of
shares authorized) 4,438,254,520 4,904,335,361 221,021,289
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY TAX-FREE
OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MONEY MARKET
FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3,522,502,423 $516,935,549 $2,404,187,810 $2,229,360,388 $1,188,671,470
14,370 70,699 69,034 51,898 491,011
10,248,818 5,333,790 9,708,940 3,566,555 7,168,593
-- -- -- -- 24,080
-- -- 313,847 399 117,318
- ---------------------------------------------------------------------------
3,532,765,611 522,340,038 2,414,279,631 2,232,979,240 1,196,472,472
- ---------------------------------------------------------------------------
-- -- 35,917,844 50,000,000 72,470,257
-- -- -- -- --
16,541,636 1,395,025 11,581,411 8,197,468 3,439,031
1,069,932 187,997 1,090,263 944,335 377,021
- ---------------------------------------------------------------------------
17,611,568 1,583,022 48,589,518 59,141,803 76,286,309
- ---------------------------------------------------------------------------
3,515,154,043 520,755,638 2,365,690,113 2,173,836,797 1,120,201,103
-- -- -- 8,313 --
-- 1,378 -- (7,673) (14,940)
- ---------------------------------------------------------------------------
$3,515,154,043 $520,757,016 $2,365,690,113 $2,173,837,437 $1,120,186,163
- ---------------------------------------------------------------------------
$1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------
2,217,903,808 496,418,745 1,478,535,045 1,125,680,906 939,421,140
245,360,997 1,539 7,146,792 194,374,977 35,151,663
738,895,099 4,159,015 299,801,906 625,333,945 103,049,763
312,994,139 20,176,339 580,206,370 228,446,969 42,578,537
- ---------------------------------------------------------------------------
3,515,154,043 520,755,638 2,365,690,113 2,173,836,797 1,120,201,103
- ---------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
23
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME PREMIUM
OBLIGATIONS MONEY MARKET MONEY MARKET
FUND FUND FUND(A)
---------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest Income $288,754,558 $277,371,948 $4,265,812
- --------------------------------------------------------------------------------
EXPENSES:
Management fees 10,499,297 10,006,793 154,238
Custodian fees 660,532 568,180 20,086
Registration fees 144,676 532,913 118,335
Professional fees 105,490 29,237 5,834
Amortization of deferred organization
expenses -- 9,041 --
Trustees' fees 60,895 36,307 590
Other 264,396 109,004 26,895
- --------------------------------------------------------------------------------
TOTAL EXPENSES 11,735,286 11,291,475 325,978
Less--Expenses reimbursable and fees
waived by Goldman Sachs (2,511,530) (2,500,163) (268,308)
- --------------------------------------------------------------------------------
Net expenses 9,223,756 8,791,312 57,670
Preferred share fees 181,303 55,349 131
Administration share fees 662,090 780,489 13,845
Service share fees 707,816 1,514,944 114
- --------------------------------------------------------------------------------
NET EXPENSES AND SHARE FEES 10,774,965 11,142,094 71,760
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 277,979,593 266,229,854 4,194,052
- --------------------------------------------------------------------------------
NET REALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS 15,992 32,849 --
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $277,995,585 $266,262,703 $4,194,052
- --------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations for the Premium Money Market, Treasury
Instruments and the Federal Fund was August 1, 1997, March 3, 1997 and
February 28, 1997, respectively.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY TAX-FREE
OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MONEY MARKET
FUND FUND(A) FUND FUND(A) FUND
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$173,797,289 $11,914,704 $117,069,858 $53,521,252 $30,453,737
- ---------------------------------------------------------------------------------
6,427,023 463,681 4,296,324 1,967,724 1,694,448
455,269 39,985 318,894 114,477 33,896
202,135 123,596 340,455 514,252 160,249
46,344 7,077 17,117 12,440 13,000
-- -- -- -- 15,582
24,127 1,430 11,181 4,810 4,383
164,848 18,108 39,432 22,210 27,076
- ---------------------------------------------------------------------------------
7,319,746 653,877 5,023,403 2,635,913 1,948,634
(1,671,542) (242,977) (1,246,079) (911,622) (455,966)
- ---------------------------------------------------------------------------------
5,648,204 410,900 3,777,324 1,724,291 1,492,668
107,309 1 27,961 66,047 15,965
1,741,440 3,240 649,313 353,083 241,784
1,201,356 112,501 2,533,854 482,096 166,974
- ---------------------------------------------------------------------------------
8,698,309 526,642 6,988,452 2,625,517 1,917,391
- ---------------------------------------------------------------------------------
165,098,980 11,388,062 110,081,406 50,895,735 28,536,346
- ---------------------------------------------------------------------------------
300,712 89,851 127,727 (7,673) (2,081)
- ---------------------------------------------------------------------------------
$165,399,692 $11,477,913 $110,209,133 $50,888,062 $28,534,265
- ---------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME PREMIUM
OBLIGATIONS MONEY MARKET MONEY MARKET
FUND FUND FUND(A)
--------------------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 277,979,593 $ 266,229,854 $ 4,194,052
Net realized gain (loss) on
investment transactions 15,992 32,849 0
- --------------------------------------------------------------------------------
Net increase in net as-
sets resulting from op-
erations 277,995,585 266,262,703 4,194,052
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLD-
ERS FROM:
Net investment income
FST shares (247,361,553) (231,700,902) (3,890,656)
FST Preferred shares (9,751,263) (3,010,280) (7,210)
FST Administration shares (13,824,313) (16,410,842) (295,011)
FST Service shares (7,042,464) (15,107,830) (1,175)
Net realized gain on in-
vestment transactions
FST shares (22,695) (24,966) --
FST Preferred shares (752) (571) --
FST Administration shares (1,302) (31) --
FST Service shares (464) (6,853) --
- --------------------------------------------------------------------------------
Total distributions to
shareholders (278,004,806) (266,262,275) (4,194,052)
- --------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS (AT
$1.00 PER SHARE):
Proceeds from sales of
shares 53,179,415,600 68,053,947,094 1,075,863,230
Reinvestment of dividends
and distributions 112,453,328 134,114,443 1,495,718
Cost of shares repurchased (53,213,589,524) (66,241,742,997) (856,337,659)
- --------------------------------------------------------------------------------
Net increase in net as-
sets resulting from
share
transactions 78,279,404 1,946,318,540 221,021,289
- --------------------------------------------------------------------------------
Total increase 78,270,183 1,946,318,968 221,021,289
NET ASSETS:
Beginning of period 4,359,976,206 2,958,017,775 --
- --------------------------------------------------------------------------------
End of period $ 4,438,246,389 $ 4,904,336,743 $ 221,021,289
- --------------------------------------------------------------------------------
Accumulated undistributed
net investment income -- -- --
- --------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations for the Premium Money Market, Treasury
Instruments and the Federal Fund was August 1, 1997, March 3, 1997 and
February 28, 1997, respectively.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
TREASURY TREASURY TAX-FREE
OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MONEY MARKET
FUND FUND(A) FUND FUND(A) FUND
- ---------------------------------------------------------------------------------------
$ 165,098,980 $ 11,388,062 $ 110,081,406 $ 50,895,735 $ 28,536,346
300,712 89,851 127,727 (7,673) (2,081)
- ---------------------------------------------------------------------------------------
165,399,692 11,477,913 110,209,133 50,888,062 28,534,265
- ---------------------------------------------------------------------------------------
(112,020,839) (10,293,085) (70,362,803) (35,377,629) (23,828,347)
(5,711,597) (45) (1,492,230) (3,504,242) (542,008)
(35,669,978) (62,666) (13,365,067) (7,278,709) (3,161,663)
(11,696,566) (1,032,266) (24,861,306) (4,726,842) (1,004,328)
(253,465) (78,370) (94,763) -- --
(9,681) (1) (1,310) -- --
(92,228) (459) (15,668) -- --
(25,376) (9,643) (42,470) -- --
- ---------------------------------------------------------------------------------------
(165,479,730) (11,476,535) (110,235,617) (50,887,422) (28,536,346)
- ---------------------------------------------------------------------------------------
30,901,418,469 1,886,752,702 20,842,203,467 7,175,698,490 6,856,129,085
61,924,789 3,001,270 30,237,427 17,286,075 8,395,593
(30,543,252,110) (1,368,998,334) (19,734,267,186) (5,019,147,768) (6,285,421,492)
- ---------------------------------------------------------------------------------------
420,091,148 520,755,638 1,138,173,708 2,173,836,797 579,103,186
- ---------------------------------------------------------------------------------------
420,011,110 520,757,016 1,138,147,224 2,173,837,437 579,101,105
3,095,142,933 -- 1,227,542,889 -- 541,085,058
- ---------------------------------------------------------------------------------------
$ 3,515,154,043 $ 520,757,016 $ 2,365,690,113 $ 2,173,837,437 $ 1,120,186,163
- ---------------------------------------------------------------------------------------
