<PAGE>
As filed with the Securities and Exchange Commission on
February 26, 1999
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 53 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 55 ( X )
(Check appropriate box or boxes)
__________
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-993-4400
____________
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Jeffrey A. Dalke, Esq.
85 Broad Street - 12th Floor Drinker Biddle & Reath LLP
New York, New York 10004 1345 Chestnut Street
Philadelphia, PA 19107
(Name and address of agent for service)
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
( ) On (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
(x) On May 1, 1999 pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On May 1,1999 Pursuant to paragraph (a)(2) of rule 485.
<PAGE>
Prospectus ILA ("Units" or
"Shares")
May , 1999
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
.Prime Obligations Portfolio
.Money Market Portfolio
.Treasury Obligations Portfolio
.Treasury Instruments Portfolio
.Government Portfolio
.Federal Portfolio
(INSERT ARTWORK) .Tax-Exempt Diversified Portfolio
.Tax-Exempt California Portfolio
.Tax-Exempt New York Portfolio
THE TERMS "PORTFOLIOS" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
PORTFOLIOS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Fund's investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
1-KK
<PAGE>
..The Funds: Each Fund's securities are valued by the amortized cost method as
permitted under Rule 2a-7 of the Investment Company Act of 1940, as amended
(the "1940 Act"). Under Rule 2a-7, each Fund may invest only in U.S. dollar
denominated securities that are determined to present minimal credit risk
and meet certain other criteria including those conditions relating to matu-
rity, diversification and credit quality. These operating policies may be
more restrictive than the fundamental policies set forth in the Statement of
Additional Information (the "Additional Statement").
.Taxable Funds: Prime Obligations, Money Market, Treasury Obligations and
Government Portfolios.
.Tax-Advantaged Funds: Treasury Instruments and Federal Portfolios.
.Tax-Exempt Funds: Tax-Exempt Diversified, Tax-Exempt California and Tax-
Exempt New York Portfolios.
..The Investors: The Funds are designed for investors seeking a high rate of
return, a stable net asset value ("NAV") and convenient liquidation privi-
leges. The Funds are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their
own accounts or for the accounts of their customers.
..NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
..Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
..Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
..Investment Restrictions: Each Fund is subject to certain investment restric-
tions that are described in detail under "Investment Restrictions" in the
Additional Statement. Fundamental investment restrictions and the investment
objective of a Fund (except the Tax-Exempt California and Tax-Exempt New
York Portfolios' objectives of providing shareholders with income exempt
from California State and New York State and New York City personal income
tax, respectively) cannot be changed without approval of a majority of the
outstanding shares of that Fund. The Treasury Obligations Portfolio's policy
of limiting its investments to U.S. Treasury Obligations and related repur-
chase agreements is also fundamental. All investment policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval.
..Diversification. Diversification can help a Fund reduce the risks of invest-
ing. In accordance with current regulations of the Securities and Exchange
Commission
2-KK
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
(the "SEC"), each Fund may not invest more than 5% of the value of its total
assets at the time of purchase in the securities of any single issuer with
these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York
Portfolios may each invest up to 25% of their total assets in five or fewer
issuers; and (b) each of the other Funds may invest up to 25% of its total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agreements, U.S.
Government securities or securities of other investment companies. In addi-
tion, securities subject to certain unconditional guarantees and securities
that are not "First Tier Securities" as defined by the SEC are subject to
different diversification requirements as described in the Additional State-
ment.
3-KK
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instru-
ments, Government and Federal Portfolios seek to maximize current income to
the extent consistent with the preservation of capital and the maintenance
of liquidity by investing exclusively in high quality money market instru-
ments.
The Treasury Instruments and Federal Portfolios pursue their investment
objectives by limiting their investments to certain U.S. Treasury obliga-
tions and U.S. Government securities (each as defined in Appendix A),
respectively, the interest from which is generally exempt from state income
taxation. You should consult your tax adviser to determine whether distribu-
tions from the Treasury Instruments and Federal Portfolios (and any other
Fund that may hold such obligations) derived from interest on such obliga-
tions are exempt from state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios seek to provide shareholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high
level of income exempt from federal income tax by investing primarily in
municipal instruments.
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios
seek to provide shareholders with income exempt from California State and
New York State and City personal income taxes, respectively.
The Tax-Exempt Funds pursue their investment objectives by limiting their
investments to securities 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, the inter-
est from which, if any, is in the opinion of bond counsel excluded from
gross income for federal income tax purposes, and not an item of tax prefer-
ence under the federal alternative minimum tax.
4-KK
<PAGE>
(This Page Intentionally Left Blank)
5-kk
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. U.S.
Treasury Government Bank Commercial
Fund Obligations Securities Obligations Paper
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations . . . .
U.S. banks only
-------------------------------------------------------------------------------------------
Money Market . . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
-------------------------------------------------------------------------------------------
Treasury Obligations .
-------------------------------------------------------------------------------------------
Treasury Instruments .
-------------------------------------------------------------------------------------------
Government . .
-------------------------------------------------------------------------------------------
Federal . .
-------------------------------------------------------------------------------------------
Tax-Exempt Diversified .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt California .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt New York .
Tax-exempt only
-------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and
charge-offs and declines in total deposits), the Fund may, for temporary
defensive purposes, invest less than 25% of its total assets in bank
obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury Obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-KK
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
.
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-KK
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated Investment
Fund Municipals Municipals Receipts Securities/7/ Companies
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations . /5/ . . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Money Market . /5/ . . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Treasury Obligations
- -------------------------------------------------------------------------------------------------------------
Treasury Instruments
- -------------------------------------------------------------------------------------------------------------
Government . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Diversified . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment
extraordinary circumstances)/6/ companies
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt California . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% of investment
total assets in California companies
instruments (except in
extraordinary circumstances)/6/
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt New York . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% of investment
total assets in New York companies
instruments (except in
extraordinary circumstances)/6/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-KK
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/10/ Miscellaneous
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -----------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13
/
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -----------------------------------------------------------------------------------------------------------
(Does not First/10/ or Tax-exempt federal and May (but does not currently intend to)
intend to Second Tier/11/ taxable state./12/ invest up to 20% in securities subject to
invest)/8/,/9/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -----------------------------------------------------------------------------------------------------------
(Does not First/10/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and California State invest up to 20% in AMT securities
invest)/8/,/9/ and may temporarily invest in the taxable
money market instruments described herein
- -----------------------------------------------------------------------------------------------------------
.. First/10/ or Tax-exempt federal, May invest up to 20% in AMT securities
(not more than Second Tier/11/ New York State and and may temporarily invest in the taxable
20% of net New York City money market instruments described herein
assets)/9/
- -----------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-KK
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Prime Money Treasury Treasury
Obligations Market Obligations Instruments
Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- -------------------------------------------------------------
Interest Rate . . . .
- -------------------------------------------------------------
Credit/Default . . . .
- -------------------------------------------------------------
Management . . . .
- -------------------------------------------------------------
Liquidity . . . .
- -------------------------------------------------------------
Other . . . .
- -------------------------------------------------------------
Government
Securities -- -- -- --
- -------------------------------------------------------------
Concentration -- . -- --
- -------------------------------------------------------------
Foreign -- . -- --
- -------------------------------------------------------------
Tax -- -- -- --
- -------------------------------------------------------------
</TABLE>
10-KK
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Government Federal Diversified California New York
Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . -- -- --
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
</TABLE>
11-KK
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Portfolios:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Exempt California and Tax-Exempt New York Portfolio, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market Portfolio may not invest more than 25% of its total assets in
the securities of any one foreign government.
12-KK
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market Portfolio:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market Portfolio intends to invest more than 25%
of its total assets in bank obligations, and the Tax-Exempt California and
Tax-Exempt New York Portfolio intend to invest at least 65% of their total
assets in California municipal obligations and New York municipal obliga-
tions, respectively. Banks may be particularly susceptible to certain eco-
nomic factors such as interest rate changes, adverse developments in the
real estate market, fiscal and monetary policy and general economic cycles.
Risk that applies to the Tax-Exempt Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends (in the case of each of these Funds) and state tax-
exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt
New York Funds).
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-KK
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's ILA
Shares from year to year; and (b) how the average annual returns of a Fund's
ILA Shares compare to the returns of a composite of mutual funds with simi-
lar investment objectives. The bar chart and table assume reinvestment of
dividends and distributions. A Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Performance reflects
expense limitations in effect. If expense limitations were not in place, a
Fund's performance would have been reduced. You may obtain a Fund's current
yield by calling 1-800-621-2550.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '81 4.48%
Worst Quarter
Q2 '93 0.72%
[CHART APPEARS HERE]
Date Prime Obligation
- ---- ----------------
1981 17.14%
1982 12.82%
1983 9.11%
1984 10.56%
1985 8.25%
1986 6.67%
1987 6.50%
1988 7.48%
1989 9.27%
1990 8.21%
1991 6.10%
1992 3.76%
1993 2.97%
1994 4.07%
1995 5.79%
1996 5.22%
1997 5.38%
1998 5.32%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 1/1/81) 5.32% 5.15% 5.59% 7.43%
-----------------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '89 2.38%
Worst Quarter
Q2 '93 0.74%
[CHART APPEARS HERE]
1988 7.66%
1989 9.31%
1990 8.24%
1991 6.12%
1992 3.77%
1993 3.03%
1994 4.13%
1995 5.85%
1996 5.27%
1997 5.43%
1998 5.33%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 1/1/81) 5.33% 5.20% 5.63% 5.81%
------------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Treasury Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '82 3.38%
Worst Quarter
Q2 '93 0.70%
[CHART APPEARS HERE]
1982 11.97%
1983 8.88%
1984 10.26%
1985 8.08%
1986 6.63%
1987 6.62%
1988 7.30%
1989 9.06%
1990 8.05%
1991 5.90%
1992 3.66%
1993 2.89%
1994 3.91%
1995 5.73%
1996 5.11%
1997 5.26%
1998 5.15%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 1/1/81) 5.15% 5.03% 5.45% 6.71%
-----------------------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Instruments Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 1.45%
Worst Quarter
Q2 '93 0.72%
[CHART APPEARS HERE]
1992 3.54%
1993 2.98%
1994 4.01%
1995 5.70%
1996 5.10%
1997 5.17%
1998 4.96%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
---------------------------------------------------------------
<S> <C> <C> <C>
ILA Shares (Inception 1/30/91) 4.96% 4.99% 4.63%
---------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Government Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '81 4.18%
Worst Quarter
Q2 '93 0.72%
[CHART APPEARS HERE]
1981 16.25%
1982 11.79%
1983 8.97%
1984 10.28%
1985 8.14%
1986 6.65%
1987 6.43%
1988 7.42%
1989 9.15%
1990 8.11%
1991 5.91%
1992 3.71%
1993 2.94%
1994 3.94%
1995 5.77%
1996 5.15%
1997 5.31%
1998 5.21%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 1/1/81) 5.21% 5.07% 5.50% 7.24%
-----------------------------------------------------------------------
</TABLE>
7
<PAGE>
Federal Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '90 1.99%
Worst Quarter
Q2 '93 0.73%
[CHART APPEARS HERE]
1990 8.06%
1991 5.94%
1992 3.62%
1993 3.00%
1994 4.11%
1995 5.83%
1996 5.24%
1997 5.40%
1998 5.25%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
---------------------------------------------------------------
<S> <C> <C> <C>
ILA Shares (Inception 5/22/89) 5.25% 5.16% 5.39%
---------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '89 1.58%
Worst Quarter
Q1 '94 0.52%
[CHART APPEARS HERE]
1984 5.76%
1985 5.04%
1986 4.45%
1987 4.23%
1988 5.03%
1989 6.07%
1990 5.64%
1991 4.33%
1992 2.83%
1993 2.25%
1994 2.71%
1995 3.72%
1996 3.25%
1997 3.39%
1998 3.17%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 3/3/83) 3.17% 3.25% 3.73% 4.16%
-----------------------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Exempt California Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '89 1.55%
Worst Quarter
Q1 '94 0.48%
[CHART APPEARS HERE]
1989 5.93%
1990 5.24%
1991 3.95%
1992 2.63%
1993 2.09%
1994 2.53%
1995 3.55%
1996 3.03%
1997 3.15%
1998 2.84%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 10/4/88) 2.84% 3.02% 3.48% 3.54%
------------------------------------------------------------------------
</TABLE>
10
<PAGE>
FUND PERFORMANCE
Tax-Exempt New York Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 0.93%
Worst Quarter
Q1 '94 0.48%
[CHART APPEARS HERE]
1992 2.71%
1993 2.20%
1994 2.56%
1995 3.51%
1996 3.05%
1997 3.29%
1998 3.02%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years Since Inception
---------------------------------------------------------------
<S> <C> <C> <C>
ILA Shares (Inception 2/15/91) 3.02% 3.09% 3.03%
---------------------------------------------------------------
</TABLE>
11
<PAGE>
Fund Fees and Expenses (ILA Shares)
This table describes the fees and expenses that you may pay if you would buy
and hold ILA Shares of a Fund.
<TABLE>
<CAPTION>
Prime Money Treasury
Obligations Market Obligations
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets)/1/:
Management Fees 0.35% 0.35% 0.35%
Other Expenses/2/ 0.08% 0.08% 0.08%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.43% 0.43% 0.43%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Prime Money Treasury
Obligations Market Obligations
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution and Service Fees None None None
Other Expenses/2/ 0.08% 0.07% 0.07%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.43% 0.42% 0.42%
-------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Treasury
Instruments Government Federal
Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets)/1/:
Management Fees 0.35% 0.35% 0.35%
Other Expenses/2/ 0.08% 0.10% 0.07%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.43% 0.45% 0.42%
- ----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Treasury
Instruments Government Federal
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution and Service Fees None None None
Other Expenses/2/ 0.07% 0.08% 0.06%
------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.42% 0.43% 0.41%
------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets)/1/:
Management Fees 0.35% 0.35% 0.35%
Other Expenses/2/ 0.06% 0.06% 0.16%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.41% 0.41% 0.51%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution and Service Fees None None None
Other Expenses/2/ 0.06% 0.06% 0.08%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.41% 0.44% 0.43%
-------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's ILA Shares plus all other ordinary expenses not
detailed above.
15
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in ILA Shares of a
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that a Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations $44 $138 $241 $542
- -------------------------------------------------------
Money Market $44 $138 $241 $542
- -------------------------------------------------------
Treasury Obligations $44 $138 $241 $542
- -------------------------------------------------------
Treasury Instruments $44 $138 $241 $542
- -------------------------------------------------------
Government $46 $144 $252 $567
- -------------------------------------------------------
Federal $43 $135 $235 $530
- -------------------------------------------------------
Tax-Exempt Diversified $42 $132 $230 $518
- -------------------------------------------------------
Tax-Exempt California $42 $132 $230 $518
- -------------------------------------------------------
Tax-Exempt New York $52 $164 $285 $640
- -------------------------------------------------------
</TABLE>
Institutions that invest in ILA Shares on behalf of their customers may charge
other fees directly to their customer accounts in connection with their invest-
ments. You should contact your institution for information regarding such
charges. Such fees may affect the return their customers realize with respect
to their investments.
Certain institutions that invest in ILA Shares on behalf of their customers may
receive other compensation in connection with the sale and distribution of ILA
Shares or for services to their customers' accounts and/or the Funds. For addi-
tional information regarding such compensation, see "Shareholder Guide" in the
Prospectus and "Other Information" in the Additional Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as Investment Adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and
disposition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not
provided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.35% 0.35%
-------------------------------------------------------------------
Money Market 0.35% 0.34%
-------------------------------------------------------------------
Treasury Obligations 0.35% 0.35%
-------------------------------------------------------------------
Treasury Instruments 0.35% 0.24%
-------------------------------------------------------------------
Government 0.35% 0.35%
-------------------------------------------------------------------
Federal 0.35% 0.28%
-------------------------------------------------------------------
Tax-Exempt Diversified 0.35% 0.29%
-------------------------------------------------------------------
Tax-Exempt California 0.35% 0.35%
-------------------------------------------------------------------
Tax-Exempt New York 0.35% 0.30%
-------------------------------------------------------------------
</TABLE>
1-LL
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled.
The Investment Adviser has voluntarily agreed to reduce or otherwise limit
the daily expenses of each Fund (excluding fees payable under service,
administration and distribution plans for certain share classes, taxes,
interest, brokerage and litigation, indemnification and other extraordinary
expenses) on an annualized basis to 0.43% of the average daily net assets of
the Fund. Such reductions or limits, if any, are calculated monthly on a
cumulative basis. These reductions or limits may be discontinued or modified
only with the express approval of the Trustees.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Fund's
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
Investment Adviser or other Fund service providers do not adequately address
this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
2-LL
<PAGE>
SERVICE PROVIDERS
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
..In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000
preparedness of the issuers of securities held by the Funds. The Investment
Adviser may obtain such Year 2000 information from various sources which
the Investment Adviser believes to be reliable, including the issuers'
public regulatory filings. However, the Investment Adviser is not in a
position to verify the accuracy or completeness of such information.
3-LL
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. Moreover, the Tax-Exempt California and Tax-Exempt New York Portfo-
lios expect that their dividends will not be subject to the California and New
York personal income tax, respectively, (and in the case of the Tax-Exempt New
York Portfolio, New York City personal income tax). The tax status and amounts
of the dividends for each calendar year will be detailed in your annual tax
statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-LL
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Shares.
HOW TO BUY SHARES
How Can I Purchase Shares Of The Funds?
You may purchase Shares of the Funds on any business day at their net asset
value ("NAV") next determined after receipt of an order. Shares begin earn-
ing dividends after the receipt of the purchase amount in federal funds. No
sales load is charged. You may place a purchase order in writing or by tele-
phone.
<TABLE>
--------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower-60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
--------------------------------------------------------
</TABLE>
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
You may send your payment as follows:
..Wire federal funds to The Northern Trust Company ("Northern"), as sub-cus-
todian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern; or
..Send a check or Federal Reserve draft payable to Goldman Sachs
Funds - (Name of Fund and Class of Shares), 4900 Sears Tower-60th Floor,
Chicago, Illinois 60606-6372. The Trust will not accept a check drawn on a
foreign bank or a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
1-MM
<PAGE>
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and federal
funds are received: Dividends begin:
-----------------------------------------------------
<S> <C>
Taxable and Tax-Advantaged Funds:
-----------------------------------------------------
Same business
.By 3:00 p.m. New York time day
Next business
.After 3:00 p.m. New York time day
-----------------------------------------------------
Tax-Exempt Funds:
-----------------------------------------------------
Same business
.By 1:00 p.m. New York time day
Next business
.After 1:00 p.m. New York time day
-----------------------------------------------------
</TABLE>
How Do I Purchase Shares Through A Financial Institution?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of the Trust, pur-
chase, redemption and exchange orders placed by or on behalf of their cus-
tomers and may designate other intermediaries to accept such orders, if
approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
..Authorized institutions or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your institution or intermediary directly to learn
whether it is authorized to accept orders for the Trust.