-- -- -- 8,313 --
- ---------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
27
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME TREASURY TAX-FREE
OBLIGATIONS MONEY MARKET OBLIGATIONS GOVERNMENT MONEY MARKET
FUND FUND FUND FUND FUND
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 263,491,381 $ 162,277,598 $ 124,545,016 $ 65,841,904 $ 18,529,517
Net realized gain (loss)
on
investment transactions 105,304 189,110 587,091 136,538 (5,995)
- -----------------------------------------------------------------------------------------------------------------
Net increase in net as-
sets resulting
from operations 263,596,685 162,466,708 125,132,107 65,978,442 18,523,522
---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income
FST shares (245,389,523) (149,928,272) (93,857,124) (48,867,861) (15,981,710)
FST Preferred shares (2,239,677) (162,278) (797,088) (19,753) (431,737)
FST Administration
shares (10,697,750) (9,558,151) (21,870,105) (5,023,737) (1,593,538)
FST Service shares (5,164,431) (2,628,897) (8,020,699) (11,930,553) (522,532)
Net realized gain on
investment transactions
FST shares (128,847) (173,838) (385,734) (81,682) --
FST Preferred shares (1,177) (188) (3,276) (33) --
FST Administration
shares (5,617) (11,082) (89,882) (8,397) --
FST Service shares (2,712) (3,048) (32,963) (19,942) --
----------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (263,629,734) (162,465,754) (125,056,871) (65,951,958) (18,529,517)
---------------------------------------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS
(AT $1.00 PER SHARE):
Proceeds from sales of
shares 48,481,127,400 44,257,102,764 20,383,057,696 14,111,648,633 4,669,259,507
Reinvestment of
dividends and
distributions 126,514,648 91,077,089 45,060,831 21,912,928 6,495,873
Cost of shares repur-
chased (47,756,596,271) (43,600,991,427) (19,343,068,853) (13,746,823,336) (4,623,830,243)
- -----------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from share
transactions 851,045,777 747,188,426 1,085,049,674 386,738,225 51,925,137
---------------------------------------------------------------------------------------------------------------
Total increase 851,012,728 747,189,380 1,085,124,910 386,764,709 51,919,142
NET ASSETS:
Beginning of year 3,508,963,478 2,210,828,395 2,010,018,023 840,778,180 489,165,916
- -----------------------------------------------------------------------------------------------------------------
End of year $ 4,359,976,206 $ 2,958,017,775 $ 3,095,142,933 $ 1,227,542,889 $ 541,085,058
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
28
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------- ---------------------------------------
1. ORGANIZATION
Effective May 1, 1997, the Goldman Sachs Money Market Trust was reorganized
from a Massachusetts business trust to a Delaware business trust named the
Goldman Sachs Trust (the "Trust"). The Trust includes the Financial Square
Funds, collectively "the Funds" or individually a "Fund". The Trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. Financial Square consists of nine diversified
funds: Prime Obligations, Money Market, Premium Money Market, Treasury
Obligations, Treasury Instruments, Government, Federal, Tax-Free Money Market,
Municipal Money Market (inactive as of December 31, 1997). The Financial Square
Funds offer four classes of shares: FST shares, FST Preferred shares, FST
Administration shares and FST Service shares. The investment objective of the
Funds is to maximize current income to the extent consistent with the
preservation of capital and maintenance of liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts.
A. Investment Valuation--
Each Fund uses the amortized-cost method for valuing portfolio securities which
approximates market value. Under this method, all investments purchased at a
discount or premium are valued by amortizing the difference between the
original purchase price and maturity value of the issue over the period to
maturity.
B. Interest Income--
Interest income is determined on the basis of interest accrued, premium
amortized and discount earned.
C. Federal Taxes--
It is each Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
each year substantially all investment company taxable and tax-exempt income to
shareholders. Accordingly, no federal tax provisions are required.
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with federal income tax rules. Therefore,
the source of the Funds' distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital,
depending on the type of book/tax differences that may exist.
At December 31, 1997, the Funds' tax year end, the following funds had capital
loss carryforwards for U.S. Federal tax purposes of approximately:
<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
---- ------ ----------
<S> <C> <C>
Federal...................................................... $7,673 2005
Tax-Free Money Market........................................ 14,940 2003-2005
</TABLE>
D. Deferred Organization Expenses--
Organization-related costs are being amortized on a straight-line basis over a
period of five years.
E. Expenses--
Expenses incurred by the Funds that do not specifically relate to an individual
fund are generally allocated to the Funds based on each Fund's relative average
net assets for the period.
Shareholders of FST Preferred, FST Administration and FST Service shares bear
all expenses and fees paid to service organizations for their services with
respect to such shares.
---------------------------------------
- ---------------------------------------
29
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
- --------------------------------------- ---------------------------------------
3. AGREEMENTS
As of May 1, 1997, the Fund's Investment Advisory and Administration Agreements
were combined into an Investment Management Agreement (the "Agreement")
encompassing the same services and fee structure. Goldman Sachs Asset
Management ("GSAM"), a separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), manages the portfolios of the Funds, subject to general
supervision by the Trust's Board of Trustees and administers each Fund's
business affairs, including providing facilities. As compensation for the
services rendered under the Investment Management Agreement and the assumption
of the expenses related thereto, GSAM is entitled to a fee, computed daily and
payable monthly, at an annual rate equal to .205% of each Fund's average daily
net assets. These amounts are included in "Accrued expenses and other
liabilities" in the accompanying Statements of Assets and Liabilities.
For the year ended December 31, 1997, GSAM has voluntarily agreed to waive a
portion of its management fee. In addition, GSAM has limited certain of each of
the Fund's expenses (excluding management fees, service organization fees,
taxes, interest, brokerage commissions and extraordinary expenses) to the
extent that such expenses exceed .01% per annum of the Fund's average daily net
assets. These reimbursement amounts are included in "Other assets" in the
accompanying Statement of Assets and Liabilities.
Goldman Sachs serves as Transfer Agent and Distributor of shares of the Funds
pursuant to Transfer Agent and Distribution Agreements and receives no fee.
The following chart outlines the fee waivers and expense reimbursements for
the year ended December 31, 1997 and amounts owed to and due from GSAM at
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Amounts
Management Expense Amounts due
Fees Reimburse- due to from
Fund Waived ments Total GSAM GSAM
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime
Obligations
Fund $1,793 $719 $2,512 $852 --
- -------------------------------------------------------------
Money
Market Fund 1,708 792 2,500 863 $287
- -------------------------------------------------------------
Premium Money
Market Fund 104 164 268 21 64
- -------------------------------------------------------------
Treasury
Obligations
Fund 1,098 574 1,672 530 --
- -------------------------------------------------------------
Treasury
Instruments
Fund 80 163 243 105 --
- -------------------------------------------------------------
Government Fund 733 513 1,246 366 314
- -------------------------------------------------------------
Federal Fund 345 567 912 284 --
- -------------------------------------------------------------
Tax-Free Money
Market Fund 289 167 456 165 116
</TABLE>
4. PREFERRED, ADMINISTRATION AND SERVICE PLANS
The Funds have adopted Preferred, Administration and Service Plans to
compensate service organizations for providing varying levels of account
administration and shareholder liaison services to their customers who are
beneficial owners of such shares. The Preferred, Administration and Service
Plans provide for compensation to the service organizations in an amount up to
.10%, .25% and .50% (on an annualized basis), respectively, of the average
daily net asset value of the respective shares.
5.LINE OF CREDIT FACILITY
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility to be used
---------------------------------------
- ---------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
solely for temporary or emergency purposes. Under the most restrictive
arrangement, each Fund must own securities having a market value in excess of
300% of the total bank borrowings. The interest rate on the borrowings is based
on the Federal Funds rate. During the year ended December 31, 1997, the Funds
did not have any borrowings under this facility.