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Funds' ILA Shares. These
payments may be in addition to other payments borne by the Funds.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to certain institutions and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs
2-MM
<PAGE>
SHAREHOLDER GUIDE
Funds. Subject to applicable NASD regulations, the Investment Adviser, Dis-
tributor and/or their affiliates may also contribute to various cash and
non-cash incentive arrangements to promote the sale of shares. This addi-
tional compensation can vary among institutions depending upon such factors
as the amounts their customers have invested (or may invest) in particular
Goldman Sachs Funds, the particular program involved, or the amount of reim-
bursable expenses.
In addition to ILA Shares, each Fund also offers other classes of shares to
investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than ILA Shares. Infor-
mation regarding these other share classes may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover
of this Prospectus.
What Is My Minimum Investment In The Funds?
<TABLE>
--------------------------------------------------
<S> <C>
Minimum initial investment $50,000
(may be allocated
among the Funds)
--------------------------------------------------
Minimum account balance $50,000
--------------------------------------------------
Minimum subsequent investments None
--------------------------------------------------
</TABLE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange ILA Shares is
determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (usu-
ally 4:00 p.m. New York time). Fund Shares will be priced on any day the
New York Stock Exchange is open, except for days on which Chicago, Boston
or New York banks are closed for local holidays.
3-MM
<PAGE>
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its ILA Shares
upon request on any business day at their NAV next determined after receipt
of such request in proper form. You may request that redemption proceeds be
sent to you by check or by wire (if the wire instructions are on record).
Redemptions may be requested in writing or by telephone.
<TABLE>
<CAPTION>
Instructions For
Redemptions:
------------------------------------------------------------------------------
<C> <S>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (if proceeds are to be
paid other than as set forth in pre-established
instructions on file)
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
------------------------------------------------------------------------------
By Telephone: If you have not declined telephone redemption
privileges on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m. New York
time)
------------------------------------------------------------------------------
</TABLE>
4-MM
<PAGE>
SHAREHOLDER GUIDE
Certain institutions and intermediaries are authorized to accept redemption
requests on behalf of the Funds as described under "How Do I Purchase Shares
Through A Financial Institution?" You may also take advantage of the check
redemption privilege, described below.
When Do I Need A Signature Guarantee To Redeem Shares?
Your redemption request must include a signature guarantee if any of the
following situations apply:
..You would like the redemption proceeds sent to an address that is not your
address of record; or
..You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Goldman Sachs employs reasonable procedures specified by the
Trust to confirm that such instructions are genuine. If reasonable proce-
dures are not employed, the Trust may be liable for any loss due to unautho-
rized or fraudulent transactions. The following general policies are cur-
rently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
5-MM
<PAGE>
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
your Account Application as follows:
<TABLE>
<CAPTION>
Redemption
Redemption Request Received Proceeds Dividends
------------------------------------------------------------------------------
<S> <C> <C>
Taxable and Tax-Advantaged Funds:
------------------------------------------------------------------------------
.By 3:00 p.m. New York time Wired same Not earned
business day on day
request is
received
------------------------------------------------------------------------------
.After 3:00 p.m. New York time Wired next Earned on
business day day request
is received
------------------------------------------------------------------------------
Tax-Exempt Funds:
------------------------------------------------------------------------------
.By 12:00 p.m. New York time Wired same Not earned
business day on day
request is
received
------------------------------------------------------------------------------
.After 12:00 p.m. New York time Wired next Earned on
business day day request
is received
------------------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared, which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..To change the bank designated on your Account Application you must send
written instructions signed by an authorized person designated on the
Account Application to the Transfer Agent.
..Neither the Trust, Goldman Sachs nor any other institution assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
..If the redeemed shares were recently paid for by check, the Fund will pay
the redemption proceeds when the check has cleared, which may take up to 15
days.
What Should I Know About The Check Redemption Privilege?
You may elect to have a special account with State Street for the purpose of
redeeming ILA Shares from your account by check.
6-MM
<PAGE>
SHAREHOLDER GUIDE
The following general policies govern the check redemption privilege:
..You will be provided with a supply of checks when State Street receives a
completed signature card and authorization form. Checks drawn on the
account may be payable to the order of any person in any amount over $500,
but cannot be certified.
.The payee of the check may cash or deposit it just like any other check
drawn on a bank.
.When the check is presented to State Street for payment, a sufficient
number of full or fractional ILA Shares will be redeemed to cover the
amount of the check.
.Canceled checks will be returned to you by State Street.
..The check redemption privilege allows you to receive the dividends declared
on the Shares that are to be redeemed until the check is actually proc-
essed. Because of this feature, accounts may not be completely liquidated
by check.
..If the amount of the check is greater than the value of the ILA Shares held
in your account, the check will be returned unpaid. In this case, you may
be subject to extra charges.
..Goldman Sachs Funds reserves the right to limit the availability of, modify
or terminate the check redemption privilege at any time with respect to any
or all shareholders.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
..Redeem your shares if your account balance falls below the minimum as a
result of earlier redemptions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional Shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in kind, you should expect to incur
transaction costs upon the disposition of those securities.
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<PAGE>
Can I Exchange My Investment From One Fund To Another?
You may exchange ILA Shares of a Fund at NAV for shares of the corresponding
class of any other Goldman Sachs Fund. The exchange privilege may be
materially modified or withdrawn at any time upon 60 days' written notice to
you.
<TABLE>
<CAPTION>
Instructions For
Exchanging Shares:
---------------------------------------------------------------------------
<C> <S>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Class of Shares
Name of Fund and
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
---------------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
---------------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only
if the exchange instructions are in writing and are signed by an authorized
person designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
to Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
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<PAGE>
SHAREHOLDER GUIDE
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Shares?
You will receive an annual report containing audited financial statements
and a semiannual report. To eliminate unnecessary duplication, only one copy
of such reports will be sent to shareholders with the same mailing address.
If you would like a duplicate copy to be mailed to you, please contact
Goldman Sachs Funds at 1-800-621-2550. You will also be provided with an
individual monthly statement. Upon request, you will be provided with a
printed confirmation for each transaction in your account. Any dividends and
distributions paid by the Funds are also reflected in regular statements
issued by Goldman Sachs to recordholders.
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<PAGE>
Dividends
All or substantially all of each Fund's net investment income will be
declared as a dividend daily. Dividends will normally, but not always, be
declared as of 4:00 p.m. New York time as a dividend and distributed to
shareholders monthly. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
You may indicate your election on your Account Application. Any changes may
be submitted in writing to Goldman Sachs at any time. If you do not indicate
any choice, your dividends and distributions will be reinvested automati-
cally in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with federal income tax requirements and may be reflected in a
Fund's daily distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and December may be distributed during the
subsequent calendar year. Although realized gains and losses on the assets
of a Fund are reflected in the NAV of the Fund, they are not expected to be
of an amount which would affect the Fund's NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations and Govern-
ment Portfolios is based on estimates of net investment income for each
Fund. Actual income may differ from estimates, and differences, if any, will
be included in the calculation of subsequent dividends.
17
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
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<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
3-FF
<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
4-FF
<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
5-FF
<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
6-FF
<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
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<PAGE>
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies. As a matter of fundamental policy, at least 80% of each
of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt California
and Tax-Exempt New York Portfolios will ordinarily be invested in municipal
obligations, the interest from which is, in the opinion of bond counsel, if
any, excluded from gross income for federal income tax purposes. In addition,
as a matter of fundamental policy, at least 65% of each of the Tax-Exempt Cali-
fornia and Tax-Exempt New York Portfolio's total assets will be invested in
California and New York municipal obligations, except in extraordinary circum-
stances.
For these purposes, California and New York municipal obligations are obliga-
tions issued by or on behalf of the State of California or the State of New
York, respectively, and their respective political subdivisions, agencies and
instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands
and Guam, the interest from which is excluded from gross income for federal
income tax purposes and is exempt from California State personal income tax or
New York State and New York City personal income tax. Each Tax-Exempt Fund may
temporarily invest in taxable money market instruments or, in the case of the
Tax-Exempt California and New York Portfolios, in municipal obligations that
are not California or New York municipal obligations, respectively, when
acceptable California and New York municipal obligations are not available or
when the Investment Adviser believes that the market conditions dictate a
defensive posture. Investments in taxable money market instruments will be lim-
ited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-
Exempt California and Tax-Exempt New York Portfolios' distributions of interest
from municipal obligations other than California and New York municipal obliga-
tions, respectively, may be subject to California and New York State and New
York City personal income taxes.
Risks of Investing in California and New York: The Tax-Exempt California and
Tax-Exempt New York Portfolios concentrate their investments in California and
New York municipal obligations. Consequently, these Funds are more susceptible
to factors adversely affecting issuers of California and New York municipal
obligations, and may be riskier than comparable municipal bond funds and money
market funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio's investments can be affected by political
and economic developments within the State of California (the "State"), and by
1-FFF
<PAGE>
the financial condition of the State, its public authorities and political sub-
divisions. After suffering a severe recession in the early 1990's which caused
the State to experience financial difficulties, California's economy entered a
sustained recovery since late 1993 and the State's budget has returned to a
positive balance. California's long-term credit rating has been raised after
being reduced during the recession. To respond to its own revenue shortfalls
during the recession, the State reduced assistance to its public authorities
and political subdivisions. Cutbacks in state aid could further adversely
affect the financial condition of cities, counties and education districts
which are subject to their own fiscal constraints. California voters in the
past have passed amendments to the California Constitution and other measures
that limit the taxing and spending authority of California governmental enti-
ties, and future voter initiatives could result in adverse consequences affect-
ing California municipal obligations. Also, the ultimate fiscal effect of fed-
erally-mandated reform of welfare programs on the State and its local
governments is still to be resolved.
These factors, among others (including the outcome of related pending litiga-
tion), could reduce the credit standing of certain issuers of California munic-
ipal obligations. A more detailed discussion of the risks of investing in Cali-
fornia is included in the Additional Statement.
The Tax-Exempt New York Portfolio's investments will be affected by political
and economic developments within the State of New York (the "State"), and by
the financial conditions of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State and the
City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their
financial obligations. Certain substantial issuers of New York municipal obli-
gations (including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing abili-
ties of all New York issuers and have generally contributed to higher interest
costs for their borrowings and fewer markets for their outstanding debt obliga-
tions. Although several different issues of municipal obligations of the State
and its agencies and instrumentalities and of the City have been downgraded by
S&P and Moody's in recent years, the most recent actions of S&P and Moody's
have been to place the debt obligations of the State on Credit Watch with posi-
tive implications and to upgrade the debt obligations of the City, respective-
ly. Strong demand for New York municipal obligations has also at times had the
effect of permitting New York municipal obligations to be issued with yields
relatively lower, and after issuance, to trade in the market at prices rela-
tively higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experi-
enced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers' existing obliga-
tions and,
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<PAGE>
possibly, in the obligations of other issuers of New York municipal obliga-
tions. Although as of April 1, 1999 no issuers were in default with respect to
the payment of their New York municipal obligations, the occurrence of any such
default could materially affect adversely the market values and marketability
of all New York municipal obligations and, consequently, the NAV of the Fund's
holdings. A more detailed discussion of the risks of investing in New York is
included in the Additional Statement.
If California, New York, or any of their local governmental entities are unable
to meet their financial obligations, the corresponding Fund's income, NAV,
ability to preserve or realize appreciation of capital or liquidity could be
adversely affected. Also, neither of these Funds is a diversified fund (except
to the extent that diversification is required by Rule 2a-7 or for federal
income tax purposes). Because they may invest a larger percentage of their
assets in the securities of fewer issuers than do diversified funds, these
Funds may be exposed to greater risk in that an adverse change in the condition
of one or a small number of issuers would have a greater impact on them.
3-FFF
<PAGE>
[This page intentionally left blank]
1
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA
Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - ILA B units 1.00 0.04 (0.04)
1998 - ILA C units 1.00 0.04 (0.04)
1998 - Cash Management
shares (commenced May
1) 1.00 0.03 (0.03)
- ------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA
Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
1997 - ILA B units 1.00 0.04 (0.04)
1997 - ILA C units
(commenced August 15) 1.00 0.04 (0.04)
- ------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA
Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
1996 - ILA B units
(commenced May 8) 1.00 0.03 (0.03)
- ------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA
Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA
Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ------------------------------------------------------------
</TABLE>
aCalculated based on the average units outstanding methodology.
b 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.
cAnnualized.
2
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.32% $837,185 0.43% 5.19% 0.43% 5.19%
1.00 5.16 38,836 0.58 5.05 0.58 5.05
1.00 4.90 119,309 0.83 4.79 0.83 4.79
1.00 4.27 14,412 1.43 4.07 1.43 4.07
1.00 4.27 6,814 1.43 4.13 1.43 4.13
1.00 4.69c 2 0.93c 4.81c 1.43c 4.31c
- ------------------------------------------------------------------------------------
1.00 5.38 866,445 0.42 5.24 0.43 5.23
1.00 5.22 28,110 0.57 5.11 0.58 5.10
1.00 4.96 78,316 0.82 4.85 0.83 4.84
1.00 4.33 1,574 1.42 4.33 1.43 4.32
1.00 4.41c 1,897 1.42c 4.39c 1.43c 4.38c
- ------------------------------------------------------------------------------------
1.00 5.22 1,154,787 0.41 5.11 0.43 5.09
1.00 5.06 23,738 0.56 4.97 0.58 4.95
1.00 4.80 84,707 0.81 4.74 0.83 4.72
1.00 3.97c 346 1.41c 4.09c 1.43c 4.07c
- ------------------------------------------------------------------------------------
1.00 5.79 1,261,251 0.41 5.66 0.43 5.64
1.00 5.63 63,018 0.56 5.51 0.58 5.49
1.00 5.37 227,233 0.81 5.22 0.83 5.20
- ------------------------------------------------------------------------------------
1.00 4.07 1,963,846 0.40 3.94 0.42 3.92
1.00 3.91 149,234 0.55 3.79 0.57 3.77
1.00 3.66 170,453 0.80 3.65 0.82 3.63
- ------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
- ---------
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.33% $1,350,317 0.40% 5.17% 0.43% 5.14%
1.00 5.17 314,327 0.55 5.04 0.58 5.01
1.00 4.91 32,349 0.80 4.79 0.83 4.76
1.00 4.69c 2 0.90c 4.80c 1.43c 4.27c
- ------------------------------------------------------------------------------------
1.00 5.43 806,096 0.37 5.31 0.42 5.26
1.00 5.28 307,480 0.52 5.15 0.57 5.10
1.00 5.01 20,517 0.77 4.90 0.82 4.85
- ------------------------------------------------------------------------------------
1.00 5.27 703,097 0.36 5.15 0.43 5.08
1.00 5.12 257,258 0.51 5.00 0.58 4.93
1.00 4.86 28,845 0.76 4.75 0.83 4.68
- ------------------------------------------------------------------------------------
1.00 5.85 574,155 0.36 5.71 0.42 5.65
1.00 5.69 164,422 0.51 5.55 0.57 5.49
1.00 5.43 23,080 0.76 5.29 0.82 5.23
- ------------------------------------------------------------------------------------
1.00 4.13 559,470 0.35 4.01 0.43 3.93
1.00 3.98 145,867 0.50 3.88 0.58 3.80
1.00 3.72 21,862 0.75 3.61 0.83 3.53
- ------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.21% $383,243 0.43% 5.09% 0.45% 5.07%
1.00 5.05 7,692 0.58 4.94 0.60 4.92
1.00 4.79 105,732 0.83 4.67 0.85 4.65
1.00 4.57c 2 0.93c 4.60c 1.45c 4.08c
- ---------------------------------------------------------------------------------
1.00 5.31 460,457 0.42 5.16 0.42 5.16
1.00 5.15 10,192 0.57 4.98 0.57 4.98
1.00 4.89 83,799 0.82 4.78 0.82 4.78
- ---------------------------------------------------------------------------------
1.00 5.15 694,651 0.41 5.04 0.44 5.01
1.00 4.99 36,055 0.56 4.89 0.59 4.86
1.00 4.73 94,228 0.81 4.63 0.84 4.60
- ---------------------------------------------------------------------------------
1.00 5.77 570,469 0.41 5.62 0.43 5.60
1.00 5.62 47,558 0.56 5.49 0.58 5.47
1.00 5.35 85,401 0.81 5.19 0.83 5.17
- ---------------------------------------------------------------------------------
1.00 3.94 881,520 0.40 3.78 0.44 3.74
1.00 3.79 95,483 0.55 3.62 0.59 3.58
1.00 3.53 156,930 0.80 3.50 0.84 3.46
- ---------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- -------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.03 (0.03)
- -------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.15% $734,553 0.42% 4.96% 0.43% 4.95%
1.00 4.99 80,464 0.57 4.88 0.58 4.87
1.00 4.73 35,432 0.82 4.67 0.83 4.66
- ------------------------------------------------------------------------------------
1.00 5.26 590,381 0.42 5.12 0.42 5.12
1.00 5.10 124,159 0.57 4.99 0.57 4.99
1.00 4.84 104,133 0.82 4.73 0.82 4.73
- ------------------------------------------------------------------------------------
1.00 5.11 574,734 0.41 4.98 0.43 4.96
1.00 4.95 108,850 0.56 4.83 0.58 4.81
1.00 4.69 123,483 0.81 4.59 0.83 4.57
- ------------------------------------------------------------------------------------
1.00 5.73 711,209 0.41 5.51 0.43 5.49
1.00 5.57 92,643 0.56 5.37 0.58 5.35
1.00 5.31 119,692 0.81 5.11 0.83 5.09
- ------------------------------------------------------------------------------------
1.00 3.91 713,816 0.40 3.77 0.44 3.73
1.00 3.75 97,626 0.55 3.68 0.59 3.64
1.00 3.49 108,972 0.80 3.40 0.84 3.35
- ------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 4.96% $341,476 0.30% 4.83% 0.43% 4.70%
1.00 4.80 131,685 0.45 4.68 0.58 4.55
1.00 4.54 374,128 0.70 4.43 0.83 4.30
- ------------------------------------------------------------------------------------
1.00 5.17 330,241 0.22 5.02 0.42 4.82
1.00 5.01 98,667 0.37 4.88 0.57 4.68
1.00 4.75 295,404 0.62 4.63 0.82 4.43
- ------------------------------------------------------------------------------------
1.00 5.10 708,999 0.21 4.96 0.43 4.74
1.00 4.95 137,706 0.36 4.82 0.58 4.60
1.00 4.68 383,901 0.61 4.56 0.83 4.34
- ------------------------------------------------------------------------------------
1.00 5.70 586,294 0.21 5.50 0.44 5.27
1.00 5.54 68,713 0.36 5.34 0.59 5.11
1.00 5.28 123,254 0.61 5.00 0.84 4.77
- ------------------------------------------------------------------------------------
1.00 4.01 547,351 0.20 3.96 0.43 3.73
1.00 3.85 64,388 0.35 3.97 0.58 3.74
1.00 3.59 74,451 0.60 3.72 0.83 3.49
- ------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FEDERAL PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.25% $2,625,705 0.34% 5.10% 0.42% 5.02%
1.00 5.09 508,297 0.49 4.97 0.57 4.89
1.00 4.83 53,994 0.74 4.71 0.82 4.63
- ------------------------------------------------------------------------------------
1.00 5.40 2,050,559 0.27 5.26 0.41 5.12
1.00 5.24 530,001 0.42 5.11 0.56 4.97
1.00 4.98 34,540 0.67 4.83 0.81 4.69
- ------------------------------------------------------------------------------------
1.00 5.24 2,303,677 0.26 5.13 0.43 4.96
1.00 5.09 794,537 0.41 4.98 0.58 4.81
1.00 4.83 192,416 0.66 4.73 0.83 4.56
- ------------------------------------------------------------------------------------
1.00 5.83 1,731,935 0.26 5.69 0.42 5.53
1.00 5.67 516,917 0.41 5.50 0.57 5.34
1.00 5.41 102,576 0.66 5.22 0.82 5.06
- ------------------------------------------------------------------------------------
1.00 4.11 1,625,567 0.25 4.07 0.42 3.90
1.00 3.95 329,896 0.40 3.88 0.57 3.71
1.00 3.69 15,539 0.65 3.92 0.82 3.75
- ------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
TAX-EXEMPT DIVERSIFIED PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
1996 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.04 (0.04)
1995 - ILA Administration units 1.00 0.04 (0.04)
1995 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.03 (0.03)
1994 - ILA Service units 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.17% $1,562,285 0.35% 3.12% 0.41% 3.06%
1.00 3.02 26,509 0.50 2.98 0.56 2.92
1.00 2.76 37,850 0.75 2.72 0.81 2.66
1.00 2.61c 2 0.85c 2.66c 1.41c 2.10c
- --------------------------------------------------------------------------------
1.00 3.39 1,479,486 0.32 3.33 0.41 3.24
1.00 3.23 27,967 0.47 3.16 0.56 3.07
1.00 2.97 30,513 0.72 2.97 0.81 2.88
- --------------------------------------------------------------------------------
1.00 3.25 1,514,443 0.31 3.20 0.41 3.10
1.00 3.09 59,097 0.46 3.06 0.56 2.96
1.00 2.84 28,921 0.71 2.79 0.81 2.69
- --------------------------------------------------------------------------------
1.00 3.72 1,342,585 0.31 3.65 0.42 3.54
1.00 3.57 48,773 0.46 3.51 0.57 3.40
1.00 3.31 49,647 0.71 3.24 0.82 3.13
- --------------------------------------------------------------------------------
1.00 2.71 1,434,965 0.30 2.64 0.41 2.53
1.00 2.55 97,778 0.45 2.50 0.56 2.39
1.00 2.30 36,492 0.70 2.20 0.81 2.09
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-EXEMPT CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distribution
beginning investment to unit/
of period income shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $ 1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.02 (0.02)
1998 - Cash Management shares (commenced May
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (Re-commenced
September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 2.84% $584,615 0.41% 2.79% 0.41% 2.79%
1.00 2.68 512 0.56 2.84 0.56 2.84
1.00 2.43 2 0.81 2.48 0.81 2.48
1.00 2.25c 2 0.91c 2.37c 1.41c 1.94c
- -------------------------------------------------------------------------------
1.00 3.15 591,003 0.42 3.10 0.42 3.10
1.00 3.00 360 0.57 2.98 0.57 2.98
1.00 2.87c 2 0.82c 2.90c 0.82c 2.90c
- -------------------------------------------------------------------------------
1.00 3.03 440,476 0.41 2.99 0.42 2.98
1.00 2.88 142 0.56 2.84 0.57 2.83
- -------------------------------------------------------------------------------
1.00 3.55 346,728 0.41 3.49 0.41 3.49
1.00 3.40 61 0.56 3.32 0.56 3.32
- -------------------------------------------------------------------------------
1.00 2.53 227,399 0.40 2.50 0.41 2.49
1.00 2.37 790 0.55 2.33 0.56 2.32
- -------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
TAX-EXEMPT NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (commenced
September 15) 1.00 0.01 (0.01)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
18
<PAGE>
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of Ratio of net
Net asset assets at Ratio of net investment net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.02% $122,550 0.36% 2.96% 0.51% 2.81%
1.00 2.87 21,580 0.51 2.85 0.66 2.70
1.00 2.61 2 0.76 2.61 0.91 2.46
1.00 2.46c 1 0.86c 2.56c 1.51c 1.91c
- ---------------------------------------------------------------------------------
1.00 3.29 102,887 0.33 3.24 0.43 3.14
1.00 3.14 31,993 0.48 3.09 0.58 2.99
1.00 3.02c 2 0.73c 3.04c 0.83c 2.94c
- ---------------------------------------------------------------------------------
1.00 3.05 70,175 0.32 3.01 0.43 2.90
1.00 2.90 44,319 0.47 2.88 0.58 2.77
- ---------------------------------------------------------------------------------
1.00 3.51 90,537 0.30 3.44 0.44 3.30
1.00 3.35 26,724 0.45 3.28 0.59 3.14
- ---------------------------------------------------------------------------------
1.00 2.56 84,517 0.24 2.62 0.47 2.39
1.00 2.41 38,970 0.39 2.47 0.62 2.24
- ---------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Index
xx General Investment Management Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Portfolio
xx Money Market Portfolio
xx Treasury Obligations Portfolio
xx Treasury Instruments Portfolio
xx Government Portfolio
xx Federal Portfolio
xx Tax-Exempt Diversified Portfolio
xx Tax-Exempt California Portfolio
xx Tax-Exempt New York Portfolio
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Taxation
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Dividends
xx Appendix A:
Additional Information on
Portfolio Risks,
Securities and Techniques
xx Appendix B:
Financial Highlights
18
<PAGE>
Institutional Liquid Assets Prospectus
(ILA Units)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone -- Call 1-800-621-2550
By mail -- Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail -- [email protected]
On the Internet--Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC -- http://www.sec.gov
Goldman Sachs -- http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC
at 1-800-SEC-0330.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus
ILA
Administration
("Units" or
"Shares")
May , 1999
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
(INSERT ARTWORK)
. Prime
Obligations
Portfolio
. Money Market
Portfolio
. Treasury
Obligations
Portfolio
. Treasury
Instruments
Portfolio
. Government
Portfolio
. Federal
Portfolio
. Tax-Exempt
Diversified
Portfolio
. Tax-Exempt
California
Portfolio
. Tax-Exempt New
York Portfolio
THE TERMS "PORTFOLIO" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
PORTFOLIOS.
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES
OR PASSED UPON THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN
A FUND.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Fund's investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
1-KK
<PAGE>
..The Funds: Each Fund's securities are valued by the amortized cost method as
permitted under Rule 2a-7 of the Investment Company Act of 1940, as amended
(the "1940 Act"). Under Rule 2a-7, each Fund may invest only in U.S. dollar
denominated securities that are determined to present minimal credit risk
and meet certain other criteria including those conditions relating to matu-
rity, diversification and credit quality. These operating policies may be
more restrictive than the fundamental policies set forth in the Statement of
Additional Information (the "Additional Statement").
.Taxable Funds: Prime Obligations, Money Market, Treasury Obligations and
Government Portfolios.
.Tax-Advantaged Funds: Treasury Instruments and Federal Portfolios.
.Tax-Exempt Funds: Tax-Exempt Diversified, Tax-Exempt California and Tax-
Exempt New York Portfolios.
..The Investors: The Funds are designed for investors seeking a high rate of
return, a stable net asset value ("NAV") and convenient liquidation privi-
leges. The Funds are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their
own accounts or for the accounts of their customers.
..NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
..Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
..Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
..Investment Restrictions: Each Fund is subject to certain investment restric-
tions that are described in detail under "Investment Restrictions" in the
Additional Statement. Fundamental investment restrictions and the investment
objective of a Fund (except the Tax-Exempt California and Tax-Exempt New
York Portfolios' objectives of providing shareholders with income exempt
from California State and New York State and New York City personal income
tax, respectively) cannot be changed without approval of a majority of the
outstanding shares of that Fund. The Treasury Obligations Portfolio's policy
of limiting its investments to U.S. Treasury Obligations and related repur-
chase agreements is also fundamental. All investment policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval.
..Diversification. Diversification can help a Fund reduce the risks of invest-
ing. In accordance with current regulations of the Securities and Exchange
Commission
2-KK
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
(the "SEC"), each Fund may not invest more than 5% of the value of its total
assets at the time of purchase in the securities of any single issuer with
these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York
Portfolios may each invest up to 25% of their total assets in five or fewer
issuers; and (b) each of the other Funds may invest up to 25% of its total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agreements, U.S.
Government securities or securities of other investment companies. In addi-
tion, securities subject to certain unconditional guarantees and securities
that are not "First Tier Securities" as defined by the SEC are subject to
different diversification requirements as described in the Additional State-
ment.
3-KK
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instru-
ments, Government and Federal Portfolios seek to maximize current income to
the extent consistent with the preservation of capital and the maintenance
of liquidity by investing exclusively in high quality money market instru-
ments.
The Treasury Instruments and Federal Portfolios pursue their investment
objectives by limiting their investments to certain U.S. Treasury obliga-
tions and U.S. Government securities (each as defined in Appendix A),
respectively, the interest from which is generally exempt from state income
taxation. You should consult your tax adviser to determine whether distribu-
tions from the Treasury Instruments and Federal Portfolios (and any other
Fund that may hold such obligations) derived from interest on such obliga-
tions are exempt from state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios seek to provide shareholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high
level of income exempt from federal income tax by investing primarily in
municipal instruments.
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios
seek to provide shareholders with income exempt from California State and
New York State and City personal income taxes, respectively.
The Tax-Exempt Funds pursue their investment objectives by limiting their
investments to securities 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, the inter-
est from which, if any, is in the opinion of bond counsel excluded from
gross income for federal income tax purposes, and not an item of tax prefer-
ence under the federal alternative minimum tax.
4-KK
<PAGE>
(This Page Intentionally Left Blank)
5-kk
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. U.S.
Treasury Government Bank Commercial
Fund Obligations Securities Obligations Paper
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations . . . .
U.S. banks only
-------------------------------------------------------------------------------------------
Money Market . . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
-------------------------------------------------------------------------------------------
Treasury Obligations .
-------------------------------------------------------------------------------------------
Treasury Instruments .
-------------------------------------------------------------------------------------------
Government . .
-------------------------------------------------------------------------------------------
Federal . .
-------------------------------------------------------------------------------------------
Tax-Exempt Diversified .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt California .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt New York .
Tax-exempt only
-------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and
charge-offs and declines in total deposits), the Fund may, for temporary
defensive purposes, invest less than 25% of its total assets in bank
obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury Obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-KK
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
.
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-KK
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated Investment
Fund Municipals Municipals Receipts Securities/7/ Companies
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations . /5/ . . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Money Market . /5/ . . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Treasury Obligations
- -------------------------------------------------------------------------------------------------------------
Treasury Instruments
- -------------------------------------------------------------------------------------------------------------
Government . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Diversified . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment
extraordinary circumstances)/6/ companies
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt California . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% of investment
total assets in California companies
instruments (except in
extraordinary circumstances)/6/
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt New York . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% of investment
total assets in New York companies
instruments (except in
extraordinary circumstances)/6/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-KK
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/10/ Miscellaneous
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -----------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13
/
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -----------------------------------------------------------------------------------------------------------
(Does not First/10/ or Tax-exempt federal and May (but does not currently intend to)
intend to Second Tier/11/ taxable state./12/ invest up to 20% in securities subject to
invest)/8/,/9/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -----------------------------------------------------------------------------------------------------------
(Does not First/10/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and California State invest up to 20% in AMT securities
invest)/8/,/9/ and may temporarily invest in the taxable
money market instruments described herein
- -----------------------------------------------------------------------------------------------------------
.. First/10/ or Tax-exempt federal, May invest up to 20% in AMT securities
(not more than Second Tier/11/ New York State and and may temporarily invest in the taxable
20% of net New York City money market instruments described herein
assets)/9/
- -----------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-KK
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Prime Money Treasury Treasury
Obligations Market Obligations Instruments
Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- -------------------------------------------------------------
Interest Rate . . . .
- -------------------------------------------------------------
Credit/Default . . . .
- -------------------------------------------------------------
Management . . . .
- -------------------------------------------------------------
Liquidity . . . .
- -------------------------------------------------------------
Other . . . .
- -------------------------------------------------------------
Government
Securities -- -- -- --
- -------------------------------------------------------------
Concentration -- . -- --
- -------------------------------------------------------------
Foreign -- . -- --
- -------------------------------------------------------------
Tax -- -- -- --
- -------------------------------------------------------------
</TABLE>
10-KK
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Government Federal Diversified California New York
Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . -- -- --
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
</TABLE>
11-KK
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Portfolios:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Exempt California and Tax-Exempt New York Portfolio, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market Portfolio may not invest more than 25% of its total assets in
the securities of any one foreign government.
12-KK
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market Portfolio:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market Portfolio intends to invest more than 25%
of its total assets in bank obligations, and the Tax-Exempt California and
Tax-Exempt New York Portfolio intend to invest at least 65% of their total
assets in California municipal obligations and New York municipal obliga-
tions, respectively. Banks may be particularly susceptible to certain eco-
nomic factors such as interest rate changes, adverse developments in the
real estate market, fiscal and monetary policy and general economic cycles.
Risk that applies to the Tax-Exempt Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends (in the case of each of these Funds) and state tax-
exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt
New York Funds).
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-KK
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Admin-
istration Shares from year to year; and (b) how the average annual returns
of a Fund's Administration Shares compare to the returns of a composite of
mutual funds with similar investment objectives. The bar chart and table
assume reinvestment of dividends and distributions. A Fund's past perfor-
mance is not necessarily an indication of how the Fund will perform in the
future. Performance reflects expense limitations in effect. If expense limi-
tations were not in place, a Fund's performance would have been reduced. You
may obtain a Fund's current yield by calling 1-800-621-2550.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.68%
Worst Quarter
Q2 '93 0.68%
[CHART APPEARS HERE]
1991 5.94%
1992 3.61%
1993 2.82%
1994 3.91%
1995 5.63%
1996 5.06%
1997 5.22%
1998 5.16%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
-------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 6/5/90) 5.16% 5.00% 4.88%
-------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.68%
Worst Quarter
Q2 '93 0.70%
[CHART APPEARS HERE]
1991 5.96%
1992 3.62%
1993 2.88%
1994 3.98%
1995 5.69%
1996 5.12%
1997 5.28%
1998 5.17%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 6/12/90) 5.17% 5.04% 4.91%
--------------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Treasury Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.57%
Worst Quarter
Q2 '93 0.67%
(CHART APPEARS HERE)
1991 5.74%
1992 3.50%
1993 2.74%
1994 3.75%
1995 5.57%
1996 4.95%
1997 5.10%
1998 4.99%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 6/12/90) 4.99% 4.87% 4.75%
--------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Instruments Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 1.41%
Worst Quarter
Q2 '93 0.68%
(CHART APPEARS HERE)
1992 3.38%
1993 2.83%
1994 3.85%
1995 5.54%
1996 4.95%
1997 5.01%
1998 4.80%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 7/24/91) 4.80% 4.83% 4.39%
--------------------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Government Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.59%
Worst Quarter
Q2 '93 0.68%
[CHART APPEARS HERE]
1991 5.75%
1992 3.56%
1993 2.79%
1994 3.79%
1995 5.62%
1996 4.99%
1997 5.15%
1998 5.05%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the periods ending December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 6/1/90) 5.05% 4.92% 4.80%
--------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Federal Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.61%
Worst Quarter
Q2 '93 0.69%
[CHART APPEARS HERE]
1991 5.78%
1992 3.47%
1993 2.84%
1994 3.95%
1995 5.67%
1996 5.09%
1997 5.24%
1998 5.09%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ending December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 9/20/90) 5.09% 5.01% 4.73%
--------------------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.09%
Worst Quarter
Q1 '94 0.48%
[CHART APPEARS HERE]
1991 4.17%
1992 2.67%
1993 2.09%
1994 2.55%
1995 3.57%
1996 3.09%
1997 3.23%
1998 3.02%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ending December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 6/12/90) 3.02% 3.09% 3.20%
--------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Exempt California Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 0.95%
Worst Quarter
Q1 '94 0.44%
[CHART APPEARS HERE]
1991 3.80%
1992 2.47%
1993 1.93%
1994 2.37%
1995 3.40%
1996 2.88%
1997 3.00%
1998 2.68%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ending December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 12/3/90) 2.68% 2.86% 2.84%
--------------------------------------------------------------------------
</TABLE>
10
<PAGE>
FUND PERFORMANCE
Tax-Exempt New York Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 0.89%
Worst Quarter
Q1 '94 0.44%
[CHART APPEARS HERE]
1992 2.55%
1993 2.05%
1994 2.41%
1995 3.35%
1996 2.90%
1997 3.14%
1998 2.87%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ending December 31, 1998 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Administration Shares (Inception 2/15/91) 2.87% 2.93% 2.88%
--------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Fund Fees and Expenses (Administration Shares)
This table describes the fees and expenses that you would pay if you buy and
hold ILA Administration Shares of a Fund.
<TABLE>
<CAPTION>
Prime Money Treasury
Obligations Market Obligations
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Administration Fees/2/ 0.15% 0.15% 0.15%
Other Expenses/3/ 0.08% 0.08% 0.08%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.58% 0.58% 0.58%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Prime Money Treasury
Obligations Market Obligations
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Administration Fees/2/ 0.15% 0.15% 0.15%
Other Expenses/3/ 0.08% 0.07% 0.07%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.58% 0.57% 0.57%
-------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Treasury
Instruments Government Federal
Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Administration Fees/2/ 0.15% 0.15% 0.15%
Other Expenses/3/ 0.08% 0.10% 0.07%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.58% 0.60% 0.57%
- ----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Treasury
Instruments Government Federal
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Administration Fees/2/ 0.15% 0.15% 0.15%
Other Expenses/3/ 0.07% 0.08% 0.08%
------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.57% 0.58% 0.56%
------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Fund Fees and Expenses (continued)
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Administration Fees/2/ 0.15% 0.15% 0.15%
Other Expenses/3/ 0.06% 0.06% 0.11%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.56% 0.56% 0.61%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Administration Fees/2/ 0.15% 0.15% 0.15%
Other Expenses/3/ 0.06% 0.06% 0.08%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.56% 0.56% 0.58%
-------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/Service Organizations may charge other fees directly to their customers who
are the beneficial owners of Administration Shares in connection with their
customers' accounts. Such fees may affect the return such customers realize
with respect to their investments.
/3/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Administration Shares plus all other ordinary
expenses not detailed above.