6.REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at a custodian.
7.JOINT REPURCHASE AGREEMENT ACCOUNTS
The Funds, together with other registered investment companies having
management agreements with GSAM or its affiliates, transfer uninvested cash
balances into joint accounts, the daily aggregate balances of which are
invested in one or more repurchase agreements. The underlying securities for
the repurchase agreements are U.S. Treasury obligations.
At December 31, 1997, the Prime Obligations, Money Market, Premium Money
Market, Treasury Obligations and Government Funds had undivided interests in
the repurchase agreements in the following joint account, which equaled
$404,500,000, $389,700,000, $66,900,000, $1,024,200,000 and $336,400,000 in
principal amount, respectively. At December 31, 1997, the repurchase agreements
in this joint account, along with the corresponding underlying securities
(including the type of security, market value, interest rate and maturity
date), were as follows:
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS
Chase Manhattan Securities, dated 12/31/97, repurchase price $200,061,111
(total collateral value $204,001,955 consisting of U.S. Treasury Notes:
5.50%-8.75%, 02/15/00-08/31/00)
$200,000,000 5.50% 01/02/98 $200,000,000
Donaldson, Lufkin & Jenrette, Inc., dated 12/31/97, repurchase price
$510,185,583 (total collateral value $520,200,021 consisting of U.S. Trea-
sury Notes: 5.13%-8.13%, 01/31/98-02/15/04; U.S. Treasury Interest only
Stripped Securities: 02/15/98-02/15/04; U.S. Treasury Stripped Principal
Security: 08/15/01; U.S. Treasury Bill: 05/14/98)
510,000,000 6.55 01/02/98 510,000,000
Swiss Bank Corp., dated 12/31/97, repurchase price $735,367,495 (total col-
lateral value $749,834,669 consisting of U.S. Treasury Notes: 4.75%-8.50%,
02/15/98-11/15/05; U.S. Treasury Inflation Indexed Bond: 3.38%, 01/15/07;
U.S. Treasury Bills: 01/15/98-10/15/98; U.S. Treasury Bonds: 10.75%-11.13%,
08/15/03-08/15/05)
735,100,000 6.55 01/02/98 735,100,000
Swiss Bank Corp., dated 12/31/97, repurchase price $300,091,667 (total col-
lateral value $306,013,333 consisting of U.S. Treasury Notes: 4.75%-8.50%,
02/15/98-11/15/05; U.S. Treasury Inflation Indexed Bond: 3.38%, 01/15/07;
U.S. Treasury Bills: 01/15/98-10/15/98; U.S. Treasury Bonds: 10.75%-11.13%,
08/15/03-08/15/05)
300,000,000 5.50 01/02/98 300,000,000
Salomon-Smith Barney, Inc., dated 12/31/97, repurchase price $1,000,369,444
(total collateral value $1,020,528,930 consisting of U.S. Treasury Stripped
Interest Only Securities: 02/15/98-11/15/04; U.S. Treasury Stripped Princi-
pal Only Securities: 5.75%-11.63%, 02/15/98-11/15/04; U.S. Treasury Bill:
10/15/98)
1,000,000,000 6.65 01/02/98 1,000,000,000
- -------------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $2,745,100,000
- -------------------------------------------------------------------------------------------------
</TABLE>
8.OTHER MATTERS
Pursuant to an SEC exemptive order, certain of the Funds may enter into certain
principal transactions, including repurchase agreements, with Goldman, Sachs &
Co. subject to certain limitations as follows: 25% of eligible security
transactions, as defined, and 10% of repurchase agreement transactions.
---------------------------------------
- ---------------------------------------
31
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
- --------------------------------------------------------------------------------
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
PRIME PREMIUM
OBLIGATIONS MONEY MARKET MONEY MARKET
FUND FUND FUND(A)
<S> <C> <C> <C>
FST SHARES:
Shares sold 47,147,215,061 63,982,789,001 1,031,854,202
Reinvestment of dividends
and distributions 103,377,234 118,914,805 1,491,071
Shares repurchased (47,284,643,891) (62,295,549,107) (815,152,881)
- ------------------------------------------------------------------------------
(34,051,596) 1,806,154,699 218,192,392
- ------------------------------------------------------------------------------
FST PREFERRED SHARES:
Shares sold 1,624,299,212 754,498,086 553,233
Reinvestment of dividends
and distributions 1,010,173 1,861,300 4,594
Shares repurchased (1,599,668,091) (753,611,334) 0
- ------------------------------------------------------------------------------
25,641,294 2,748,052 557,827
- ------------------------------------------------------------------------------
FST ADMINISTRATION SHARES:
Shares sold 2,052,177,068 2,237,080,367 42,641,449
Reinvestment of dividends
and distributions 4,016,672 11,388,582 27
Shares repurchased (2,030,483,474) (2,192,980,303) (41,184,778)
- ------------------------------------------------------------------------------
25,710,266 55,488,646 1,456,698
- ------------------------------------------------------------------------------
FST SERVICE SHARES:
Shares sold 2,355,724,259 1,079,579,640 814,346
Reinvestment of dividends
and distributions 4,049,249 1,949,756 26
Shares repurchased (2,298,794,068) (999,602,253) 0
- ------------------------------------------------------------------------------
60,979,440 81,927,143 814,372
- ------------------------------------------------------------------------------
Net increase in shares 78,279,404 1,946,318,540 221,021,289
- ------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations for the Premium Money Market, Treasury
Instruments and the Federal Fund was August 1, 1997, March 3, 1997 and
February 28, 1997, respectively.
- --------------------------------------- ---------------------------------------
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TREASURY TREASURY TAX-FREE
OBLIGATIONS INSTRUMENTS GOVERNMENT FEDERAL MONEY MARKET
FUND FUND(A) FUND FUND(A) FUND
<S> <C> <C> <C> <C>
21,293,469,586 1,757,063,242 16,068,538,976 4,332,722,729 6,019,992,055
39,794,793 2,990,503 25,573,363 11,815,388 6,844,739
(21,406,328,023) (1,263,635,000) (15,474,321,199) (3,218,857,211) (5,528,265,772)
- -----------------------------------------------------------------------------------
(73,063,644) 496,418,745 619,791,140 1,125,680,906 498,571,022
- -----------------------------------------------------------------------------------
1,389,183,384 1,500 141,301,549 300,365,996 271,642,865
1,089,957 39 164,952 2,470,479 87,192
(1,191,548,937) 0 (134,432,139) (108,461,498) (265,308,952)
- -----------------------------------------------------------------------------------
198,724,404 1,539 7,034,362 194,374,977 6,421,105
- -----------------------------------------------------------------------------------
5,271,440,356 9,051,015 2,286,537,497 1,298,319,389 271,268,796
12,077,349 5,093 2,533,048 1,136,485 865,271
(5,081,525,991) (4,897,093) (2,134,371,808) (674,121,929) (220,746,099)
- -----------------------------------------------------------------------------------
201,991,714 4,159,015 154,698,737 625,333,945 51,387,968
- -----------------------------------------------------------------------------------
2,947,325,143 120,636,945 2,345,825,445 1,244,406,778 293,225,369
8,962,690 5,635 1,966,064 1,747,321 598,391
(2,863,849,159) (100,466,241) (1,991,142,040) (1,017,707,130) (271,100,669)
- -----------------------------------------------------------------------------------
92,438,674 20,176,339 356,649,469 228,446,969 22,723,091