15
<PAGE>
Example
The following Example is intended to help you compare the cost of investing
in a Fund (without the expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Adminis-
tration Shares of a Fund for the time periods indicated and then redeem all
of your Shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that a Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations $59 $186 $324 $726
--------------------------------------------------------
Money Market $59 $186 $324 $682
--------------------------------------------------------
Treasury Obligations $59 $186 $324 $682
--------------------------------------------------------
Treasury Instruments $59 $186 $324 $682
--------------------------------------------------------
Government $61 $192 $335 $706
--------------------------------------------------------
Federal $58 $183 $318 $669
--------------------------------------------------------
Tax-Exempt Diversified $57 $179 $313 $657
--------------------------------------------------------
Tax-Exempt California $57 $179 $313 $701
--------------------------------------------------------
Tax-Exempt New York $67 $211 $368 $822
--------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who
are the beneficial owners of Administration Shares in connection with their
customers' accounts. You should contact your Service Organization for infor-
mation regarding such charges. Such fees may affect the return their custom-
ers realize with respect to their investments.
Certain Service Organizations that invest in ILA Administration Shares on
behalf of their customers may receive other compensation in connection with
the sale and distribution of Administration Shares or for services to their
customers' accounts and/or the Funds. For additional information regarding
such compensation, see "Shareholder Guide" in the Prospectus and "Other
Information" in the Additional Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as Investment Adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and
disposition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not
provided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.35% 0.35%
-------------------------------------------------------------------
Money Market 0.35% 0.34%
-------------------------------------------------------------------
Treasury Obligations 0.35% 0.35%
-------------------------------------------------------------------
Treasury Instruments 0.35% 0.24%
-------------------------------------------------------------------
Government 0.35% 0.35%
-------------------------------------------------------------------
Federal 0.35% 0.28%
-------------------------------------------------------------------
Tax-Exempt Diversified 0.35% 0.29%
-------------------------------------------------------------------
Tax-Exempt California 0.35% 0.35%
-------------------------------------------------------------------
Tax-Exempt New York 0.35% 0.30%
-------------------------------------------------------------------
</TABLE>
1-LL
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled.
The Investment Adviser has voluntarily agreed to reduce or otherwise limit
the daily expenses of each Fund (excluding fees payable under service,
administration and distribution plans for certain share classes, taxes,
interest, brokerage and litigation, indemnification and other extraordinary
expenses) on an annualized basis to 0.43% of the average daily net assets of
the Fund. Such reductions or limits, if any, are calculated monthly on a
cumulative basis. These reductions or limits may be discontinued or modified
only with the express approval of the Trustees.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Fund's
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
Investment Adviser or other Fund service providers do not adequately address
this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
2-LL
<PAGE>
SERVICE PROVIDERS
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
..In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000
preparedness of the issuers of securities held by the Funds. The Investment
Adviser may obtain such Year 2000 information from various sources which
the Investment Adviser believes to be reliable, including the issuers'
public regulatory filings. However, the Investment Adviser is not in a
position to verify the accuracy or completeness of such information.
3-LL
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. Moreover, the Tax-Exempt California and Tax-Exempt New York Portfo-
lios expect that their dividends will not be subject to the California and New
York personal income tax, respectively, (and in the case of the Tax-Exempt New
York Portfolio, New York City personal income tax). The tax status and amounts
of the dividends for each calendar year will be detailed in your annual tax
statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-LL
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Administration
Shares.
HOW TO BUY SHARES
How Can I Purchase Administration Shares Of The Funds?
Generally, Administration Shares may be purchased only through institutions
that have agreed to provide account administration and maintenance services
to their customers who are the beneficial owners of Administration Shares.
These institutions are called "Service Organizations." Customers of a Serv-
ice Organization will normally give their purchase instructions to the Serv-
ice Organization, and the Service Organization will, in turn, place purchase
orders with Goldman Sachs. Service Organizations will set times by which
purchase orders and payments must be received by them from their customers.
Generally, Administration Shares may be purchased from the Funds on any
business day at their net asset value ("NAV") next determined after receipt
of an order by Goldman Sachs from a Service Organization. Shares begin earn-
ing dividends after the Fund's receipt of the purchase amount in federal
funds. No sales load is charged.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place a purchase order in writing or by telephone.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
----------------------------------------------------------------------
By Telephone: 1-800-621-2550 (8:00 a.m. to 4:00 p.m New York time)
----------------------------------------------------------------------
</TABLE>
Before or immediately after placing an initial purchase order, a Service
Organization should complete and send to Goldman Sachs the Account Applica-
tion. Subsequent purchase orders should be accompanied by information iden-
tifying the account and the Fund in which Administration Shares are to be
purchased.
1-PP
<PAGE>
Service Organizations may send their payments as follows:
..Wire federal funds to the Northern Trust Company ("Northern"), as sub-cus-
todian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern, as sub-custodian for State Street;
or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds --
(Name of Fund and Class of Shares), 4900 Sears Tower - 60th Floor, Chicago,
IL 60606-6372. The Trust will not accept a check drawn on a foreign bank or
a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and federal
funds are received: Dividends begin:
------------------------------------------------------
<S> <C>
Taxable and Tax-Advantaged Funds:
.By 3:00 p.m. New York time Same business day
.After 3:00 p.m. New York time Next business day
------------------------------------------------------
Tax-Exempt Funds:
.By 1:00 p.m. New York time Same business day
.After 1:00 p.m. New York time Next business day
------------------------------------------------------
</TABLE>
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Administration Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a
2-PP
<PAGE>
SHAREHOLDER GUIDE
business day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
..Service Organizations or intermediaries will be responsible for transmitting
accepted orders and payments to the Trust within the time period agreed upon
by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to an administration plan adopted by the Trust's Board of Trustees,
Service Organizations are entitled to receive payments for their services from
the Trust of up to 0.15% (on an annualized basis) of the average daily net
assets of the Administration Shares of the Funds, which are attributable to or
held in the name of the Service Organization for its customers. In addition,
GSAM, at its own expense, may pay a Service Organization, up to 0.10% of the
average daily net assets of the Administration Shares of the Fund, which are
attributable to or held in the name of the Service Organization for its custom-
ers. Such compensation does not represent an additional expense to a Fund or
its shareholders, since it will be paid from the assets of GSAM.
The Investment Adviser, Distributor and/or their affiliates may pay additional
compensation from time to time, out of their assets and not as an additional
charge to the Funds, to selected Service Organizations and other persons in
connection with the sale, distribution and/or servicing of shares of the Funds
and other Goldman Sachs Funds. Subject to applicable NASD regulations, the
Investment Adviser, Distributor and/or their affiliates may also contribute to
various cash and non-cash incentive arrangements to promote the sale of shares.
This additional compensation can vary among Service Organizations depending
upon such factors as the amounts their customers have invested (or may invest)
in particular Goldman Sachs Funds, the particular program involved, or the
amount of reimbursable expenses.
In addition to Administration Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Administration Shares.
Information regarding these other share classes may be obtained from your sales
representative or from Goldman Sachs by calling the number on the back cover of
this Prospectus.
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with respect
to Administration Shares. A Service Organization may, however, impose a minimum
amount for initial and subsequent investments in Administration Shares, and may
establish other requirements such as a minimum account balance. A Service
Organization may redeem Administration Shares held by non-complying accounts,
and may impose a charge for any special services.
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<PAGE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and operations
and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Administration
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
..NAV per share of each class is calculated by State Street on each business day
as of the close of regular trading on the New York Stock Exchange (usually
4:00 p.m. New York time). Fund Shares will be priced on any day the New York
Stock Exchange is open, except for days on which Chicago, Boston or New York
banks are closed for local holidays.
..On any business day when the Bond Market Association ("BMA") recommends that
the securities markets close early, each Fund reserves the right to close at
or prior to the BMA recommended closing time. If a Fund does so, it will cease
granting same business day credit for purchase and redemption orders received
after the Fund's closing time and credit will be given to the next business
day.
..The Trust reserves the right to advance the time by which purchase and redemp-
tion orders must be received for same business day credit as permitted by the
SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securities
are valued at amortized cost in accordance with SEC regulations. Amortized cost
will normally approximate market value. There can be no assurance that a Fund
will be able at all times to maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Administration Shares Of The Funds?
Generally, Administration Shares may be sold (redeemed) only through Service
Organizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will
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<PAGE>
SHAREHOLDER GUIDE
redeem Administration Shares upon request on any business day at their NAV
next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: 1-800-621-2550 (8:00 a.m. to 4:00 p.m. New York time)
-----------------------------------------------------------------------
</TABLE>
Certain Service Organizations are authorized to accept redemption requests
on behalf of the Funds as described under "What Do I Need To Know About
Service Organizations?" A redemption may also be made with respect to cer-
tain Funds by means of the check redemption privilege.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
.All telephone requests are recorded.
.Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the request-
ing party and the designated bank account to verify instructions.
.The telephone redemption option may be modified or terminated at any
time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
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<PAGE>
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
a Service Organization's Account Application as follows:
<TABLE>
<CAPTION>
Redemption Request
Received Redemption Proceeds Dividends
----------------------------------------------------------------------
<S> <C> <C>
Taxable and Tax-
Advantaged Funds:
----------------------------------------------------------------------
.By 3:00 p.m. New York Wired same business day Not earned on day
time request is received
----------------------------------------------------------------------
.After 3:00 p.m. New Wired next business day Earned on day
York time request is received
----------------------------------------------------------------------
Tax-Exempt Funds:
----------------------------------------------------------------------
.By 12:00 p.m. New York Wired same business day Not earned on day
time request is received
----------------------------------------------------------------------
.After 12:00 p.m. New Wired next business day Earned on day
York time request is received
----------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared, which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organization.
..If the redeemed Administration Shares were recently paid for by check, the
Fund will pay the redemption proceeds when the check has cleared, which may
take up to 15 days.
What Should I Know About The Check Redemption Privilege?
A Service Organization may elect to have a special account with State Street
for the purpose of redeeming Administration Shares from its account by
check.
The following general policies govern the check redemption privilege:
..The Service Organization will be provided with a supply of checks when
State Street receives a completed signature card and authorization form.
Checks drawn on the account may be payable to the order of any person in
any amount over $500, but cannot be certified.
..The payee of the check may cash or deposit it just like any other check
drawn on a bank.
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<PAGE>
SHAREHOLDER GUIDE
..When the check is presented to State Street for payment, a sufficient num-
ber of full or fractional Administration Shares will be redeemed to cover
the amount of the check.
..Canceled checks will be returned to the Service Organization by State
Street.
..The check redemption privilege allows a Service Organization to receive the
dividends declared on the Administration Shares that are to be redeemed
until the check is actually processed. Because of this feature, accounts
may not be completely liquidated by check.
..If the amount of the check is greater than the value of the Administration
Shares held in the Service Organization's account, the check will be
returned unpaid. In this case, the Service Organization may be subject to
extra charges.
..Goldman Sachs Funds reserves the right to limit the availability of, modify
or terminate the check redemption privilege at any time with respect to any
or all Service Organizations.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
..The Trust reserves the right to:
.Redeem the Administration Shares of any Service Organization whose
account balance falls below the minimum as a result of earlier redemp-
tions. The Funds will give 60 days' prior written notice to allow a Serv-
ice Organization to purchase sufficient additional shares of the Fund in
order to avoid such a redemption.
.Redeem your shares in other circumstances determined by the Board of
Trustees to be in the best interest of the Trust.
.Pay redemptions by a distribution in-kind of securities (instead of
cash). If you receive redemptions in kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Administration Shares of a Fund at NAV
for shares of the corresponding class of any other Goldman Sachs Fund.
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<PAGE>
The exchange privilege may be materially modified or withdrawn at any time
upon 60 days' written notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund name and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
.You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.All exchanges, which represent an initial investment in a Fund must sat-
isfy the minimum initial investment requirements of that Fund, except
that this requirement may be waived at the discretion of the Trust.
.Telephone exchanges normally will be made only to an identically regis-
tered account. Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed
by an authorized person designated on the Account Application.
.Exchanges are available only in states where exchanges may be legally
made.
.It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
.Goldman Sachs may use reasonable procedures described under "What Do I
Need To Know About Telephone Redemption Requests?" in an effort to pre-
vent unauthorized or fraudulent telephone exchange requests.
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<PAGE>
SHAREHOLDER GUIDE
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Administration
Shares?
Service Organizations will receive annual reports containing audited finan-
cial statements and semiannual reports. Upon request, Service Organizations
will also be provided with a printed confirmation for each transaction. Any
dividends and distributions paid by the Funds are also reflected in regular
statements issued by Goldman Sachs Funds to Service Organizations. Service
Organizations are responsible for providing these or other reports to their
customers who are the beneficial owners of Administration Shares in accor-
dance with the rules that apply to their accounts with the Service Organiza-
tions.
9-PP
<PAGE>
Dividends
All or substantially all of each Fund's net investment income will be
declared as a dividend daily. Dividends will normally, but not always, be
declared as of 4:00 p.m. New York time as a dividend and distributed to
Service Organizations monthly. Service Organizations may choose to have div-
idends paid in:
..Cash
..Additional shares of the same class of the same Fund
Service Organizations may indicate their election on the Account Applica-
tion. Any changes may be submitted in writing to Goldman Sachs at any time.
If a Service Organization does not indicate any choice, dividends and dis-
tributions will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with federal income tax requirements and may be reflected in a
Fund's daily distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and December may be distributed during the
subsequent calendar year. Although realized gains and losses on the assets
of a Fund are reflected in the NAV of the Fund, they are not expected to be
of an amount which would affect the Fund's NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations and Govern-
ment Portfolios is based on estimates of net investment income for each
Fund. Actual income may differ from estimates, and differences, if any, will
be included in the calculation of subsequent dividends.
17
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
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<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
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<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
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<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
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<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
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<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
8-FF
<PAGE>
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies. As a matter of fundamental policy, at least 80% of each
of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt California
and Tax-Exempt New York Portfolios will ordinarily be invested in municipal
obligations, the interest from which is, in the opinion of bond counsel, if
any, excluded from gross income for federal income tax purposes. In addition,
as a matter of fundamental policy, at least 65% of each of the Tax-Exempt Cali-
fornia and Tax-Exempt New York Portfolio's total assets will be invested in
California and New York municipal obligations, except in extraordinary circum-
stances.
For these purposes, California and New York municipal obligations are obliga-
tions issued by or on behalf of the State of California or the State of New
York, respectively, and their respective political subdivisions, agencies and
instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands
and Guam, the interest from which is excluded from gross income for federal
income tax purposes and is exempt from California State personal income tax or
New York State and New York City personal income tax. Each Tax-Exempt Fund may
temporarily invest in taxable money market instruments or, in the case of the
Tax-Exempt California and New York Portfolios, in municipal obligations that
are not California or New York municipal obligations, respectively, when
acceptable California and New York municipal obligations are not available or
when the Investment Adviser believes that the market conditions dictate a
defensive posture. Investments in taxable money market instruments will be lim-
ited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-
Exempt California and Tax-Exempt New York Portfolios' distributions of interest
from municipal obligations other than California and New York municipal obliga-
tions, respectively, may be subject to California and New York State and New
York City personal income taxes.
Risks of Investing in California and New York: The Tax-Exempt California and
Tax-Exempt New York Portfolios concentrate their investments in California and
New York municipal obligations. Consequently, these Funds are more susceptible
to factors adversely affecting issuers of California and New York municipal
obligations, and may be riskier than comparable municipal bond funds and money
market funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio's investments can be affected by political
and economic developments within the State of California (the "State"), and by
1-FFF
<PAGE>
the financial condition of the State, its public authorities and political sub-
divisions. After suffering a severe recession in the early 1990's which caused
the State to experience financial difficulties, California's economy entered a
sustained recovery since late 1993 and the State's budget has returned to a
positive balance. California's long-term credit rating has been raised after
being reduced during the recession. To respond to its own revenue shortfalls
during the recession, the State reduced assistance to its public authorities
and political subdivisions. Cutbacks in state aid could further adversely
affect the financial condition of cities, counties and education districts
which are subject to their own fiscal constraints. California voters in the
past have passed amendments to the California Constitution and other measures
that limit the taxing and spending authority of California governmental enti-
ties, and future voter initiatives could result in adverse consequences affect-
ing California municipal obligations. Also, the ultimate fiscal effect of fed-
erally-mandated reform of welfare programs on the State and its local
governments is still to be resolved.
These factors, among others (including the outcome of related pending litiga-
tion), could reduce the credit standing of certain issuers of California munic-
ipal obligations. A more detailed discussion of the risks of investing in Cali-
fornia is included in the Additional Statement.
The Tax-Exempt New York Portfolio's investments will be affected by political
and economic developments within the State of New York (the "State"), and by
the financial conditions of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State and the
City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their
financial obligations. Certain substantial issuers of New York municipal obli-
gations (including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing abili-
ties of all New York issuers and have generally contributed to higher interest
costs for their borrowings and fewer markets for their outstanding debt obliga-
tions. Although several different issues of municipal obligations of the State
and its agencies and instrumentalities and of the City have been downgraded by
S&P and Moody's in recent years, the most recent actions of S&P and Moody's
have been to place the debt obligations of the State on Credit Watch with posi-
tive implications and to upgrade the debt obligations of the City, respective-
ly. Strong demand for New York municipal obligations has also at times had the
effect of permitting New York municipal obligations to be issued with yields
relatively lower, and after issuance, to trade in the market at prices rela-
tively higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experi-
enced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers' existing obliga-
tions and,
2-FFF
<PAGE>
possibly, in the obligations of other issuers of New York municipal obliga-
tions. Although as of April 1, 1999 no issuers were in default with respect to
the payment of their New York municipal obligations, the occurrence of any such
default could materially affect adversely the market values and marketability
of all New York municipal obligations and, consequently, the NAV of the Fund's
holdings. A more detailed discussion of the risks of investing in New York is
included in the Additional Statement.
If California, New York, or any of their local governmental entities are unable
to meet their financial obligations, the corresponding Fund's income, NAV,
ability to preserve or realize appreciation of capital or liquidity could be
adversely affected. Also, neither of these Funds is a diversified fund (except
to the extent that diversification is required by Rule 2a-7 or for federal
income tax purposes). Because they may invest a larger percentage of their
assets in the securities of fewer issuers than do diversified funds, these
Funds may be exposed to greater risk in that an adverse change in the condition
of one or a small number of issuers would have a greater impact on them.
3-FFF
<PAGE>
[This page intentionally left blank]
1
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA
Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - ILA B units 1.00 0.04 (0.04)
1998 - ILA C units 1.00 0.04 (0.04)
1998 - Cash Management
shares (commenced May
1) 1.00 0.03 (0.03)
- ------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA
Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
1997 - ILA B units 1.00 0.04 (0.04)
1997 - ILA C units
(commenced August 15) 1.00 0.04 (0.04)
- ------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA
Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
1996 - ILA B units
(commenced May 8) 1.00 0.03 (0.03)
- ------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA
Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA
Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ------------------------------------------------------------
</TABLE>
aCalculated based on the average units outstanding methodology.
b 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.
cAnnualized.