- -----------------------------------------------------------------------------------
420,091,148 520,755,638 1,138,173,708 2,173,836,797 579,103,186
- -----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Share activity for the year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
TAX-FREE
PRIME OBLIGATIONS MONEY MARKET TREASURY GOVERNMENT MONEY MARKET
FUND FUND OBLIGATIONS FUND FUND FUND
FST SHARES:
<S> <C> <C> <C> <C> <C>
Shares sold 44,941,258,260 41,611,799,874 15,303,462,361 11,674,849,553 4,186,677,890
Reinvestment of
dividends and
distributions 120,569,689 84,724,371 33,617,264 19,640,980 4,879,667
Shares repurchased (44,455,790,432) (41,225,360,339) (14,633,812,470) (11,579,631,835) (4,199,081,918)
- ---------------------------------------------------------------------------------------------------------------
606,037,517 471,163,906 703,267,155 114,858,698 (7,524,361)
- ---------------------------------------------------------------------------------------------------------------
FST PREFERRED SHARES:
Shares sold 377,996,154 77,361,171 94,309,002 8,202,329 65,543,581
Reinvestment of
dividends and
distributions 6,257 76,227 473,231 7,480 322,508
Shares repurchased (250,873,677) (59,926,848) (48,145,640) (8,097,379) (37,135,531)
- ---------------------------------------------------------------------------------------------------------------
127,128,734 17,510,550 46,636,593 112,430 28,730,558
- ---------------------------------------------------------------------------------------------------------------
FST ADMINISTRATION
SHARES:
Shares sold 1,718,885,581 2,097,089,351 2,868,056,191 1,074,614,378 177,906,627
Reinvestment of
dividends and
distributions 2,721,453 5,879,304 4,640,302 1,055,828 844,377
Shares repurchased (1,653,602,695) (2,074,616,324) (2,618,986,546) (1,012,951,862) (148,027,716)
- ---------------------------------------------------------------------------------------------------------------
68,004,339 28,352,331 253,709,947 62,718,344 30,723,288
- ---------------------------------------------------------------------------------------------------------------
FST SERVICE SHARES:
Shares sold 1,442,987,405 470,852,368 2,117,230,142 1,353,982,373 239,131,409
Reinvestment of
dividends and
distributions 3,217,249 397,187 6,330,034 1,208,640 449,321
Shares repurchased (1,396,329,467) (241,087,916) (2,042,124,197) (1,146,142,260) (239,585,078)
- ---------------------------------------------------------------------------------------------------------------
49,875,187 230,161,639 81,435,979 209,048,753 (4,348)
- ---------------------------------------------------------------------------------------------------------------
Net increase in shares 851,045,777 747,188,426 1,085,049,674 386,738,225 51,925,137
</TABLE>
---------------------------------------
- ---------------------------------------
34
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected Data for a Share Outstanding Throughout Each Period
Prime Obligations Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... $1.00 $0.0546 $ -- $0.0546 $(0.0546) $1.00 5.60%
1997-FST Pre-
ferred shares... 1.00 0.0538 -- 0.0538 (0.0538) 1.00 5.50
1997-FST Admin-
istration
shares.......... 1.00 0.0522 -- 0.0522 (0.0522) 1.00 5.34
1997-FST Service
shares.......... 1.00 0.0498 -- 0.0498 (0.0498) 1.00 5.08
1996-FST
shares.......... 1.00 0.0529 -- 0.0529 (0.0529) 1.00 5.41
1996-FST Pre-
ferred
Shares (c)...... 1.00 0.0346 -- 0.0346 (0.0346) 1.00 5.28(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0506 -- 0.0506 (0.0506) 1.00 5.14
1996-FST Service
shares.......... 1.00 0.0478 -- 0.0478 (0.0478) 1.00 4.88
1995-FST
shares.......... 1.00 0.0586 -- 0.0586 (0.0586) 1.00 6.02
1995-FST Admin-
istration
shares.......... 1.00 0.0559 -- 0.0559 (0.0559) 1.00 5.75
1995-FST Service
shares.......... 1.00 0.0533 -- 0.0533 (0.0533) 1.00 5.49
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (d)...... 1.00 0.0401 -- 0.0401 (0.0401) 1.00 4.38(b)
1994-FST Pre-
ferred
Shares (d)...... 1.00 0.0383 -- 0.0383 (0.0383) 1.00 4.12(b)
1994-FST Service
shares (d)...... 1.00 0.0364 -- 0.0364 (0.0364) 1.00 3.86(b)
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1994-FST
shares.......... 1.00 0.0311 0.0002 0.0313 (0.0313) 1.00 3.18
1994-FST Admin-
istration
shares.......... 1.00 0.0286 0.0002 0.0288 (0.0288) 1.00 2.92
1994-FST Service
shares.......... 1.00 0.0261 0.0002 0.0263 (0.0263) 1.00 2.66
1993-FST
shares.......... 1.00 0.0360 0.0007 0.0367 (0.0367) 1.00 3.75
1993-FST Admin-
istration
shares (e)...... 1.00 0.0068 0.0001 0.0069 (0.0069) 1.00 3.02(b)
1993-FST Service
shares.......... 1.00 0.0301 0.0007 0.0308 (0.0308) 1.00 3.23
1992-FST
shares.......... 1.00 0.0572 0.0002 0.0574 (0.0574) 1.00 5.99
1992-FST Service
shares (e)...... 1.00 0.0027 -- 0.0027 (0.0027) 1.00 4.10(b)
FOR THE PERIOD MARCH 8, 1990 (F) THROUGH JANUARY 31,
- ----------------------------------------------------
1991-FST
shares.......... 1.00 0.0727 -- .0727 (0.0727) 1.00 8.27(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF INVESTMENT
EXPENSES TO INCOME TO END EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET OF PERIOD AVERAGE NET AVERAGE NET
ASSETS ASSETS (IN 000'S) ASSETS ASSETS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... 0.18% 5.46% $3,867,739 0.23% 5.41%
1997-FST Pre-
ferred shares... 0.28 5.38 152,767 0.33 5.33
1997-FST Admin-
istration
shares.......... 0.43 5.22 241,607 0.48 5.17
1997-FST Service
shares.......... 0.68 4.97 176,133 0.73 4.92
1996-FST
shares.......... 0.18 5.29 3,901,797 0.23 5.24
1996-FST Pre-
ferred
Shares (c)...... 0.28(b) 5.19(b) 127,126 0.33(b) 5.14(b)
1996-FST Admin-
istration
shares.......... 0.43 5.06 215,898 0.48 5.01
1996-FST Service
shares.......... 0.68 4.78 115,114 0.73 4.73
1995-FST
shares.......... 0.18 5.86 3,295,791 0.22 5.82
1995-FST Admin-
istration
shares.......... 0.43 5.59 147,894 0.47 5.55
1995-FST Service
shares.......... 0.68 5.33 65,278 0.72 5.29
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (d)...... 0.18(b) 4.38(b) 2,774,849 0.24(b) 4.32(b)
1994-FST Pre-
ferred
Shares (d)...... 0.43(b) 4.18(b) 66,113 0.49(b) 4.12(b)
1994-FST Service
shares (d)...... 0.68(b) 3.98(b) 41,372 0.74(b) 3.92(b)
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1994-FST
shares.......... 0.17 3.11 1,831,413 0.25 3.03
1994-FST Admin-
istration
shares.......... 0.42 2.86 35,250 0.50 2.78
1994-FST Service
shares.......... 0.67 2.61 14,001 0.75 2.53
1993-FST
shares.......... 0.18 3.60 813,126 0.25 3.53
1993-FST Admin-
istration
shares (e)...... 0.44(b) 2.96(b) 1,124 0.52(b) 2.88(b)
1993-FST Service
shares.......... 0.68 3.01 336 0.75 2.94
1992-FST
shares.......... 0.18 5.72 917,073 0.27 5.63
1992-FST Service
shares (e)...... 0.66(b) 4.10(b) 118 0.74(b) 4.02(b)
FOR THE PERIOD MARCH 8, 1990 (F) THROUGH JANUARY 31,
- ----------------------------------------------------
1991-FST
shares.......... 0.18(b) 8.04(b) 578,495 0.28(b) 7.94(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced on May 1, 1996.
(d) The information presented reflects eleven months of operations due to a
change in fiscal year end. This change was caused by the reorganization of
the funds as a series of Goldman Sachs Money Market Trust.
(e) FST Administration share and FST Service share activity commenced during
November of 1992 and January 1992, respectively.
(f) Commencement of operations.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Money Market Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... $1.00 $0.0550 $ -- $0.0550 $(0.0550) $1.00 5.63%
1997-FST Pre-
ferred shares... 1.00 0.0544 -- 0.0544 (0.0544) 1.00 5.53
1997-FST Admin-
istration
shares.......... 1.00 0.0526 -- 0.0526 (0.0526) 1.00 5.37
1997-FST Service
shares.......... 1.00 0.0499 -- 0.0499 (0.0499) 1.00 5.11
1996-FST
shares.......... 1.00 0.0533 0.0001 0.0534 (0.0534) 1.00 5.45
1996-FST Pre-
ferred
shares (c)...... 1.00 0.0348 -- 0.0348 (0.0348) 1.00 5.31(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0504 0.0001 0.0505 (0.0505) 1.00 5.19
1996-FST Service
shares.......... 1.00 0.0484 -- 0.0484 (0.0484) 1.00 4.93
1995-FST
Shares.......... 1.00 0.0589 -- 0.0589 (0.0589) 1.00 6.07
1995-FST Admin-
istration
shares.......... 1.00 0.0561 -- 0.0561 (0.0561) 1.00 5.80
1995-FST Service
shares (c)...... 1.00 0.0231 -- 0.0231 (0.0231) 1.00 5.41(b)
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (c)...... 1.00 0.0305 -- 0.0305 (0.0305) 1.00 4.91(b)
1994-FST Admin-
istration
shares (c)...... 1.00 0.0298 -- 0.0298 (0.0298) 1.00 4.65(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF INVESTMENT
EXPENSES TO INCOME TO END EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET OF PERIOD AVERAGE NET AVERAGE NET
ASSETS ASSETS (IN 000'S) ASSETS ASSETS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... 0.18% 5.50% $4,346,519 0.23% 5.45%
1997-FST Pre-
ferred shares... 0.28 5.44 20,258 0.33 5.39
1997-FST Admin-
istration
shares.......... 0.43 5.26 221,256 0.48 5.21
1997-FST Service
shares.......... 0.68 4.99 316,304 0.73 4.94
1996-FST
shares.......... 0.18 5.33 2,540,366 0.23 5.28
1996-FST Pre-
ferred
shares (c)...... 0.28(b) 5.23(b) 17,510 0.33(b) 5.18(b)
1996-FST Admin-
istration
shares.......... 0.43 5.04 165,766 0.48 4.99
1996-FST Service
shares.......... 0.68 4.84 234,376 0.73 4.79
1995-FST
Shares.......... 0.15 5.89 2,069,197 0.23 5.81
1995-FST Admin-
istration
shares.......... 0.40 5.61 137,412 0.48 5.53
1995-FST Service
shares (c)...... 0.65(b) 4.93(b) 4,219 0.73(b) 4.85(b)
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (c)...... 0.11(b) 4.88(b) 862,971 0.25(b) 4.74(b)
1994-FST Admin-
istration
shares (c)...... 0.36(b) 4.82(b) 66,560 0.50(b) 4.68(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST, FST Administration, FST Service and FST Preferred share activity
commenced May 18, 1994, May 20, 1994, July 14, 1995 and May 1, 1996,
respectively.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Premium Money Market Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD AUGUST 1, 1997(C) THROUGH DECEMBER 31,
- -----------------------------------------------------
1997-FST
shares.......... $1.00 $0.0235 $-- $0.0235 $(0.0235) $1.00 5.73%(b)
1997-FST Pre-
ferred Shares... 1.00 0.0228 -- 0.0228 (0.0228) 1.00 5.62 (b)
1997-FST Admin-
istration
shares.......... 1.00 0.0223 -- 0.0223 (0.0223) 1.00 5.47 (b)
1997-FST Service
shares.......... 1.00 0.0217 -- 0.0217 (0.0217) 1.00 5.20 (b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET
RATIO OF NET ASSETS AT RATIO OF NET
RATIO OF NET INVESTMENT END RATIO OF INVESTMENT
EXPENSES TO INCOME TO OF PERIOD EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET (IN AVERAGE NET AVERAGE NET
ASSETS ASSETS 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD AUGUST 1, 1997(C) THROUGH DECEMBER 31,
- -----------------------------------------------------
1997-FST
shares.......... 0.08%(b) 5.59%(b) $218,192 0.43%(b) 5.24%(b)
1997-FST Pre-
ferred Shares... 0.18 (b) 5.50 (b) 558 0.53 (b) 5.15 (b)
1997-FST Admin-
istration
shares.......... 0.33 (b) 5.33 (b) 1,457 0.68 (b) 4.98 (b)
1997-FST Service
shares.......... 0.58 (b) 5.17 (b) 814 0.93 (b) 4.82 (b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) Commencement of operations.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Obligations Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN (LOSS) INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... $1.00 $0.0536 $ 0.0001 $0.0537 $(0.0537) $1.00 5.50%
1997-FST Pre-
ferred shares... 1.00 0.0532 0.0001 0.0533 (0.0533) 1.00 5.40
1997-FST Admin-
istration
shares.......... 1.00 0.0512 0.0001 0.0513 (0.0513) 1.00 5.24
1997-FST Service
shares.......... 1.00 0.0487 0.0001 0.0488 (0.0488) 1.00 4.98
1996-FST
shares.......... 1.00 0.0522 0.0003 0.0525 (0.0524) 1.00 5.35
1996-FST Pre-
ferred
shares (c)...... 1.00 0.0342 0.0001 0.0343 (0.0343) 1.00 5.24(b)
1996-FST Admin-
istration shares
................ 1.00 0.0497 0.0002 0.0499 (0.0498) 1.00 5.09
1996-FST Service
shares ......... 1.00 0.0472 0.0002 0.0474 (0.0474) 1.00 4.83
1995-FST shares
................ 1.00 0.0573 0.0005 0.0578 (0.0578) 1.00 5.96
1995-FST Admin-
istration shares
................ 1.00 0.0547 0.0005 0.0552 (0.0552) 1.00 5.69
1995-FST Service
shares ......... 1.00 0.0521 0.0005 0.0526 (0.0526) 1.00 5.43
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (d)...... 1.00 0.0379 (0.0001) 0.0378 (0.0378) 1.00 4.23(b)
1994-FST Admin-
istration
shares (d)...... 1.00 0.0388 (0.0001) 0.0387 (0.0387) 1.00 3.97(b)
1994-FST Service
shares (d)...... 1.00 0.0349 (0.0001) 0.0348 (0.0348) 1.00 3.71(b)
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1994-FST
shares.......... 1.00 0.0301 0.0007 0.0308 (0.0307) 1.00 3.11
1994-FST Admin-
istration shares
................ 1.00 0.0276 0.0006 0.0282 (0.0281) 1.00 2.85
1994-FST Service
shares ......... 1.00 0.0251 0.0008 0.0259 (0.0256) 1.00 2.60
1993-FST shares
................ 1.00 0.0342 0.0012 0.0354 (0.0355) 1.00 3.69
1993-FST Admin-
istration
shares (e)...... 1.00 0.0009 -- 0.0009 (0.0009) 1.00 2.83(b)
1993-FST Service
shares ......... 1.00 0.0296 0.0016 0.0312 (0.0309) 1.00 3.17
1992-FST shares
................ 1.00 0.0549 0.0015 0.0564 (0.0561) 1.00 5.84
1992-FST Service
shares (e)...... 1.00 0.0113 0.0006 0.0119 (0.0116) 1.00 4.47(b)
FOR THE PERIOD MARCH 5, 1990(F) THROUGH JANUARY 31,
- ---------------------------------------------------
1991-FST
shares.......... 1.00 0.0600 0.0006 0.0606 (0.0605) 1.00 8.06(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF INVESTMENT
EXPENSES TO INCOME TO END EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET OF PERIOD AVERAGE NET AVERAGE NET
ASSETS ASSETS (IN 000'S) ASSETS ASSETS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... 0.18% 5.36% $2,217,943 0.23% 5.31%
1997-FST Pre-
ferred shares... 0.28 5.32 245,355 0.33 5.27
1997-FST Admin-
istration
shares.......... 0.43 5.12 738,865 0.48 5.07
1997-FST Service
shares.......... 0.68 4.87 312,991 0.73 4.82
1996-FST
shares.......... 0.18 5.22 2,291,051 0.24 5.16
1996-FST Pre-
ferred
shares (c)...... 0.28(b) 5.11(b) 46,637 0.34(b) 5.05(b)
1996-FST Admin-
istration shares
................ 0.43 4.97 536,895 0.49 4.91
1996-FST Service
shares ......... 0.68 4.72 220,560 0.74 4.66
1995-FST shares
................ 0.18 5.73 1,587,715 0.23 5.68
1995-FST Admin-
istration shares
................ 0.43 5.47 283,186 0.48 5.42
1995-FST Service
shares ......... 0.68 5.21 139,117 0.73 5.16
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (d)...... 0.18(b) 4.13(b) 958,196 0.25(b) 4.06(b)
1994-FST Admin-
istration
shares (d)...... 0.43(b) 4.24(b) 82,124 0.50(b) 4.17(b)
1994-FST Service
shares (d)...... 0.68(b) 3.82(b) 81,162 0.75(b) 3.75(b)
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------
1994-FST
shares.......... 0.17 3.01 812,420 0.24 2.94
1994-FST Admin-
istration shares
................ 0.42 2.76 24,485 0.49 2.69
1994-FST Service
shares ......... 0.67 2.51 35,656 0.74 2.44
1993-FST shares
................ 0.18 3.42 776,181 0.26 3.34
1993-FST Admin-
istration
shares (e)...... 0.43(b) 2.83(b) 1 0.51(b) 2.75(b)
1993-FST Service
shares ......... 0.68 2.96 5,155 0.76 2.88
1992-FST shares
................ 0.18 5.49 413,171 0.28 5.39
1992-FST Service
shares (e)...... 0.68(b) 3.77(b) 3,634 0.78 3.67(b)
FOR THE PERIOD MARCH 5, 1990(F) THROUGH JANUARY 31,
- ---------------------------------------------------
1991-FST
shares.......... 0.21(b) 7.74(b) 229,988 0.34(b) 7.61(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST Preferred share activity commenced May 1, 1996.