2
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.32% $837,185 0.43% 5.19% 0.43% 5.19%
1.00 5.16 38,836 0.58 5.05 0.58 5.05
1.00 4.90 119,309 0.83 4.79 0.83 4.79
1.00 4.27 14,412 1.43 4.07 1.43 4.07
1.00 4.27 6,814 1.43 4.13 1.43 4.13
1.00 4.69c 2 0.93c 4.81c 1.43c 4.31c
- ------------------------------------------------------------------------------------
1.00 5.38 866,445 0.42 5.24 0.43 5.23
1.00 5.22 28,110 0.57 5.11 0.58 5.10
1.00 4.96 78,316 0.82 4.85 0.83 4.84
1.00 4.33 1,574 1.42 4.33 1.43 4.32
1.00 4.41c 1,897 1.42c 4.39c 1.43c 4.38c
- ------------------------------------------------------------------------------------
1.00 5.22 1,154,787 0.41 5.11 0.43 5.09
1.00 5.06 23,738 0.56 4.97 0.58 4.95
1.00 4.80 84,707 0.81 4.74 0.83 4.72
1.00 3.97c 346 1.41c 4.09c 1.43c 4.07c
- ------------------------------------------------------------------------------------
1.00 5.79 1,261,251 0.41 5.66 0.43 5.64
1.00 5.63 63,018 0.56 5.51 0.58 5.49
1.00 5.37 227,233 0.81 5.22 0.83 5.20
- ------------------------------------------------------------------------------------
1.00 4.07 1,963,846 0.40 3.94 0.42 3.92
1.00 3.91 149,234 0.55 3.79 0.57 3.77
1.00 3.66 170,453 0.80 3.65 0.82 3.63
- ------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
- ---------
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.33% $1,350,317 0.40% 5.17% 0.43% 5.14%
1.00 5.17 314,327 0.55 5.04 0.58 5.01
1.00 4.91 32,349 0.80 4.79 0.83 4.76
1.00 4.69c 2 0.90c 4.80c 1.43c 4.27c
- ------------------------------------------------------------------------------------
1.00 5.43 806,096 0.37 5.31 0.42 5.26
1.00 5.28 307,480 0.52 5.15 0.57 5.10
1.00 5.01 20,517 0.77 4.90 0.82 4.85
- ------------------------------------------------------------------------------------
1.00 5.27 703,097 0.36 5.15 0.43 5.08
1.00 5.12 257,258 0.51 5.00 0.58 4.93
1.00 4.86 28,845 0.76 4.75 0.83 4.68
- ------------------------------------------------------------------------------------
1.00 5.85 574,155 0.36 5.71 0.42 5.65
1.00 5.69 164,422 0.51 5.55 0.57 5.49
1.00 5.43 23,080 0.76 5.29 0.82 5.23
- ------------------------------------------------------------------------------------
1.00 4.13 559,470 0.35 4.01 0.43 3.93
1.00 3.98 145,867 0.50 3.88 0.58 3.80
1.00 3.72 21,862 0.75 3.61 0.83 3.53
- ------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.21% $383,243 0.43% 5.09% 0.45% 5.07%
1.00 5.05 7,692 0.58 4.94 0.60 4.92
1.00 4.79 105,732 0.83 4.67 0.85 4.65
1.00 4.57c 2 0.93c 4.60c 1.45c 4.08c
- ---------------------------------------------------------------------------------
1.00 5.31 460,457 0.42 5.16 0.42 5.16
1.00 5.15 10,192 0.57 4.98 0.57 4.98
1.00 4.89 83,799 0.82 4.78 0.82 4.78
- ---------------------------------------------------------------------------------
1.00 5.15 694,651 0.41 5.04 0.44 5.01
1.00 4.99 36,055 0.56 4.89 0.59 4.86
1.00 4.73 94,228 0.81 4.63 0.84 4.60
- ---------------------------------------------------------------------------------
1.00 5.77 570,469 0.41 5.62 0.43 5.60
1.00 5.62 47,558 0.56 5.49 0.58 5.47
1.00 5.35 85,401 0.81 5.19 0.83 5.17
- ---------------------------------------------------------------------------------
1.00 3.94 881,520 0.40 3.78 0.44 3.74
1.00 3.79 95,483 0.55 3.62 0.59 3.58
1.00 3.53 156,930 0.80 3.50 0.84 3.46
- ---------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- -------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.03 (0.03)
- -------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.15% $734,553 0.42% 4.96% 0.43% 4.95%
1.00 4.99 80,464 0.57 4.88 0.58 4.87
1.00 4.73 35,432 0.82 4.67 0.83 4.66
- ------------------------------------------------------------------------------------
1.00 5.26 590,381 0.42 5.12 0.42 5.12
1.00 5.10 124,159 0.57 4.99 0.57 4.99
1.00 4.84 104,133 0.82 4.73 0.82 4.73
- ------------------------------------------------------------------------------------
1.00 5.11 574,734 0.41 4.98 0.43 4.96
1.00 4.95 108,850 0.56 4.83 0.58 4.81
1.00 4.69 123,483 0.81 4.59 0.83 4.57
- ------------------------------------------------------------------------------------
1.00 5.73 711,209 0.41 5.51 0.43 5.49
1.00 5.57 92,643 0.56 5.37 0.58 5.35
1.00 5.31 119,692 0.81 5.11 0.83 5.09
- ------------------------------------------------------------------------------------
1.00 3.91 713,816 0.40 3.77 0.44 3.73
1.00 3.75 97,626 0.55 3.68 0.59 3.64
1.00 3.49 108,972 0.80 3.40 0.84 3.35
- ------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 4.96% $341,476 0.30% 4.83% 0.43% 4.70%
1.00 4.80 131,685 0.45 4.68 0.58 4.55
1.00 4.54 374,128 0.70 4.43 0.83 4.30
- ------------------------------------------------------------------------------------
1.00 5.17 330,241 0.22 5.02 0.42 4.82
1.00 5.01 98,667 0.37 4.88 0.57 4.68
1.00 4.75 295,404 0.62 4.63 0.82 4.43
- ------------------------------------------------------------------------------------
1.00 5.10 708,999 0.21 4.96 0.43 4.74
1.00 4.95 137,706 0.36 4.82 0.58 4.60
1.00 4.68 383,901 0.61 4.56 0.83 4.34
- ------------------------------------------------------------------------------------
1.00 5.70 586,294 0.21 5.50 0.44 5.27
1.00 5.54 68,713 0.36 5.34 0.59 5.11
1.00 5.28 123,254 0.61 5.00 0.84 4.77
- ------------------------------------------------------------------------------------
1.00 4.01 547,351 0.20 3.96 0.43 3.73
1.00 3.85 64,388 0.35 3.97 0.58 3.74
1.00 3.59 74,451 0.60 3.72 0.83 3.49
- ------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FEDERAL PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.25% $2,625,705 0.34% 5.10% 0.42% 5.02%
1.00 5.09 508,297 0.49 4.97 0.57 4.89
1.00 4.83 53,994 0.74 4.71 0.82 4.63
- ------------------------------------------------------------------------------------
1.00 5.40 2,050,559 0.27 5.26 0.41 5.12
1.00 5.24 530,001 0.42 5.11 0.56 4.97
1.00 4.98 34,540 0.67 4.83 0.81 4.69
- ------------------------------------------------------------------------------------
1.00 5.24 2,303,677 0.26 5.13 0.43 4.96
1.00 5.09 794,537 0.41 4.98 0.58 4.81
1.00 4.83 192,416 0.66 4.73 0.83 4.56
- ------------------------------------------------------------------------------------
1.00 5.83 1,731,935 0.26 5.69 0.42 5.53
1.00 5.67 516,917 0.41 5.50 0.57 5.34
1.00 5.41 102,576 0.66 5.22 0.82 5.06
- ------------------------------------------------------------------------------------
1.00 4.11 1,625,567 0.25 4.07 0.42 3.90
1.00 3.95 329,896 0.40 3.88 0.57 3.71
1.00 3.69 15,539 0.65 3.92 0.82 3.75
- ------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
TAX-EXEMPT DIVERSIFIED PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
1996 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.04 (0.04)
1995 - ILA Administration units 1.00 0.04 (0.04)
1995 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.03 (0.03)
1994 - ILA Service units 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.17% $1,562,285 0.35% 3.12% 0.41% 3.06%
1.00 3.02 26,509 0.50 2.98 0.56 2.92
1.00 2.76 37,850 0.75 2.72 0.81 2.66
1.00 2.61c 2 0.85c 2.66c 1.41c 2.10c
- --------------------------------------------------------------------------------
1.00 3.39 1,479,486 0.32 3.33 0.41 3.24
1.00 3.23 27,967 0.47 3.16 0.56 3.07
1.00 2.97 30,513 0.72 2.97 0.81 2.88
- --------------------------------------------------------------------------------
1.00 3.25 1,514,443 0.31 3.20 0.41 3.10
1.00 3.09 59,097 0.46 3.06 0.56 2.96
1.00 2.84 28,921 0.71 2.79 0.81 2.69
- --------------------------------------------------------------------------------
1.00 3.72 1,342,585 0.31 3.65 0.42 3.54
1.00 3.57 48,773 0.46 3.51 0.57 3.40
1.00 3.31 49,647 0.71 3.24 0.82 3.13
- --------------------------------------------------------------------------------
1.00 2.71 1,434,965 0.30 2.64 0.41 2.53
1.00 2.55 97,778 0.45 2.50 0.56 2.39
1.00 2.30 36,492 0.70 2.20 0.81 2.09
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-EXEMPT CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distribution
beginning investment to unit/
of period income shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $ 1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.02 (0.02)
1998 - Cash Management shares (commenced May
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (Re-commenced
September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 2.84% $584,615 0.41% 2.79% 0.41% 2.79%
1.00 2.68 512 0.56 2.84 0.56 2.84
1.00 2.43 2 0.81 2.48 0.81 2.48
1.00 2.25c 2 0.91c 2.37c 1.41c 1.94c
- -------------------------------------------------------------------------------
1.00 3.15 591,003 0.42 3.10 0.42 3.10
1.00 3.00 360 0.57 2.98 0.57 2.98
1.00 2.87c 2 0.82c 2.90c 0.82c 2.90c
- -------------------------------------------------------------------------------
1.00 3.03 440,476 0.41 2.99 0.42 2.98
1.00 2.88 142 0.56 2.84 0.57 2.83
- -------------------------------------------------------------------------------
1.00 3.55 346,728 0.41 3.49 0.41 3.49
1.00 3.40 61 0.56 3.32 0.56 3.32
- -------------------------------------------------------------------------------
1.00 2.53 227,399 0.40 2.50 0.41 2.49
1.00 2.37 790 0.55 2.33 0.56 2.32
- -------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
TAX-EXEMPT NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (commenced
September 15) 1.00 0.01 (0.01)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
18
<PAGE>
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of Ratio of net
Net asset assets at Ratio of net investment net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.02% $122,550 0.36% 2.96% 0.51% 2.81%
1.00 2.87 21,580 0.51 2.85 0.66 2.70
1.00 2.61 2 0.76 2.61 0.91 2.46
1.00 2.46c 1 0.86c 2.56c 1.51c 1.91c
- ---------------------------------------------------------------------------------
1.00 3.29 102,887 0.33 3.24 0.43 3.14
1.00 3.14 31,993 0.48 3.09 0.58 2.99
1.00 3.02c 2 0.73c 3.04c 0.83c 2.94c
- ---------------------------------------------------------------------------------
1.00 3.05 70,175 0.32 3.01 0.43 2.90
1.00 2.90 44,319 0.47 2.88 0.58 2.77
- ---------------------------------------------------------------------------------
1.00 3.51 90,537 0.30 3.44 0.44 3.30
1.00 3.35 26,724 0.45 3.28 0.59 3.14
- ---------------------------------------------------------------------------------
1.00 2.56 84,517 0.24 2.62 0.47 2.39
1.00 2.41 38,970 0.39 2.47 0.62 2.24
- ---------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Index
<TABLE>
<C> <C> <S>
xx General Investment Management
Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Portfolio
xx Money Market Portfolio
xx Treasury Obligation Portfolio
xx Treasury Instruments Portfolio
xx Government Portfolio
xx Federal Portfolio
xx Tax-Exempt Diversified Portfolio
xx Tax-Exempt California Portfolio
xx Tax-Exempt New York Portfolio
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Dividends
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Taxation
xx Appendix
Additional Information
on Portfolio Risks,
Securities and
Techniques
xx Appendix
Financial Highlights
</TABLE>
18
<PAGE>
Institutional Liquid Assets Prospectus
(ILA Administration Units)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC
at 1-800-SEC-0330.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus
ILA Service
("Units" or
"Shares")
May , 1999
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
. Prime
Obligations
Portfolio
. Money Market
Portfolio
. Treasury
Obligations
Portfolio
. Treasury
Instruments
Portfolio
. Government
Portfolio
. Federal
(INSERT ARTWORK) Portfolio
. Tax-Exempt
Diversified
Portfolio
. Tax-Exempt
California
Portfolio
. Tax-Exempt New
York Portfolio
THE TERMS "PORTFOLIO" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
PORTFOLIOS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMI-
NAL OFFENSE.
- --------------------------------------------------
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT [LOGO OF GOLDMAN
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE SACHS APPEARS HERE]
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
- --------------------------------------------------
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Fund's investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
1-KK
<PAGE>
..The Funds: Each Fund's securities are valued by the amortized cost method as
permitted under Rule 2a-7 of the Investment Company Act of 1940, as amended
(the "1940 Act"). Under Rule 2a-7, each Fund may invest only in U.S. dollar
denominated securities that are determined to present minimal credit risk
and meet certain other criteria including those conditions relating to matu-
rity, diversification and credit quality. These operating policies may be
more restrictive than the fundamental policies set forth in the Statement of
Additional Information (the "Additional Statement").
.Taxable Funds: Prime Obligations, Money Market, Treasury Obligations and
Government Portfolios.
.Tax-Advantaged Funds: Treasury Instruments and Federal Portfolios.
.Tax-Exempt Funds: Tax-Exempt Diversified, Tax-Exempt California and Tax-
Exempt New York Portfolios.
..The Investors: The Funds are designed for investors seeking a high rate of
return, a stable net asset value ("NAV") and convenient liquidation privi-
leges. The Funds are particularly suitable for banks, corporations and other
financial institutions that seek investment of short-term funds for their
own accounts or for the accounts of their customers.
..NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
..Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
..Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
..Investment Restrictions: Each Fund is subject to certain investment restric-
tions that are described in detail under "Investment Restrictions" in the
Additional Statement. Fundamental investment restrictions and the investment
objective of a Fund (except the Tax-Exempt California and Tax-Exempt New
York Portfolios' objectives of providing shareholders with income exempt
from California State and New York State and New York City personal income
tax, respectively) cannot be changed without approval of a majority of the
outstanding shares of that Fund. The Treasury Obligations Portfolio's policy
of limiting its investments to U.S. Treasury Obligations and related repur-
chase agreements is also fundamental. All investment policies not specifi-
cally designated as fundamental are non-fundamental and may be changed with-
out shareholder approval.
..Diversification. Diversification can help a Fund reduce the risks of invest-
ing. In accordance with current regulations of the Securities and Exchange
Commission
2-KK
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
(the "SEC"), each Fund may not invest more than 5% of the value of its total
assets at the time of purchase in the securities of any single issuer with
these exceptions: (a) the Tax-Exempt California and Tax-Exempt New York
Portfolios may each invest up to 25% of their total assets in five or fewer
issuers; and (b) each of the other Funds may invest up to 25% of its total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agreements, U.S.
Government securities or securities of other investment companies. In addi-
tion, securities subject to certain unconditional guarantees and securities
that are not "First Tier Securities" as defined by the SEC are subject to
different diversification requirements as described in the Additional State-
ment.
3-KK
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Treasury Obligations, Treasury Instru-
ments, Government and Federal Portfolios seek to maximize current income to
the extent consistent with the preservation of capital and the maintenance
of liquidity by investing exclusively in high quality money market instru-
ments.
The Treasury Instruments and Federal Portfolios pursue their investment
objectives by limiting their investments to certain U.S. Treasury obliga-
tions and U.S. Government securities (each as defined in Appendix A),
respectively, the interest from which is generally exempt from state income
taxation. You should consult your tax adviser to determine whether distribu-
tions from the Treasury Instruments and Federal Portfolios (and any other
Fund that may hold such obligations) derived from interest on such obliga-
tions are exempt from state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios seek to provide shareholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high
level of income exempt from federal income tax by investing primarily in
municipal instruments.
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios
seek to provide shareholders with income exempt from California State and
New York State and City personal income taxes, respectively.
The Tax-Exempt Funds pursue their investment objectives by limiting their
investments to securities 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, the inter-
est from which, if any, is in the opinion of bond counsel excluded from
gross income for federal income tax purposes, and not an item of tax prefer-
ence under the federal alternative minimum tax.
4-KK
<PAGE>
(This Page Intentionally Left Blank)
5-kk
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. U.S.
Treasury Government Bank Commercial
Fund Obligations Securities Obligations Paper
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations . . . .
U.S. banks only
-------------------------------------------------------------------------------------------
Money Market . . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
-------------------------------------------------------------------------------------------
Treasury Obligations .
-------------------------------------------------------------------------------------------
Treasury Instruments .
-------------------------------------------------------------------------------------------
Government . .
-------------------------------------------------------------------------------------------
Federal . .
-------------------------------------------------------------------------------------------
Tax-Exempt Diversified .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt California .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt New York .
Tax-exempt only
-------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and
charge-offs and declines in total deposits), the Fund may, for temporary
defensive purposes, invest less than 25% of its total assets in bank
obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury Obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-KK
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
.
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-KK
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated Investment
Fund Municipals Municipals Receipts Securities/7/ Companies
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations . /5/ . . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Money Market . /5/ . . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Treasury Obligations
- -------------------------------------------------------------------------------------------------------------
Treasury Instruments
- -------------------------------------------------------------------------------------------------------------
Government . .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment
companies
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt Diversified . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment
extraordinary circumstances)/6/ companies
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt California . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% of investment
total assets in California companies
instruments (except in
extraordinary circumstances)/6/
- -------------------------------------------------------------------------------------------------------------
Tax-Exempt New York . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% of investment
total assets in New York companies
instruments (except in
extraordinary circumstances)/6/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-KK
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/10/ Miscellaneous
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -----------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13
/
- -----------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -----------------------------------------------------------------------------------------------------------
(Does not First/10/ or Tax-exempt federal and May (but does not currently intend to)
intend to Second Tier/11/ taxable state./12/ invest up to 20% in securities subject to
invest)/8/,/9/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -----------------------------------------------------------------------------------------------------------
(Does not First/10/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and California State invest up to 20% in AMT securities
invest)/8/,/9/ and may temporarily invest in the taxable
money market instruments described herein
- -----------------------------------------------------------------------------------------------------------
.. First/10/ or Tax-exempt federal, May invest up to 20% in AMT securities
(not more than Second Tier/11/ New York State and and may temporarily invest in the taxable
20% of net New York City money market instruments described herein
assets)/9/
- -----------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-KK
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Prime Money Treasury Treasury
Obligations Market Obligations Instruments
Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- -------------------------------------------------------------
Interest Rate . . . .
- -------------------------------------------------------------
Credit/Default . . . .
- -------------------------------------------------------------
Management . . . .
- -------------------------------------------------------------
Liquidity . . . .
- -------------------------------------------------------------
Other . . . .
- -------------------------------------------------------------
Government
Securities -- -- -- --
- -------------------------------------------------------------
Concentration -- . -- --
- -------------------------------------------------------------
Foreign -- . -- --
- -------------------------------------------------------------
Tax -- -- -- --
- -------------------------------------------------------------
</TABLE>
10-KK
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Government Federal Diversified California New York
Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . . . .
- ----------------------------------------------------------
. . -- -- --
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
-- -- . . .
- ----------------------------------------------------------
</TABLE>
11-KK
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Portfolios:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Exempt California and Tax-Exempt New York Portfolio, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market Portfolio may not invest more than 25% of its total assets in
the securities of any one foreign government.
12-KK
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market Portfolio:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market Portfolio intends to invest more than 25%
of its total assets in bank obligations, and the Tax-Exempt California and
Tax-Exempt New York Portfolio intend to invest at least 65% of their total
assets in California municipal obligations and New York municipal obliga-
tions, respectively. Banks may be particularly susceptible to certain eco-
nomic factors such as interest rate changes, adverse developments in the
real estate market, fiscal and monetary policy and general economic cycles.
Risk that applies to the Tax-Exempt Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends (in the case of each of these Funds) and state tax-
exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt
New York Funds).
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-KK
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Service
Shares from year to year; and (b) how the average annual returns of a Fund's
Service Shares compare to the returns of a composite of mutual funds with
similar investment objectives. The bar chart and table assume reinvestment
of dividends and distributions. A Fund's past performance is not necessarily
an indication of how the Fund will perform in the future. Performance
reflects expense limitations in effect. If expense limitations were not in
place, a Fund's performance would have been reduced. You may obtain a Fund's
current yield by calling 1-800-621-2550.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '81 4.48%
Worst Quarter
Q2 '93 0.72%
[CHART APPEARS HERE]
Date Prime Obligation
- ---- ----------------
1981 17.14%
1982 12.82%
1983 9.11%
1984 10.56%
1985 8.25%
1986 6.67%
1987 6.50%
1988 7.48%
1989 9.27%
1990 8.21%
1991 6.10%
1992 3.76%
1993 2.97%
1994 4.07%
1995 5.79%
1996 5.22%
1997 5.38%
1998 5.32%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1998 1 Year 5 Years 10 Years Since Inception
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILA Shares (Inception 1/1/81) 5.32% 5.15% 5.59% 7.43%
-----------------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.62%
Worst Quarter
Q2 '93 0.64%
[CHART APPEARS HERE]
Money
Market
------
1991 5.70%
1992 3.36%
1993 2.62%
1994 3.72%
1995 5.43%
1996 4.86%
1997 5.01%
1998 4.91%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year 5 Years Since Inception
-------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 6/1/90) 4.91% 4.78% 4.67%
-------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Treasury Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.51%
Worst Quarter:
Q2 '93 0.60%
[CHART APPEARS HERE]
1991 5.48%
1992 3.24%
1993 2.48%
1994 3.49%
1995 5.31%
1996 4.69%
1997 4.84%
1998 4.73%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 6/1/90) 4.73% 4.61% 4.50%
------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Instruments Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 1.35%
Worst Quarter
Q2 '93 0.62%
[CHART APPEARS HERE]
1992 3.13%
1993 2.57%
1994 3.59%
1995 5.28%
1996 4.68%
1997 4.75%
1998 4.54%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year 5 Years Since Inception
-----------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 1/30/91) 4.54% 4.57% 4.22%
-----------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Government Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.53%
Worst Quarter:
Q2 '93 0.62%
[CHART APPEARS HERE]
1991 5.49%
1992 3.30%
1993 2.53%
1994 3.53%
1995 5.35%
1996 4.73%
1997 4.89%
1998 4.79%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 7/1/90) 4.79% 4.66% 4.51%
------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Federal Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 1.37%
Worst Quarter
Q1 '94 0.66%
[CHART APPEARS HERE]
1994 3.69%
1995 5.41%
1996 4.83%
1997 4.98%
1998 4.83%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year 5 Years Since Inception
-------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 5/15/93) 4.83% 4.74% 4.49%
-------------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Tax-Exempt Diversified Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.03%
Worst Quarter:
Q1 '94 0.42%
[CHART APPEARS HERE]
1991 3.91%
1992 2.42%
1993 1.84%
1994 2.30%
1995 3.31%
1996 2.84%
1997 2.97%
1998 2.76%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 7/2/90) 2.76% 2.84% 2.94%
------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Exempt California Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '98 0.70%
Worst Quarter
Q4 '98 0.56%
[CHART APPEARS HERE]
1998 2.43%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year Since Inception
-----------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 9/15/97) 2.43% 2.53%
-----------------------------------------------------------
</TABLE>
10
<PAGE>
FUND PERFORMANCE
Tax-Exempt New York Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '98 0.74%
Worst Quarter:
Q4 '98 0.59%
[CHART APPEARS HERE]
1998 2.61%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
----------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 9/15/97) 2.61% 2.71%
----------------------------------------------------------------
</TABLE>
11
<PAGE>
Fund Fees and Expenses (Service Shares)
This table describes the fees and expenses that you would pay if you buy and
hold ILA Service Shares of a Fund.
<TABLE>
<CAPTION>
Prime Money Treasury
Obligations Market Obligations
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Service Fees/2/ 0.40% 0.40% 0.40%
Other Expenses/3/ 0.08% 0.08% 0.08%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.83% 0.83% 0.83%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Prime Money Treasury
Obligations Market Obligations
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Service Fees/2/ 0.40% 0.40% 0.40%
Other Expenses/3/ 0.08% 0.07% 0.07%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.83% 0.82% 0.82%
-------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Treasury
Instruments Government Federal
Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Service Fees/2/ 0.40% 0.40% 0.40%
Other Expenses/3/ 0.08% 0.10% 0.07%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.83% 0.85% 0.82%
- ----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Funds which are actually incurred are as set forth below. The
expense waivers and limitations may be terminated at any time
at the option of the Investment Adviser. If this occurs,
"Other Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
Treasury
Instruments Government Federal
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Service Fees/2/ 0.40% 0.40% 0.40%
Other Expenses/3/ 0.07% 0.08% 0.06%
------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.82% 0.83% 0.81%
------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Fund Fees and Expenses (continued)
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Service Fees/2/ 0.40% 0.40% 0.40%
Other Expenses/3/ 0.06% 0.06% 0.11%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.81% 0.81% 0.86%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Service Fees/2/ 0.40% 0.40% 0.40%
Other Expenses/3/ 0.06% 0.06% 0.08%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.81% 0.81% 0.83%
-------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/Service Organizations may charge other fees directly to their customers who
are the beneficial owners of Service Shares in connection with their customers'
accounts. Such fees may affect the return such customers realize with respect
to their investments.
/3/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Service Shares plus all other ordinary expenses
not detailed above.
15
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing
in a Fund (without the expense limitations) with the cost of investing in
other mutual funds. The Example assumes that you invest $10,000 in Service
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations $85 $265 $460 $1,025
- ---------------------------------------------------------
Money Market $85 $265 $460 $1,025
- ---------------------------------------------------------
Treasury Obligations $85 $265 $460 $1,025
- ---------------------------------------------------------
Treasury Instruments $85 $265 $460 $1,025
- ---------------------------------------------------------
Government $87 $271 $471 $1,049
- ---------------------------------------------------------
Federal $84 $262 $455 $1,014
- ---------------------------------------------------------
Tax-Exempt Diversified $83 $259 $450 $1,002
- ---------------------------------------------------------
Tax-Exempt California $83 $259 $450 $1,002
- ---------------------------------------------------------
Tax-Exempt New York $93 $290 $504 $1,120
- ---------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who
are the beneficial owners of Service Shares in connection with their custom-
ers' accounts. You should contact your service organization for information
regarding such charges. Such fees may affect the return their customers
realize with respect to their investments.
Certain Service Organizations may receive other compensation in connection
with the sale and distribution of Service Shares or for services to their
customers' accounts and/or the Funds. For additional information regarding
such compensation, see "Shareholder Guide" in the Prospectus and "Other
Information" in the Additional Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as Investment Adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and
disposition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not
provided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.35% 0.35%
-------------------------------------------------------------------
Money Market 0.35% 0.34%
-------------------------------------------------------------------
Treasury Obligations 0.35% 0.35%
-------------------------------------------------------------------
Treasury Instruments 0.35% 0.24%
-------------------------------------------------------------------
Government 0.35% 0.35%
-------------------------------------------------------------------
Federal 0.35% 0.28%
-------------------------------------------------------------------
Tax-Exempt Diversified 0.35% 0.29%
-------------------------------------------------------------------
Tax-Exempt California 0.35% 0.35%
-------------------------------------------------------------------
Tax-Exempt New York 0.35% 0.30%
-------------------------------------------------------------------
</TABLE>
1-LL
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled.
The Investment Adviser has voluntarily agreed to reduce or otherwise limit
the daily expenses of each Fund (excluding fees payable under service,
administration and distribution plans for certain share classes, taxes,
interest, brokerage and litigation, indemnification and other extraordinary
expenses) on an annualized basis to 0.43% of the average daily net assets of
the Fund. Such reductions or limits, if any, are calculated monthly on a
cumulative basis. These reductions or limits may be discontinued or modified
only with the express approval of the Trustees.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Fund's
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
Investment Adviser or other Fund service providers do not adequately address
this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
2-LL
<PAGE>
SERVICE PROVIDERS
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
..In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000
preparedness of the issuers of securities held by the Funds. The Investment
Adviser may obtain such Year 2000 information from various sources which
the Investment Adviser believes to be reliable, including the issuers'
public regulatory filings. However, the Investment Adviser is not in a
position to verify the accuracy or completeness of such information.
3-LL
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. Moreover, the Tax-Exempt California and Tax-Exempt New York Portfo-
lios expect that their dividends will not be subject to the California and New
York personal income tax, respectively, (and in the case of the Tax-Exempt New
York Portfolio, New York City personal income tax). The tax status and amounts
of the dividends for each calendar year will be detailed in your annual tax
statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-LL
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their net asset value ("NAV") next determined after receipt
of an order by Goldman Sachs from a Service Organization. Shares begin earn-
ing dividends after the Fund's receipt of the purchase amount in federal
funds. No sales load is charged.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place a purchase order in writing or by telephone.
<TABLE>
--------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------
</TABLE>
Before or immediately after placing an initial purchase order, a Service
Organization should complete and send to Goldman Sachs the Account Applica-
tion. Subsequent purchase orders should be accompanied by information iden-
tifying the account and the Fund in which Service Shares are to be pur-
chased.
1-QQ
<PAGE>
Service Organizations may send their payments as follows:
..Wire federal funds to The Northern Trust Company ("Northern"), as sub-
custodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds -
(Name of Fund and Class of Shares), 4900 Sears Tower - 60th Floor, Chica-
go, IL 60606-6372. The Trust will not accept a check drawn on a foreign
bank or a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and federal funds are received: Dividends begin:
--------------------------------------------------------------------------
<S> <C>
Taxable and Tax-Advantaged Funds:
.By 3:00 p.m. New York time Same business day
.After 3:00 p.m. New York time Next business day
--------------------------------------------------------------------------
Tax-Exempt Funds:
.By 1:00 p.m. New York time Same business day
.After 1:00 p.m. New York time Next business day
--------------------------------------------------------------------------
</TABLE>
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on
2-QQ
<PAGE>
SHAREHOLDER GUIDE
behalf of their customers, and may designate other intermediaries to accept
such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payments for their services from the
Trust of up to 0.40% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, which are attributable to or held
in the name of the Service Organization for its customers. In addition,
GSAM, at its own expense, may pay a Service Organization up to 0.10% of the
average daily net assets of the Service Shares of the Fund, which are
attributable to or held in the name of the Service Organization for its cus-
tomers. Such compensation does not represent an additional expense to a Fund
or its shareholders, since it will be paid from a assets of GSAM.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Service
Organizations depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses.
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Service Shares.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
3-QQ
<PAGE>
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Serv-
ice Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (usu-
ally 4:00 p.m. New york time). Fund Shares will be priced on any day the
New York Stock Exchange is open, except for days on which Chicago, Boston
or New York banks are closed for local holidays.
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
4-QQ
<PAGE>
SHAREHOLDER GUIDE
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
--------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------
</TABLE>
Certain Service Organizations are authorized to accept redemption requests
on behalf of the Funds as described under "What Do I Need To Know About
Service Organizations?" A redemption may also be made with respect to cer-
tain Funds by means of the check redemption privilege.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
5-QQ
<PAGE>
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
a Service Organization's Account Application as follows:
<TABLE>
<CAPTION>
Redemption Request Received Redemption Proceeds Dividends
--------------------------------------------------------------------------------
<S> <C> <C>
Taxable and Tax-Advantaged
Funds:
--------------------------------------------------------------------------------
.By 3:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 3:00 p.m. New York time Wired next business day Earned on day request
is received
--------------------------------------------------------------------------------
Tax-Exempt Funds
--------------------------------------------------------------------------------
.By 12:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 12:00 p.m. New York Wired next business day Earned on day request
time is received
--------------------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared, which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..Neither the Trust nor Goldman Sachs nor any other institution assumes any
responsibility for the performance of intermediaries or your Service Organ-
ization in the transfer process. If a problem with such performance arises,
you should deal directly with such intermediaries or Service Organizations.
..If the redeemed Service Shares were recently paid for by check, the Fund
will pay the redemption proceeds when the check has cleared, which may take
up to 15 days.
What Should I Know About The Check Redemption Privilege?
A Service Organization may elect to have a special account with State Street
for the purpose of redeeming Service Shares from its account by check.
The following general policies govern the check redemption privilege:
..The Service Organization will be provided with a supply of checks when
State Street receives a completed signature card and authorization form.
Checks drawn on the account may be payable to the order of any person in
any amount over $500, but cannot be certified.
6-QQ
<PAGE>
SHAREHOLDER GUIDE
..The payee of the check may cash or deposit it just like any other check
drawn on a bank.
..When the check is presented to State Street for payment, a sufficient num-
ber of full or fractional Service Shares will be redeemed to cover the
amount of the check.
..Canceled checks will be returned to the Service Organization by State
Street.
..The check redemption privilege allows a Service Organization to receive the
dividends declared on the Service Shares that are to be redeemed until the
check is actually processed. Because of this feature, accounts may not be
completely liquidated by check.
..If the amount of the check is greater than the value of the Service Shares
held in the Service Organization's account, the check will be returned
unpaid. In this case, the Service Organization may be subject to extra
charges.
..Goldman Sachs Funds reserves the right to limit the availability of, modify
or terminate the check redemption privilege at any time with respect to any
or all Service Organizations.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Trust reserves the right to:
..Redeem the Service Shares of any Service Organization whose account balance
falls below the minimum as a result of earlier redemptions. The Funds will
give 60 days' prior written notice to allow a Service Organization to pur-
chase sufficient additional shares of the Fund in order to avoid such a
redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemptions in kind, you should expect to incur transaction
costs upon the disposition of those securities.
7-QQ
<PAGE>
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
shares of the corresponding class of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon
60 days' written notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirement of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only
if the exchange instructions are in writing and are signed by an authorized
person designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
8-QQ
<PAGE>
SHAREHOLDER GUIDE
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Service
Shares?
Service Organizations will receive annual reports containing audited finan-
cial statements and semiannual reports. Upon request, Service Organizations
will also be provided with a printed confirmation for each transaction. Any
dividends and distributions paid by the Funds are also reflected in regular
statements issued by Goldman Sachs Funds to Service Organizations. Service
Organizations are responsible for providing these or other reports to their
customers who are the beneficial owners of Service Shares in accordance with
the rules that apply to their accounts with the Service Organizations.
9-QQ
<PAGE>
Dividends
All or substantially all of each Fund's net investment income will be declared
as a dividend daily. Dividends will normally, but not always, be declared as of
4:00 p.m. New York time as a dividend and distributed to Service Organizations
monthly. Service Organizations may choose to have dividends paid in:
.. Cash
.. Additional shares of the same class of the same Fund
Service Organizations may indicate their election on the Account Application.
Any changes may be submitted in writing to Goldman Sachs at any time. If a
Service Organization does not indicate any choice, dividends and distributions
will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of each
month. Net short-term capital gains, if any, will be distributed in accordance
with federal income tax requirements and may be reflected in a Fund's daily
distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid excessive
fluctuations in the amount of monthly capital gains distributions, a portion of
any net capital gains realized on the disposition of securities during the
months of November and December may be distributed during the subsequent calen-
dar year. Although realized gains and losses on the assets of a Fund are
reflected in the NAV of the Fund, they are not expected to be of an amount
which would affect the Fund's NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations and Government
Portfolios is based on estimates of net investment income for each Fund. Actual
income may differ from estimates, and differences, if any, will be included in
the calculation of subsequent dividends.
17
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
2-FF
<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
3-FF
<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
4-FF
<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
5-FF
<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
6-FF
<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
8-FF
<PAGE>
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies. As a matter of fundamental policy, at least 80% of each
of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt California
and Tax-Exempt New York Portfolios will ordinarily be invested in municipal
obligations, the interest from which is, in the opinion of bond counsel, if
any, excluded from gross income for federal income tax purposes. In addition,
as a matter of fundamental policy, at least 65% of each of the Tax-Exempt Cali-
fornia and Tax-Exempt New York Portfolio's total assets will be invested in
California and New York municipal obligations, except in extraordinary circum-
stances.
For these purposes, California and New York municipal obligations are obliga-
tions issued by or on behalf of the State of California or the State of New
York, respectively, and their respective political subdivisions, agencies and
instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands
and Guam, the interest from which is excluded from gross income for federal
income tax purposes and is exempt from California State personal income tax or
New York State and New York City personal income tax. Each Tax-Exempt Fund may
temporarily invest in taxable money market instruments or, in the case of the
Tax-Exempt California and New York Portfolios, in municipal obligations that
are not California or New York municipal obligations, respectively, when
acceptable California and New York municipal obligations are not available or
when the Investment Adviser believes that the market conditions dictate a
defensive posture. Investments in taxable money market instruments will be lim-
ited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-
Exempt California and Tax-Exempt New York Portfolios' distributions of interest
from municipal obligations other than California and New York municipal obliga-
tions, respectively, may be subject to California and New York State and New
York City personal income taxes.
Risks of Investing in California and New York: The Tax-Exempt California and
Tax-Exempt New York Portfolios concentrate their investments in California and
New York municipal obligations. Consequently, these Funds are more susceptible
to factors adversely affecting issuers of California and New York municipal
obligations, and may be riskier than comparable municipal bond funds and money
market funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio's investments can be affected by political
and economic developments within the State of California (the "State"), and by
1-FFF
<PAGE>
the financial condition of the State, its public authorities and political sub-
divisions. After suffering a severe recession in the early 1990's which caused
the State to experience financial difficulties, California's economy entered a
sustained recovery since late 1993 and the State's budget has returned to a
positive balance. California's long-term credit rating has been raised after
being reduced during the recession. To respond to its own revenue shortfalls
during the recession, the State reduced assistance to its public authorities
and political subdivisions. Cutbacks in state aid could further adversely
affect the financial condition of cities, counties and education districts
which are subject to their own fiscal constraints. California voters in the
past have passed amendments to the California Constitution and other measures
that limit the taxing and spending authority of California governmental enti-
ties, and future voter initiatives could result in adverse consequences affect-
ing California municipal obligations. Also, the ultimate fiscal effect of fed-
erally-mandated reform of welfare programs on the State and its local
governments is still to be resolved.