(d) The information presented reflects eleven months of operations due to a
change in fiscal year end. This change was caused by the reorganization of
the funds as a series of Goldman Sachs Money Market Trust.
(e) FST Administration and PST Service share activity commenced during January
of 1993 and October of 1991, respectively.
(f) Commencement of operations.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Instruments Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1997-FST
shares (c)...... $1.00 $0.0423 $0.0004 $0.0427 ($0.0427) $1.00 5.25%(b)
1997-FST Pre-
ferred
shares (c)...... 1.00 0.0296 -- 0.0296 (0.0296) 1.00 5.13 (b)
1997-FST Admin-
istration
shares (c)...... 1.00 0.0364 0.0003 0.0367 (0.0367) 1.00 4.99 (b)
1997-FST Service
shares (c)...... 1.00 0.0380 0.0003 0.0383 (0.0383) 1.00 4.71 (b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
NET
RATIO OF NET ASSETS AT RATIO OF NET
RATIO OF NET INVESTMENT END RATIO OF INVESTMENT
EXPENSES TO INCOME TO OF PERIOD EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET (IN AVERAGE NET AVERAGE NET
ASSETS ASSETS 000'S) ASSETS ASSETS
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1997-FST
shares (c)...... 0.18%(b) 5.09%(b) $496,419 0.29%(b) 4.98%(b)
1997-FST Pre-
ferred
shares (c)...... 0.28(b) 5.00(b) 2 0.39(b) 4.89(b)
1997-FST Admin-
istration
shares (c)...... 0.43(b) 4.84(b) 4,159 0.54(b) 4.73(b)
1997-FST Service
shares (c)...... 0.68(b) 4.62(b) 20,177 0.79(b) 4.51(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST Share, FST Preferred Share, FST Administration Share, and FST Service
Share activity commenced March 3, 1997, May 30, 1997, April 1, 1997, and
March 5, 1997, respectively.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Government Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... $1.00 $0.0541 $ -- $0.0541 $(0.0541) $1.00 5.54%
1997-FST Pre-
ferred shares... 1.00 0.0534 -- 0.0534 (0.0534) 1.00 5.43
1997-FST Admin-
istration
shares.......... 1.00 0.0515 -- 0.0515 (0.0515) 1.00 5.28
1997-FST Service
shares.......... 1.00 0.0491 -- 0.0491 (0.0491) 1.00 5.02
1996-FST
shares.......... 1.00 0.0525 0.0001 0.0526 (0.0526) 1.00 5.38
1996-FST Pre-
ferred
shares (c)...... 1.00 0.0344 0.0001 0.0345 (0.0345) 1.00 5.26(b)
1996-FST Admin-
istration
shares.......... 1.00 0.0501 0.0001 0.0502 (0.0502) 1.00 5.12
1996-FST Service
shares.......... 1.00 0.0474 0.0001 0.0475 (0.0475) 1.00 4.86
1995-FST
shares.......... 1.00 0.0581 0.0001 0.0582 (0.0582) 1.00 6.00
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (d)...... 1.00 0.0424 -- 0.0424 (0.0424) 1.00 4.36(b)
1994-FST Admin-
istration
shares (d)...... 1.00 0.0426 -- 0.0426 (0.0426) 1.00 4.10(b)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994-FST
shares (c)...... 1.00 0.0256 0.0001 0.0257 (0.0257) 1.00 3.14(b)
1994-FST Admin-
istration
shares (c)...... 1.00 0.0120 0.0001 0.0121 (0.0121) 1.00 2.87(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF INVESTMENT
EXPENSES TO INCOME TO END EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET OF PERIOD AVERAGE NET AVERAGE NET
ASSETS ASSETS (IN 000'S) ASSETS ASSETS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... 0.18% 5.41% $1,478,539 0.24% 5.35%
1997-FST Pre-
ferred shares... 0.28 5.34 7,147 0.34 5.28
1997-FST Admin-
istration
shares.......... 0.43 5.15 299,804 0.49 5.09
1997-FST Service
shares.......... 0.68 4.91 580,200 0.74 4.85
1996-FST
shares.......... 0.18 5.25 858,769 0.24 5.19
1996-FST Pre-
ferred
shares (c)...... 0.28(b) 5.14(b) 112 0.34(b) 5.08(b)
1996-FST Admin-
istration
shares.......... 0.43 5.01 145,108 0.49 4.95
1996-FST Service
shares.......... 0.68 4.74 223,554 0.74 4.68
1995-FST
shares.......... 0.18 5.81 743,884 0.24 5.75
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (d)...... 0.15(b) 4.64(b) 258,350 0.25(b) 4.54(b)
1994-FST Admin-
istration
shares (d)...... 0.40(b) 4.67(b) 54,253 0.50(b) 4.57(b)
FOR THE PERIOD ENDED JANUARY 31,
- --------------------------------
1994-FST
shares (c)...... 0.08(b) 3.10(b) 44,697 0.59(b) 2.59(b)
1994-FST Admin-
istration
shares (c)...... 0.35(b) 2.85(b) 14,126 0.76(b) 2.44(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST share, FST Administration share, FST Service share and FST Preferred
share activity commenced April 6, 1993, September 1, 1993, May 16, 1995
and May 1, 1996, respectively.