These factors, among others (including the outcome of related pending litiga-
tion), could reduce the credit standing of certain issuers of California munic-
ipal obligations. A more detailed discussion of the risks of investing in Cali-
fornia is included in the Additional Statement.
The Tax-Exempt New York Portfolio's investments will be affected by political
and economic developments within the State of New York (the "State"), and by
the financial conditions of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State and the
City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their
financial obligations. Certain substantial issuers of New York municipal obli-
gations (including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing abili-
ties of all New York issuers and have generally contributed to higher interest
costs for their borrowings and fewer markets for their outstanding debt obliga-
tions. Although several different issues of municipal obligations of the State
and its agencies and instrumentalities and of the City have been downgraded by
S&P and Moody's in recent years, the most recent actions of S&P and Moody's
have been to place the debt obligations of the State on Credit Watch with posi-
tive implications and to upgrade the debt obligations of the City, respective-
ly. Strong demand for New York municipal obligations has also at times had the
effect of permitting New York municipal obligations to be issued with yields
relatively lower, and after issuance, to trade in the market at prices rela-
tively higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experi-
enced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers' existing obliga-
tions and,
2-FFF
<PAGE>
possibly, in the obligations of other issuers of New York municipal obliga-
tions. Although as of April 1, 1999 no issuers were in default with respect to
the payment of their New York municipal obligations, the occurrence of any such
default could materially affect adversely the market values and marketability
of all New York municipal obligations and, consequently, the NAV of the Fund's
holdings. A more detailed discussion of the risks of investing in New York is
included in the Additional Statement.
If California, New York, or any of their local governmental entities are unable
to meet their financial obligations, the corresponding Fund's income, NAV,
ability to preserve or realize appreciation of capital or liquidity could be
adversely affected. Also, neither of these Funds is a diversified fund (except
to the extent that diversification is required by Rule 2a-7 or for federal
income tax purposes). Because they may invest a larger percentage of their
assets in the securities of fewer issuers than do diversified funds, these
Funds may be exposed to greater risk in that an adverse change in the condition
of one or a small number of issuers would have a greater impact on them.
3-FFF
<PAGE>
[This page intentionally left blank]
1
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA
Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - ILA B units 1.00 0.04 (0.04)
1998 - ILA C units 1.00 0.04 (0.04)
1998 - Cash Management
shares (commenced May
1) 1.00 0.03 (0.03)
- ------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA
Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
1997 - ILA B units 1.00 0.04 (0.04)
1997 - ILA C units
(commenced August 15) 1.00 0.04 (0.04)
- ------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA
Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
1996 - ILA B units
(commenced May 8) 1.00 0.03 (0.03)
- ------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA
Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA
Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ------------------------------------------------------------
</TABLE>
aCalculated based on the average units outstanding methodology.
b 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.
cAnnualized.
2
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.32% $837,185 0.43% 5.19% 0.43% 5.19%
1.00 5.16 38,836 0.58 5.05 0.58 5.05
1.00 4.90 119,309 0.83 4.79 0.83 4.79
1.00 4.27 14,412 1.43 4.07 1.43 4.07
1.00 4.27 6,814 1.43 4.13 1.43 4.13
1.00 4.69c 2 0.93c 4.81c 1.43c 4.31c
- ------------------------------------------------------------------------------------
1.00 5.38 866,445 0.42 5.24 0.43 5.23
1.00 5.22 28,110 0.57 5.11 0.58 5.10
1.00 4.96 78,316 0.82 4.85 0.83 4.84
1.00 4.33 1,574 1.42 4.33 1.43 4.32
1.00 4.41c 1,897 1.42c 4.39c 1.43c 4.38c
- ------------------------------------------------------------------------------------
1.00 5.22 1,154,787 0.41 5.11 0.43 5.09
1.00 5.06 23,738 0.56 4.97 0.58 4.95
1.00 4.80 84,707 0.81 4.74 0.83 4.72
1.00 3.97c 346 1.41c 4.09c 1.43c 4.07c
- ------------------------------------------------------------------------------------
1.00 5.79 1,261,251 0.41 5.66 0.43 5.64
1.00 5.63 63,018 0.56 5.51 0.58 5.49
1.00 5.37 227,233 0.81 5.22 0.83 5.20
- ------------------------------------------------------------------------------------
1.00 4.07 1,963,846 0.40 3.94 0.42 3.92
1.00 3.91 149,234 0.55 3.79 0.57 3.77
1.00 3.66 170,453 0.80 3.65 0.82 3.63
- ------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
- ---------
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.33% $1,350,317 0.40% 5.17% 0.43% 5.14%
1.00 5.17 314,327 0.55 5.04 0.58 5.01
1.00 4.91 32,349 0.80 4.79 0.83 4.76
1.00 4.69c 2 0.90c 4.80c 1.43c 4.27c
- ------------------------------------------------------------------------------------
1.00 5.43 806,096 0.37 5.31 0.42 5.26
1.00 5.28 307,480 0.52 5.15 0.57 5.10
1.00 5.01 20,517 0.77 4.90 0.82 4.85
- ------------------------------------------------------------------------------------
1.00 5.27 703,097 0.36 5.15 0.43 5.08
1.00 5.12 257,258 0.51 5.00 0.58 4.93
1.00 4.86 28,845 0.76 4.75 0.83 4.68
- ------------------------------------------------------------------------------------
1.00 5.85 574,155 0.36 5.71 0.42 5.65
1.00 5.69 164,422 0.51 5.55 0.57 5.49
1.00 5.43 23,080 0.76 5.29 0.82 5.23
- ------------------------------------------------------------------------------------
1.00 4.13 559,470 0.35 4.01 0.43 3.93
1.00 3.98 145,867 0.50 3.88 0.58 3.80
1.00 3.72 21,862 0.75 3.61 0.83 3.53
- ------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.21% $383,243 0.43% 5.09% 0.45% 5.07%
1.00 5.05 7,692 0.58 4.94 0.60 4.92
1.00 4.79 105,732 0.83 4.67 0.85 4.65
1.00 4.57c 2 0.93c 4.60c 1.45c 4.08c
- ---------------------------------------------------------------------------------
1.00 5.31 460,457 0.42 5.16 0.42 5.16
1.00 5.15 10,192 0.57 4.98 0.57 4.98
1.00 4.89 83,799 0.82 4.78 0.82 4.78
- ---------------------------------------------------------------------------------
1.00 5.15 694,651 0.41 5.04 0.44 5.01
1.00 4.99 36,055 0.56 4.89 0.59 4.86
1.00 4.73 94,228 0.81 4.63 0.84 4.60
- ---------------------------------------------------------------------------------
1.00 5.77 570,469 0.41 5.62 0.43 5.60
1.00 5.62 47,558 0.56 5.49 0.58 5.47
1.00 5.35 85,401 0.81 5.19 0.83 5.17
- ---------------------------------------------------------------------------------
1.00 3.94 881,520 0.40 3.78 0.44 3.74
1.00 3.79 95,483 0.55 3.62 0.59 3.58
1.00 3.53 156,930 0.80 3.50 0.84 3.46
- ---------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- -------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- -------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.03 (0.03)
- -------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.15% $734,553 0.42% 4.96% 0.43% 4.95%
1.00 4.99 80,464 0.57 4.88 0.58 4.87
1.00 4.73 35,432 0.82 4.67 0.83 4.66
- ------------------------------------------------------------------------------------
1.00 5.26 590,381 0.42 5.12 0.42 5.12
1.00 5.10 124,159 0.57 4.99 0.57 4.99
1.00 4.84 104,133 0.82 4.73 0.82 4.73
- ------------------------------------------------------------------------------------
1.00 5.11 574,734 0.41 4.98 0.43 4.96
1.00 4.95 108,850 0.56 4.83 0.58 4.81
1.00 4.69 123,483 0.81 4.59 0.83 4.57
- ------------------------------------------------------------------------------------
1.00 5.73 711,209 0.41 5.51 0.43 5.49
1.00 5.57 92,643 0.56 5.37 0.58 5.35
1.00 5.31 119,692 0.81 5.11 0.83 5.09
- ------------------------------------------------------------------------------------
1.00 3.91 713,816 0.40 3.77 0.44 3.73
1.00 3.75 97,626 0.55 3.68 0.59 3.64
1.00 3.49 108,972 0.80 3.40 0.84 3.35
- ------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 4.96% $341,476 0.30% 4.83% 0.43% 4.70%
1.00 4.80 131,685 0.45 4.68 0.58 4.55
1.00 4.54 374,128 0.70 4.43 0.83 4.30
- ------------------------------------------------------------------------------------
1.00 5.17 330,241 0.22 5.02 0.42 4.82
1.00 5.01 98,667 0.37 4.88 0.57 4.68
1.00 4.75 295,404 0.62 4.63 0.82 4.43
- ------------------------------------------------------------------------------------
1.00 5.10 708,999 0.21 4.96 0.43 4.74
1.00 4.95 137,706 0.36 4.82 0.58 4.60
1.00 4.68 383,901 0.61 4.56 0.83 4.34
- ------------------------------------------------------------------------------------
1.00 5.70 586,294 0.21 5.50 0.44 5.27
1.00 5.54 68,713 0.36 5.34 0.59 5.11
1.00 5.28 123,254 0.61 5.00 0.84 4.77
- ------------------------------------------------------------------------------------
1.00 4.01 547,351 0.20 3.96 0.43 3.73
1.00 3.85 64,388 0.35 3.97 0.58 3.74
1.00 3.59 74,451 0.60 3.72 0.83 3.49
- ------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FEDERAL PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.25% $2,625,705 0.34% 5.10% 0.42% 5.02%
1.00 5.09 508,297 0.49 4.97 0.57 4.89
1.00 4.83 53,994 0.74 4.71 0.82 4.63
- ------------------------------------------------------------------------------------
1.00 5.40 2,050,559 0.27 5.26 0.41 5.12
1.00 5.24 530,001 0.42 5.11 0.56 4.97
1.00 4.98 34,540 0.67 4.83 0.81 4.69
- ------------------------------------------------------------------------------------
1.00 5.24 2,303,677 0.26 5.13 0.43 4.96
1.00 5.09 794,537 0.41 4.98 0.58 4.81
1.00 4.83 192,416 0.66 4.73 0.83 4.56
- ------------------------------------------------------------------------------------
1.00 5.83 1,731,935 0.26 5.69 0.42 5.53
1.00 5.67 516,917 0.41 5.50 0.57 5.34
1.00 5.41 102,576 0.66 5.22 0.82 5.06
- ------------------------------------------------------------------------------------
1.00 4.11 1,625,567 0.25 4.07 0.42 3.90
1.00 3.95 329,896 0.40 3.88 0.57 3.71
1.00 3.69 15,539 0.65 3.92 0.82 3.75
- ------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
TAX-EXEMPT DIVERSIFIED PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
1996 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.04 (0.04)
1995 - ILA Administration units 1.00 0.04 (0.04)
1995 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.03 (0.03)
1994 - ILA Service units 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.17% $1,562,285 0.35% 3.12% 0.41% 3.06%
1.00 3.02 26,509 0.50 2.98 0.56 2.92
1.00 2.76 37,850 0.75 2.72 0.81 2.66
1.00 2.61c 2 0.85c 2.66c 1.41c 2.10c
- --------------------------------------------------------------------------------
1.00 3.39 1,479,486 0.32 3.33 0.41 3.24
1.00 3.23 27,967 0.47 3.16 0.56 3.07
1.00 2.97 30,513 0.72 2.97 0.81 2.88
- --------------------------------------------------------------------------------
1.00 3.25 1,514,443 0.31 3.20 0.41 3.10
1.00 3.09 59,097 0.46 3.06 0.56 2.96
1.00 2.84 28,921 0.71 2.79 0.81 2.69
- --------------------------------------------------------------------------------
1.00 3.72 1,342,585 0.31 3.65 0.42 3.54
1.00 3.57 48,773 0.46 3.51 0.57 3.40
1.00 3.31 49,647 0.71 3.24 0.82 3.13
- --------------------------------------------------------------------------------
1.00 2.71 1,434,965 0.30 2.64 0.41 2.53
1.00 2.55 97,778 0.45 2.50 0.56 2.39
1.00 2.30 36,492 0.70 2.20 0.81 2.09
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-EXEMPT CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distribution
beginning investment to unit/
of period income shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $ 1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.02 (0.02)
1998 - Cash Management shares (commenced May
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (Re-commenced
September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 2.84% $584,615 0.41% 2.79% 0.41% 2.79%
1.00 2.68 512 0.56 2.84 0.56 2.84
1.00 2.43 2 0.81 2.48 0.81 2.48
1.00 2.25c 2 0.91c 2.37c 1.41c 1.94c
- -------------------------------------------------------------------------------
1.00 3.15 591,003 0.42 3.10 0.42 3.10
1.00 3.00 360 0.57 2.98 0.57 2.98
1.00 2.87c 2 0.82c 2.90c 0.82c 2.90c
- -------------------------------------------------------------------------------
1.00 3.03 440,476 0.41 2.99 0.42 2.98
1.00 2.88 142 0.56 2.84 0.57 2.83
- -------------------------------------------------------------------------------
1.00 3.55 346,728 0.41 3.49 0.41 3.49
1.00 3.40 61 0.56 3.32 0.56 3.32
- -------------------------------------------------------------------------------
1.00 2.53 227,399 0.40 2.50 0.41 2.49
1.00 2.37 790 0.55 2.33 0.56 2.32
- -------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
TAX-EXEMPT NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (commenced
September 15) 1.00 0.01 (0.01)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
18
<PAGE>
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of Ratio of net
Net asset assets at Ratio of net investment net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.02% $122,550 0.36% 2.96% 0.51% 2.81%
1.00 2.87 21,580 0.51 2.85 0.66 2.70
1.00 2.61 2 0.76 2.61 0.91 2.46
1.00 2.46c 1 0.86c 2.56c 1.51c 1.91c
- ---------------------------------------------------------------------------------
1.00 3.29 102,887 0.33 3.24 0.43 3.14
1.00 3.14 31,993 0.48 3.09 0.58 2.99
1.00 3.02c 2 0.73c 3.04c 0.83c 2.94c
- ---------------------------------------------------------------------------------
1.00 3.05 70,175 0.32 3.01 0.43 2.90
1.00 2.90 44,319 0.47 2.88 0.58 2.77
- ---------------------------------------------------------------------------------
1.00 3.51 90,537 0.30 3.44 0.44 3.30
1.00 3.35 26,724 0.45 3.28 0.59 3.14
- ---------------------------------------------------------------------------------
1.00 2.56 84,517 0.24 2.62 0.47 2.39
1.00 2.41 38,970 0.39 2.47 0.62 2.24
- ---------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Index
xx General Investment Management
Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Portfolio
xx Money Market Portfolio
xx Treasury Obligations Portfolio
xx Treasury Instruments Portfolio
xx Government Portfolio
xx Federal Portfolio
xx Tax-exempt Diversified Portfolio
xx Tax-exempt California Portfolio
xx Tax-exempt New York Portfolio
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Taxation
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Dividend
xx Appendix
Additional Information
On Portfolio Risks,
Securities And
Techniques
xx Appendix
Financial Highlights
18
<PAGE>
Institutional Liquid Assets Prospectus
(ILA Service Units)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents by sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-6009. Information on the operation
of the public reference room may be obtained by calling the SEC at 1-800-
SEC-0330.
(GOLDMAN SACHS LOGO APPEARS HERE)
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus
ILA Cash
Management
Shares
May , 1999
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
. Prime
Obligations
Portfolio
. Money Market
Portfolio
. Government
Portfolio
(INSERT ARTWORK) . Tax-Exempt
Diversified
Portfolio
. Tax-Exempt
California
Portfolio
. Tax-Exempt New
York Portfolio
THE TERMS "PORTFOLIOS" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
PORTFOLIOS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT [LOGO OF
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE GOLDMAN SACHS
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, APPEARS HERE]
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
- --------------------------------------------------
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-controlled investment
process that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Fund's investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
1-RR
<PAGE>
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
..The Funds: Each Fund's securities are valued by the amortized cost method
as permitted under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "1940 Act"). Under Rule 2a-7, each Fund may invest only in
U.S. dollar denominated securities that are determined to present minimal
credit risk and meet certain other criteria including those conditions
relating to maturity, diversification and credit quality. These operating
policies may be more restrictive than the fundamental policies set forth in
the Statement of Additional Information (the "Additional Statement").
.Taxable Funds: Prime Obligations, Money Market and Government Portfolios
.Tax-Exempt Funds: Tax-Exempt Diversified, Tax-Exempt California and Tax-
Exempt New York Portfolios
..The Investors: The Funds are designed for investors seeking a high rate of
return, a stable net asset value ("NAV") and convenient liquidation privi-
leges. The Funds are particularly suitable for banks, corporations and
other financial institutions that seek investment of short-term funds for
their own accounts or for the accounts of their customers.
..NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
..Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
..Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
..Investment Restrictions: Each Fund is subject to certain investment
restrictions that are described in detail under "Investment Restrictions"
in the Additional Statement. Fundamental investment restrictions and the
investment objective of a Fund (except the Tax-Exempt California and Tax-
Exempt New York Portfolios' objectives of providing shareholders with
income exempt from California State and New York State and New York City
personal income tax, respectively) cannot be changed without approval of a
majority of the outstanding shares of that Fund. All investment policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval.
..Diversification: Diversification can a Fund reduce the risks of investing.
In accordance with current regulations of the Securities and Exchange Com-
mission (the "SEC"), each Fund may not invest more than 5% of the value of
its
2-RR
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
total assets at the time of purchase in the securities of any single issuer
with these exceptions: (a) the Tax-Exempt California and Tax-Exempt New
York Portfolios may each invest up to 25% of their total assets in five or
fewer issuers; and (b) each of the other Funds may invest up to 25% of its
total assets in the securities of a single issuer for up to three business
days. These limitations do not apply to cash, certain repurchase agree-
ments, U.S. Government Securities or securities of other investment compa-
nies. In addition, securities subject to certain unconditional guarantees
and securities that are not "First Tier Securities" as defined by the SEC
are subject to different diversification requirements as described in the
Additional Statement.
3-RR
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable Funds:
The Prime Obligations, Money Market and Government Portfolios seek to maxi-
mize current income to the extent consistent with the preservation of capi-
tal and the maintenance of liquidity by investing exclusively in high qual-
ity money market instruments.
Tax-Exempt Funds:
The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New York
Portfolios seek to provide shareholders, to the extent consistent with the
preservation of capital and prescribed portfolio standards, with a high
level of income exempt from federal income tax by investing primarily in
municipal instruments.