(d) The information presented reflects eleven months of operations due to a
change in fiscal year end. This change was caused by the reorganization of
the funds as a series of Goldman Sachs Money Market Trust.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Federal Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN ON INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1997-FST
shares(c)....... $1.00 $0.0454 $ -- $0.0454 $(0.0454) $1.00 5.51%(b)
1997-FST Pre-
ferred
shares(c)....... 1.00 0.0311 -- 0.0311 (0.0311) 1.00 5.43(b)
1997-FST
Administration
shares(c)....... 1.00 0.0388 -- 0.0388 (0.0388) 1.00 5.27(b)
1997-FST Service
shares(c)....... 1.00 0.0379 -- 0.0379 (0.0379) 1.00 5.00(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
-------------------------
RATIO OF NET NET RATIO OF NET
RATIO OF NET INVESTMENT ASSETS AT RATIO OF INVESTMENT
EXPENSES TO INCOME TO END EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET OF PERIOD AVERAGE NET AVERAGE NET
ASSETS ASSETS (IN 000'S) ASSETS ASSETS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------
1997-FST
shares(c)....... 0.18%(b) 5.39%(b) $1,125,681 0.27%(b) 5.30%(b)
1997-FST Pre-
ferred
shares(c)....... 0.28(b) 5.26(b) 194,375 0.37(b) 5.17(b)
1997-FST
Administration
shares(c)....... 0.43(b) 5.15(b) 625,334 0.52(b) 5.06(b)
1997-FST Service
shares(c)....... 0.68(b) 4.78(b) 228,447 0.77(b) 4.69(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST share, FST Preferred share, FST Administration share, and FST Service
share activity commenced February 28, 1997, May 30, 1997, April 1, 1997
and March 25, 1997, respectively.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
Selected Data for a Share Outstanding Throughout Each Period
Tax-Free Money Market Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------
NET ASSET NET REALIZED TOTAL NET ASSET
VALUE AT NET GAIN INCOME FROM DISTRIBUTIONS VALUE AT
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT TO END TOTAL
OF PERIOD INCOME TRANSACTIONS OPERATIONS SHAREHOLDERS OF PERIOD RETURN(A)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... $1.00 $0.0350 $ -- $0.0350 $(0.0350) $1.00 3.54%
1997-FST Pre-
ferred shares... 1.00 0.0339 -- 0.0339 (0.0339) 1.00 3.43
1997-FST Admin-
istration
shares.......... 1.00 0.0327 -- 0.0327 (0.0327) 1.00 3.28
1997-FST Service
shares.......... 1.00 0.0301 -- 0.0301 (0.0301) 1.00 3.02
1996-FST
shares.......... 1.00 0.0335 -- 0.0335 (0.0335) 1.00 3.39
1996-FST Pre-
ferred shares... 1.00 0.0218 -- 0.0218 (0.0218) 1.00 3.30(b)
1996-FST Admin-
istration
shares (c)...... 1.00 0.0310 -- 0.0310 (0.0310) 1.00 3.13
1996-FST Service
shares.......... 1.00 0.0285 -- 0.0285 (0.0285) 1.00 2.88
1995-FST
shares.......... 1.00 0.0381 -- 0.0381 (0.0381) 1.00 3.89
1995-FST Admin-
istration
shares.......... 1.00 0.0354 -- 0.0354 (0.0354) 1.00 3.63
1995-FST Service
shares.......... 1.00 0.0332 -- 0.0332 (0.0332) 1.00 3.38
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (c)...... 1.00 0.0156 -- 0.0156 (0.0156) 1.00 3.41(b)
1994-FST Admin-
istration
shares (c)...... 1.00 0.0136 -- 0.0136 (0.0136) 1.00 3.19(b)
1994-FST Service
shares (c)...... 1.00 0.0091 -- 0.0091 (0.0091) 1.00 3.11(b)
<CAPTION>
RATIOS ASSUMING NO
WAIVER OF FEES AND NO
EXPENSE LIMITATIONS
------------------------
NET
RATIO OF NET ASSETS AT RATIO OF NET
RATIO OF NET INVESTMENT END RATIO OF INVESTMENT
EXPENSES TO INCOME TO OF PERIOD EXPENSES TO INCOME TO
AVERAGE NET AVERAGE NET (IN AVERAGE NET AVERAGE NET
ASSETS ASSETS 000'S) ASSETS ASSETS
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------
1997-FST
shares.......... 0.18% 3.50% $939,407 0.24% 3.44%
1997-FST Pre-
ferred shares... 0.28 3.39 35,152 0.34 3.33
1997-FST Admin-
istration
shares.......... 0.43 3.27 103,049 0.49 3.21
1997-FST Service
shares.......... 0.68 3.01 42,578 0.74 2.95
1996-FST
shares.......... 0.18 3.35 440,838 0.23 3.30
1996-FST Pre-
ferred shares... 0.28(b) 3.26(b) 28,731 0.33(b) 3.21(b)
1996-FST Admin-
istration
shares (c)...... 0.43 3.10 51,661 0.48 3.05
1996-FST Service
shares.......... 0.68 2.85 19,855 0.73 2.80
1995-FST
shares.......... 0.14 3.81 448,367 0.24 3.71
1995-FST Admin-
istration
shares.......... 0.39 3.54 20,939 0.49 3.44
1995-FST Service
shares.......... 0.64 3.32 19,860 0.74 3.22
FOR THE PERIOD ENDED DECEMBER 31,
- ---------------------------------
1994-FST
shares (c)...... 0.07(b) 3.42(b) 183,570 0.31(b) 3.18(b)
1994-FST Admin-
istration
shares (c)...... 0.32(b) 3.25(b) 2,042 0.56(b) 3.01(b)
1994-FST Service
shares (c)...... 0.57(b) 3.32(b) 2,267 0.81(b) 3.08(b)
</TABLE>
- ----
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions and a complete redemption of the
investment at the net asset value at the end of the period.
(b) Annualized.
(c) FST share, FST Administration share, FST Service share and FST Preferred
share activity commenced July 19, 1994, August 1, 1994, September 23, 1994
and May 1, 1996, respectively.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------- ---------------------------------------
To the Shareholders and Board of Trustees of the Goldman Sachs Trust--Financial
Square Funds:
We have audited the accompanying statements of assets and liabilities of the
Goldman Sachs Trust--Financial Square Funds (a Delaware business trust
comprising the Prime Obligations, Money Market, Premium Money Market, Treasury
Obligations, Treasury Instruments, Government, Federal and Tax-Free Money
Market Funds), including the statements of investments as of December 31, 1997,
and the related statements of operations, and the statements of changes in net
assets and the financial highlights for each of the periods presented. These
financial statements and the financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds constituting Goldman Sachs Trust--Financial Square
Funds as of December 31, 1997, the results of their operations and the changes
in their net assets and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1998
---------------------------------------
- ---------------------------------------
43
<PAGE>
VOTING RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
The proposals described below were submitted to a vote of shareholders of
Financial Square Funds (the "Trust") at a Special Meeting of Shareholders held
on April 1, 1997 and reconvened on April 24, 1997 (the "Meeting"):
- --------------------------------------------------------------------------------
PROPOSAL NO. 1--ELECTION OF TRUSTEES:
- --------------------------------------------------------------------------------
At the Meeting, Ashok Bakhru, David B. Ford, Douglas Grip, John McNulty, Mary
McPherson, Richard Strubel, Alan Shuch, Jackson Smart and William Springer were
elected to the Trust's Board of Trustees. In electing directors, the Trust's
shareholders voted as follows:/1/
<TABLE>
<CAPTION>
DIRECTOR FOR AGAINST ABSTAIN BROKER NON-VOTES
-------- ------------------ ------- --------------- ----------------
<S> <C> <C> <C> <C>
Ashok Bakhru............ 13,198,134,650.489 0 317,290,085.560 0
David B. Ford........... 13,196,882,310.419 0 318,542,425.630 0
Douglas Grip............ 13,198,421,139.119 0 317,003,596.930 0
John McNulty............ 13,192,672,508.499 0 322,752,227.550 0
Mary McPherson.......... 13,198,375,102.859 0 317,049,638.190 0
Richard Strubel......... 13,198,269,677.579 0 317,155,058.470 0
Alan Shuch.............. 13,196,888,161.369 0 318,536,574.680 0
Jackson Smart........... 13,186,250,475.539 0 329,174,260.510 0
William Springer........ 13,186,378,105.759 0 329,046,630.290 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 2--RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS THE
TRUST"S INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997:
- --------------------------------------------------------------------------------
At the Meeting, the Trust's shareholders approved Proposal No. 2 as
follows:/1/
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
- ------------------ -------------- --------------- ----------------
<S> <C> <C> <C>
12,740,448,568.959 86,008,900.390 688,967,266.700 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 4(B)--APPROVAL OF AN AMENDMENT TO THE TRUST'S DECLARATION OF TRUST
TO PERMIT INVESTMENT OF EACH FUND'S ASSETS IN ANOTHER OPEN-END
INVESTMENT COMPANY:
- --------------------------------------------------------------------------------
At the Meeting, the Trust's shareholders approved Proposal No. 4(B) as
follows:/1/
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTES
- ------------------ --------------- --------------- ----------------
<S> <C> <C> <C>
11,979,828,027.249 666,114,085.840 869,482,622.960 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 3--APPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each of the Trust's portfolios (each, a
"Fund" and collectively, the "Funds") approved Proposal No. 3 as follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,750,763,971.82 19,674,207.77 19,428,103.21 0
FST--Government......... 614,737,552.22 49,958,078.95 212,013,615.15 0
FST--Treasury Obliga-
tions.................. 1,643,159,064.65 3,422,314.12 23,291,123.97 0
FST--Money Market....... 1,768,028,087.81 551,572.88 237,836,598.85 0
FST--Tax-Free........... 321,403,549.04 2,303,384.98 73,216.10 0
</TABLE>
44
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 4(A)--APPROVAL OF AN AMENDMENT TO THE FUND'S INVESTMENT
RESTRICTIONS TO PERMIT EACH FUND TO INVEST ALL OF ITS ASSETS IN
ANOTHER OPEN-END INVESTMENT COMPANY:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 4(A) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,632,813,935.56 137,676,305.03 19,376,042.21 0
FST--Government......... 600,507,908.99 50,171,200.71 226,030,136.62 0
FST--Treasury Obliga-
tions.................. 1,534,118,627.46 112,516,646.34 23,237,228.94 0
FST--Money Market....... 1,622,692,959.96 119,723,518.11 263,999,781.47 0
FST--Tax-Free........... 321,385,838.42 2,341,263.05 53,048.65 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(A)--INVESTMENT POLICY ON ISSUER DIVERSIFICATION:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(A) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,025,173,322.36 741,685,870.02 23,007,090.42 0
FST--Government......... 492,127,188.66 94,058,605.71 290,523,451.95 0
FST--Treasury Obliga-
tions.................. 1,590,614,773.93 3,298,162.45 75,959,566.36 0
FST--Money Market....... 1,641,176,450.29 93,217,845.13 272,021,964.12 0
FST--Tax-Free........... 319,424,168.46 2,303,384.98 2,052,596.68 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(B)--INVESTMENT POLICY ON INDUSTRY CONCENTRATION:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(B) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,113,864,890.90 655,676,834.86 20,324,557.04 0
FST--Government......... 536,127,188.66 50,058,605.71 290,523,451.95 0
FST--Treasury Obliga-
tions.................. 1,584,005,181.34 10,354,359.55 75,512,961.85 0
FST--Money Market....... 1,727,011,799.59 7,162,833.03 272,241,626.92 0
FST--Tax-Free........... 319,424,168.46 2,303,384.98 2,052,596.68 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(C)--INVESTMENT POLICIES ON BORROWING, MARGIN PURCHASES AND
PLEDGING ASSETS:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(C) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,032,851,854.68 735,012,001.25 22,002,426.87 0
FST--Government......... 536,014,593.26 50,171,201.11 290,523,451.95 0
FST--Treasury Obliga-
tions.................. 1,472,597,369.41 121,761,319.48 75,513,813.85 0
FST--Money Market....... 1,597,694,673.27 116,718,197.61 292,003,388.66 0
FST--Tax-Free........... 320,117,743.24 2,515,405.70 1,147,001.18 0
</TABLE>
45
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(D)--INVESTMENT POLICY ON LOANS:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(D) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,137,654,263.39 631,935,174.22 20,276,845.19 0
FST--Government......... 536,127,188.66 50,058,605.71 290,523,451.95 0
FST--Treasury Obliga-
tions.................. 1,563,411,594.51 10,339,372.94 96,121,535.29 0
FST--Money Market....... 1,647,121,629.22 86,498,763.32 272,795,867.00 0
FST--Tax-Free........... 321,423,716.49 2,303,384.98 53,048.65 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(E)--INVESTMENT POLICY ON UNDERWRITING:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(E) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,107,675,459.08 604,973,342.98 77,217,480.74 0
FST--Government......... 536,127,188.66 50,058,605.71 290,523,451.95 0
FST--Treasury Obliga-
tions.................. 1,563,423,400.52 10,339,372.93 96,109,729.29 0
FST--Money Market....... 1,647,222,596.46 86,498,763.32 272,694,899.76 0
FST--Tax-Free........... 321,423,716.49 2,303,384.98 53,048.65 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(F)--INVESTMENT POLICY ON REAL ESTATE AND OIL AND GAS:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal 5(F) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 1,864,040,389.62 866,974,034.38 58,851,858.80 0
FST--Government......... 498,311,661.41 87,874,132.96 290,523,451.95 0
FST--Treasury Obliga-
tions.................. 1,543,861,427.62 29,902,197.83 96,108,877.29 0
FST--Money Market....... 1,502,832,684.48 162,262,211.64 341,321,363.42 0
FST--Tax-Free........... 320,329,763.96 2,303,384.98 1,147,001.18 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(G)--INVESTMENT POLICY ON COMMODITIES:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(G) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 1,955,328,415.10 783,843,073.32 50,694,794.38 0
FST--Government......... 536,127,188.66 50,061,283.54 290,520,774.12 0
FST--Treasury Obliga-
tions.................. 1,462,302,194.33 111,554,993.46 96,015,314.95 0
FST--Money Market....... 1,592,467,171.50 141,153,221.04 272,795,867.00 0
FST--Tax-Free........... 315,235,397.48 6,492,155.96 2,052,596.68 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(H)--INVESTMENT POLICY ON SENIOR SECURITIES:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(H) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,006,584,642.16 735,239,141.88 48,042,498.76 0
FST--Government......... 536,017,271.49 50,171,200.71 290,520,774.12 0
FST--Treasury Obliga-
tions.................. 1,557,058,699.27 16,150,312.24 96,663,491.23 0
FST--Money Market....... 1,598,123,371.27 116,417,284.77 291,875,603.50 0
FST--Tax-Free........... 320,329,763.96 2,303,384.98 1,147,001.18 0
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(I)--INVESTMENT RESTRICTION CONCERNING SHORT SALES OF SECURITIES:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(I) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 1,881,193,604.90 848,795,361.47 59,877,316.43 0
FST--Government......... 535,990,656.40 50,171,201.11 290,547,388.81 0
FST--Treasury Obliga-
tions.................. 1,458,090,940.53 115,131,990.67 96,649,571.54 0
FST--Money Market....... 1,570,114,107.56 94,298,763.32 342,003,388.66 0
FST--Tax-Free........... 316,140,992.98 6,492,155.96 1,147,001.18 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(J)--INVESTMENT POLICY ON OPTIONS:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(J) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 1,946,413,177.34 783,795,361.47 59,657,743.99 0
FST--Government......... 536,103,251.80 50,061,283.54 290,544,710.98 0
FST--Treasury Obliga-
tions.................. 1,462,545,194.90 111,204,686.55 96,122,621.29 0
FST--Money Market....... 1,531,855,599.49 132,658,238.63 341,902,421.42 0
FST--Tax-Free........... 315,235,397.48 6,492,155.96 2,052,596.68 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 5(K)--INVESTMENTS TO EXERCISE CONTROL:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 5(K) as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 1,958,631,006.28 774,813,086.37 56,422,190.15 0
FST--Government......... 535,990,656.80 50,171,200.71 290,547,388.81 0
FST--Treasury Obliga-
tions.................. 1,476,366,263.54 117,965,355.72 75,540,884.48 0
FST--Money Market....... 1,676,388,608.83 124,858,238.63 205,169,412.08 0
FST--Tax-Free........... 321,423,716.49 2,303,384.98 53,048.65 0
</TABLE>
- --------------------------------------------------------------------------------
PROPOSAL NO. 6--APPROVAL OF AMENDED AND RESTATED MANAGEMENT AGREEMENTS:
- --------------------------------------------------------------------------------
At the Meeting, the shareholders of each Fund approved Proposal No. 6 as
follows:
<TABLE>
<CAPTION>
FUND FOR AGAINST ABSTAIN BROKER NON-VOTES
---- ---------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
FST--Prime Obligations.. 2,514,108,328.97 39,546,154.00 236,211,799.83 0
FST--Government......... 600,653,684.02 50,058,605.71 225,996,956.59 0
FST--Treasury Obliga-
tions.................. 1,590,952,308.54 3,061,857.61 75,858,337.59 0
FST--Money Market....... 1,816,523,365.52 474,748.46 189,418,145.56 0
FST--Tax-Free........... 319,424,168.46 2,303,384.98 2,052,596.68 0
</TABLE>
/1/The voting results for proposal nos. 1, 2 and 4(B) reflect the vote of the
shareholders of the Trust and the shareholders of Goldman Sachs Financial
Square Funds.
47
<PAGE>
- --------------------------------------------------------------------------------
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48
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
This Annual Report is authorized for distribution to prospective investors only
when preceded or accompanied by a Goldman Sachs Trust Financial Square Funds
Prospectus which contains facts concerning each Fund's objectives and policies,
management, expenses and other information.
- --------------------------------------------------------------------------------
49
<PAGE>
TRUSTEES
Ashok N. Bakhru, Chairman
David B. Ford
Douglas C. Grip
John P. McNulty
Mary P. McPherson
Alan. A. Shuch
Jackson W. Smart, Jr.
William H. Springer
Richard P. Strubel
OFFICERS
Douglas C. Grip, President
James A. Fitzpatrick, Vice President
John W. Mosior, Vice President
Nancy L. Mucker, Vice President
Scott M. Gilman, Treasurer
John M. Perlowski, Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Goldman
Sachs
Goldman Sachs Funds
One New York Plaza, 41st Floor
New York, NY 10004