In addition, the Tax-Exempt California and Tax-Exempt New York Portfolios
seek to provide shareholders with income exempt from California State and
New York State and City personal income taxes, respectively.
The Tax-Exempt Funds pursue their investment objectives by limiting their
investments to securities 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, the inter-
est from which, if any, is in the opinion of bond counsel excluded from
gross income for federal income tax purposes, and not an item of tax prefer-
ence under the federal alternative minimum tax.
4-RR
<PAGE>
(This Page Intentionally Left Blank)
5-RR
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. U.S.
Treasury Government Bank Commercial
Fund Obligations Securities Obligations Paper
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations 3 . . .
U.S. banks only
-------------------------------------------------------------------------------------------
Money Market 3 . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
-------------------------------------------------------------------------------------------
Government 3 .
-------------------------------------------------------------------------------------------
Tax-Exempt Diversified .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt Calfornia .
Tax-exempt only
-------------------------------------------------------------------------------------------
Tax-Exempt New York .
Tax-exempt only
-------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and
charge-offs and declines in total deposits), the Fund may, for temporary
defensive purposes, invest less than 25% of its total assets in bank
obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-RR
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreement Securities/2/ Obligations (US$)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- -------------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- -------------------------------------------------------------------------------
.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
7 -RR
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated Investment
Fund Municipals Municipals Receipts Securities/6/ Companies
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations ./4/ . .
Up to 10% of total
assets in other
investment companies
- ---------------------------------------------------------------------------------------------------------------
Money Market ./4/ . . .
Up to 10% of total
assets in other
investment companies
- ---------------------------------------------------------------------------------------------------------------
Government .
Up to 10% of total
assets in other
investment companies
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt Diversified . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/5/
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt California . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% investment companies
of total assets in California
instruments (except in
extraordinary circumstances)/5/
- ---------------------------------------------------------------------------------------------------------------
Tax-Exempt New York . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations and at least 65% investment companies
of total assets in New York
instruments (except in
extraordinary circumstances)/5/
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/4/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/5/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/6/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/7/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-RR
<PAGE>
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/6/ Distributions/11/ Miscellaneous
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/9/ Taxable federal and state/12/
- ---------------------------------------------------------------------------------------------------------
.. First Tier/9/ Taxable federal and state/12/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- ---------------------------------------------------------------------------------------------------------
First Tier/9/ Taxable federal and state/12/
- ---------------------------------------------------------------------------------------------------------
(Does not First/9/ or Tax-exempt federal and May (but does not currently intend to)
intend to Second Tier/10/ taxable state/13/ invest up to 20% in securities
invest)/7/,/8/ subject to the federal alternative
minimum tax ("AMT") and may
temporarily invest in the taxable money
market instruments described herein
- ---------------------------------------------------------------------------------------------------------
(Does not First/9/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/10/ and California State invest up to 20% in AMT securities
invest)/7/,/8/ and may temporarily invest in the taxable
money market instruments described herein
- ---------------------------------------------------------------------------------------------------------
.. First/9/ or Tax-exempt federal, May invest up to 20% in AMT securities
(not more than Second Tier/10/ New York State and and may temporarily invest in the taxable
20% of net New York City money market instruments described herein
assets)/8/
- ---------------------------------------------------------------------------------------------------------
</TABLE>
/8/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/9/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a
Fund under certain conditions to demand payment from, an entity with such
ratings. U.S. Government Securities are considered First Tier Securities.
/10/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/11/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/12/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government Securities interest
income.
/13/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-RR
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Tax-
Prime Money Tax-Exempt Tax-Exempt Exempt
Obligations Market Government Diversified California New York
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market . . . . . .
- ---------------------------------------------------------------------------------
Interest Rate . . . . . .
- ---------------------------------------------------------------------------------
Credit/Default . . . . . .
- ---------------------------------------------------------------------------------
Management . . . . . .
- ---------------------------------------------------------------------------------
Liquidity . . . . . .
- ---------------------------------------------------------------------------------
Other . . . . . .
- ---------------------------------------------------------------------------------
Government
Securities -- -- . -- -- --
- ---------------------------------------------------------------------------------
Concentration -- . -- . . .
- ---------------------------------------------------------------------------------
Foreign -- . -- . . .
- ---------------------------------------------------------------------------------
Tax -- -- -- . . .
- ---------------------------------------------------------------------------------
</TABLE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
10-RR
<PAGE>
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government Portfolio:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Tax-Exempt Diversified, Tax-Exempt
California and Tax-Exempt New York Portfolios:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Exempt California and Tax-Exempt New York Portfolios, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market Portfolio may not invest more than 25% of its total assets in
the securities of any one foreign government.
Risk that applies to the Money Market Portfolio:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market Portfolio intends to invest more than 25%
of its total assets in bank obligations, and the Tax-Exempt California and
Tax-Exempt New York Portfolios intend to invest at least 65% of their total
assets in California municipal obligations and New York municipal obliga-
tions, respectively. Banks may be particularly susceptible to certain eco-
nomic factors such as interest rate changes, adverse developments in the
real estate market, fiscal and monetary policy and general economic cycles.
11-RR
<PAGE>
Risk that applies to the Tax-Exempt Funds:
^Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends (in the case of each of these Funds) and state tax-
exempt dividends (in the case of the Tax-Exempt California and Tax-Exempt
New York Portfolios).
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
12-RR
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
Cash Management Shares of the Fund have less than one calendar year's per-
formance. For this reason, the performance information shown below is for
another Class of Shares (ILA Service Shares) that is not offered in this
Prospectus but would have substantially similar annual returns because both
Classes of Shares will be invested in the same portfolio of securities.
Annual returns will differ only to the extent that the classes do not have
the same expenses. In reviewing this performance information, however, you
should be aware that ILA Service Shares have a 0.40% (annualized) service
fee while Cash Management Shares have 1.00% distribution and service fees.
If the expenses of the Cash Management Shares were reflected, performance
would be reduced.
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Service
Shares from year to year; and (b) how the average annual returns of a Fund's
Service Shares compare to the returns of a composite of mutual funds with
similar investment objectives. The bar chart and table assume reinvestment
of dividends and distributions. A Fund's past performance is not necessarily
an indication of how the Fund will perform in the future. Performance
reflects expense limitations in effect. If expense limitations were not in
place, a Fund's performance would have been reduced. You may obtain a Fund's
current yield by calling 1-800-621-2550.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.61%
Worst Quarter:
Q2 '93 0.62%
[MAC CHART APPEARS HERE]
1991 5.67
1992 3.35
1993 2.56
1994 3.66
1995 5.37
1996 4.80
1997 4.96
1998 4.90
AVERAGE ANNUAL TOTAL RETURN
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
Service Shares (Inception 6/1/90) 4.90% 4.73% 4.62%
------------------------------------------------------------------------
3
<PAGE>
Prime Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.62%
Worst Quarter:
Q2 '93 0.64%
[MAC CHART APPEARS HERE]
1991 5.70
1992 3.36
1993 2.62
1994 3.72
1995 5.43
1996 4.86
1997 5.01
1998 4.91
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 6/1/90) 4.91% 4.78% 4.67%
------------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Government Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.53%
Worst Quarter:
Q2 '93 0.62%
[MAC CHART APPEARS HERE]
1991 5.49
1992 3.30
1993 2.53
1994 3.53
1995 5.35
1996 4.73
1997 4.89
1998 4.79
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 7/1/90) 4.79% 4.66% 4.51%
------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Tax-Exempt Diversified Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '91 1.03%
Worst Quarter
Q1 '94 0.42%
[MAC CHART APPEARS HERE]
1991 3.91
1992 2.42
1993 1.84
1994 2.30
1995 3.31
1996 2.84
1997 2.97
1998 2.76
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year 5 Years Since Inception
-------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 7/2/90) 2.76% 2.84% 2.94%
-------------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Tax-Exempt California Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '98 0.70%
Worst Quarter
Q4 '98 0.56%
[MAC CHART APPEARS HERE]
1998 2.43
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year Since Inception
-----------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 9/15/97) 2.43% 2.53%
-----------------------------------------------------------
</TABLE>
7
<PAGE>
Tax-Exempt New York Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '98 0.74%
Worst Quarter
Q4 '98 0.59%
[MAC CHART APPEARS HERE]
1998 2.61
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year Since Inception
-----------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 9/15/97) 2.61% 2.71%
-----------------------------------------------------------
</TABLE>
8
<PAGE>
[This Page Intentionally Left Blank]
9
<PAGE>
Fund Fees and Expenses (Cash Management Shares)
This table describes the fees and expenses that you would pay if you buy and
hold ILA Cash Management Shares of a Fund.
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution Fees/2/ 0.50% 0.50% 0.50%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.08% 0.08% 0.10%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 1.43% 1.43% 1.45%
- -----------------------------------------------------------------------------
</TABLE>
See page 12 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution Fees/2/ 0.07% 0.07% 0.07%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.08% 0.07% 0.08%
------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 1.00% 0.99% 1.00%
------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Tax- Tax- Tax-
Exempt Exempt Exempt
Diversified California New York
Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution Fees/2/ 0.50% 0.50% 0.50%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.06% 0.06% 0.16%
- ----------------------------------------------------------------------------
Total Fund Operating Expenses* 1.41% 1.41% 1.51%
- ----------------------------------------------------------------------------
</TABLE>
See page 12 for all other footnotes
*As a result of the current waivers and expense limitations, "Other Expenses"
and "Total Fund Operating Expenses" of the Funds which are actually incurred
are as set forth below. The expense waivers and limitations may be terminated
at any time at the option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase without shareholder
approval.
<TABLE>
<CAPTION>
Tax-Exempt Tax-Exempt Tax-Exempt
Diversified California New York
Portfolio Portfolio Portfolio
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees 0.35% 0.35% 0.35%
Distribution Fees/2/ 0.07% 0.07% 0.07%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.06% 0.06% 0.08%
-------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.98% 0.98% 1.00%
-------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
/1/The Funds' annual operating expenses have been restated to reflect current
fees.
/2/Goldman Sachs has voluntarily agreed to limit a portion of the distribution
fees of each Fund to 0.07% of each Fund's average daily net assets. As a result
of this limitation, "Total Fund Operating Expenses" of the Funds which are
actually incurred are as set forth below. This limitation may be terminated at
any time at the option of Goldman Sachs.
<TABLE>
<CAPTION>
Total Fund
Operating
Fund Expenses
- ---------------------------
<S> <C>
Prime
Obligations 1.00%
Money Market 0.99%
Government 0.99%
Tax-Exempt
Diversified 0.98%
Tax-Exempt
California 0.99%
Tax-Exempt New
York 1.00%
</TABLE>
/3/Service Organizations may charge other fees directly to their customers who
are the beneficial owners of Cash Management Shares in connection with their
customers' accounts. Such fees may affect the return such customers realize
with respect to their investments.
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Cash Management Shares plus all other ordinary
expenses not detailed above.
12
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Cash Management
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations $146 $452 $782 $1,713
- -------------------------------------------------------
Money Market $146 $452 $782 $1,713
- -------------------------------------------------------
Government $148 $459 $792 $1,735
- -------------------------------------------------------
Tax-Exempt Diversified $144 $446 $771 $1,691
- -------------------------------------------------------
Tax-Exempt California $144 $446 $771 $1,691
- -------------------------------------------------------
Tax-Exempt New York $154 $477 $824 $1,802
- -------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who are
the beneficial owners of Cash Management Shares in connection with their cus-
tomers' accounts. You should contact your Service Organization for information
regarding such charges. Such fees may affect the return their customers realize
with respect to their investments.
Certain Service Organizations may receive other compensation in connection with
the sale and distribution of Cash Management Shares or for services to their
customers' accounts and/or the Funds. For additional information regarding such
compensation, see "Shareholder Guide" in the Prospectus and "Other Information"
in the Additional Statement.
13
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as Investment Adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and dispo-
sition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not pro-
vided by other organizations)
Pursuant to an SEC order, each Taxable Fund may enter into principal trans-
actions in certain taxable money market instruments, including repurchase
agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.35% 0.35%
-------------------------------------------------------------------
Money Market 0.35% 0.34%
-------------------------------------------------------------------
Government 0.35% 0.35%
-------------------------------------------------------------------
Tax-Exempt Diversified 0.35% 0.29%
-------------------------------------------------------------------
Tax-Exempt California 0.35% 0.35%
-------------------------------------------------------------------
Tax-Exempt New York 0.35% 0.30%
-------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled.
XX-1
<PAGE>
The Investment Adviser has voluntarily agreed to reduce or otherwise limit
the daily expenses of each Fund (excluding fees payable under service,
administration and distribution plans for certain share classes, taxes,
interest, brokerage and litigation, indemnification and other extraordinary
expenses) on an annualized basis to 0.43% of the average daily net assets of
the Fund. Such reductions or limits, if any, are calculated monthly on a
cumulative basis. These reductions or limits may be discontinued or modified
only with the express approval of the Trustees.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Fund's
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
Investment Adviser or other Fund service providers do not adequately address
this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
XX-2
<PAGE>
SERVICE PROVIDERS
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
..In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000
preparedness of the issuers of securities held by the Funds. The Investment
Adviser may obtain such Year 2000 information from various sources which
the Investment Adviser believes to be reliable, including the issuers'
public regulatory filings. However, the Investment Adviser is not in a
position to verify the accuracy or completeness of such information.
XX-3
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. Moreover, the Tax-Exempt California and Tax-Exempt New York Portfo-
lios expect that their dividends will not be subject to the California and New
York personal income tax (and in the case of the Tax-Exempt New York Portfolio,
New York City personal income tax). The tax status and amounts of the dividends
for each calendar year will be detailed in your annual tax statement from the
Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-XX
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Cash Manage-
ment Shares.
HOW TO BUY SHARES
How Can I Purchase Cash Management Shares Of The Funds?
Generally, Cash Management Shares may be purchased only through institutions
that have agreed to provide account administration and personal and account
maintenance services to their customers who are the beneficial owners of
Cash Management Shares. These institutions are called "Service Organiza-
tions." Customers of a Service Organization will normally give their pur-
chase instructions to the Service Organization, and the Service Organization
will, in turn, place purchase orders with Goldman Sachs. Service Organiza-
tions will set times by which purchase orders and payments must be received
by them from their customers. Generally, Cash Management Shares may be pur-
chased from the Funds on any business day at their net asset value ("NAV")
next determined after receipt of an order by Goldman Sachs from a Service
Organization. Shares begin earning dividends after the Fund's receipt of the
purchase amount in federal funds. No sales load is charged.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place a purchase order in writing or by telephone.
<TABLE>
--------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------
</TABLE>
Before or immediately after placing an initial purchase order, a Service
Organization should complete and send to Goldman Sachs the Account Applica-
tion. Subsequent purchase orders should be accompanied by information iden-
tifying the account and the Fund in which Cash Management Shares are to be
purchased.
Service Organizations may send their payments as follows:
..Wire federal funds to The Northern Trust Company ("Northern") as sub-
custodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
1-SS
<PAGE>
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds --
(Name of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago,
IL 60606-6372. The Trust will not accept a check drawn on a foreign bank or
a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and
federal funds are received: Dividends begin:
---------------------------------------------------
<S> <C>
Taxable Funds:
---------------------------------------------------
.By 3:00 p.m. New York time Same business day
.After 3:00 p.m. New York time Next business day
---------------------------------------------------
Tax-Exempt Funds:
---------------------------------------------------
.By 1:00 p.m. New York time Same business day
.After 1:00 p.m. New York time Next business day
---------------------------------------------------
</TABLE>
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Cash Management Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
..Developing, maintaining and supporting systems necessary to support
accounts for cash management services
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a
2-SS
<PAGE>
SHAREHOLDER GUIDE
business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payments for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Cash Management Shares of the Funds, which are attributable to
or held in the name of a Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Service
Organizations depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses.
In addition to Cash Management Shares, each Fund also offers other classes
of shares to investors. These other share classes are subject to different
fees and expenses (which affect performance) have different minimum invest-
ment requirements and are entitled to different services than Cash Manage-
ment Shares. Information regarding these other share classes may be obtained
from your sales representative or from Goldman Sachs by calling the number
on the back cover of this Prospectus.
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with
respect to Cash Management Shares. A Service Organization may, however,
impose a minimum amount for initial and subsequent investments in Cash Man-
agement Shares, and may establish other requirements such as a minimum
account balance. A Service Organization may redeem Cash Management Shares
held by non-complying accounts, and may impose a charge for any special
services.
3-SS
<PAGE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Cash Management
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
<TABLE>
<S> <C> <C>
(Value of Assets of the Class)
NAV = - (Liabilities of the Class)
Number of Outstanding Shares of the Class
</TABLE>
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (usu-
ally 4:00 p.m. New York time). Fund Shares will be priced on any day the
New York Stock Exchange is open, except for days on which Chicago, Boston
or New York banks are closed for local holidays.
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able to at all times maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Cash Management Shares Of The Funds?
Generally, Cash Management Shares may be sold (redeemed) only through Serv-
ice Organizations. Customers of a Service Organization will normally give
their redemption instructions to the Service Organization, and the Service
Organization will, in turn, place redemption orders with the Funds. General-
ly, each Fund will
4-SS
<PAGE>
SHAREHOLDER GUIDE
redeem ILA Cash Management Shares upon request on any business day at their
NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
--------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------
</TABLE>
Certain Service Organizations are authorized to accept redemption requests
on behalf of the Funds as described under "What Do I Need To Know About
Service Organizations?" A redemption may also be made with respect to cer-
tain Funds by means of the check redemption privilege.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
5-SS
<PAGE>
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
a Service Organization's Account Application as follows:
<TABLE>
<CAPTION>
Redemption Request Received Redemption Proceeds Dividends
------------------------------------------------------------------------------
<S> <C> <C>
Taxable Funds:
------------------------------------------------------------------------------
.By 3:00 p.m. New York time Wired same business day Not earned on day
request is received
------------------------------------------------------------------------------
.After 3:00 p.m. New York time Wired next business day Earned on day
request is received
------------------------------------------------------------------------------
Tax-Exempt Funds:
------------------------------------------------------------------------------
.By 12:00 p.m. New York time Wired same business day Not earned on day
request is received
------------------------------------------------------------------------------
.After 12:00 p.m. New York time Wired next business day Earned on day
request is received
------------------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared, which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organizations.
..If the redeemed Cash Management Shares were recently paid for by check, the
Fund will pay the redemption proceeds when the check has cleared, which may
take up to 15 days.
What Should I Know About The Check Redemption Privilege?
A Service Organization may elect to have a special account with State Street
for the purpose of redeeming Cash Management Shares from its account by
check. The following general policies govern the check redemption privilege:
..The Service Organization will be provided with a supply of checks when
State Street receives a completed signature card and authorization form.
Checks drawn on the account may be payable to the order of any person in
any amount over $500, but cannot be certified.
..The payee of the check may cash or deposit it just like any other check
drawn on a bank.
6-SS
<PAGE>
SHAREHOLDER GUIDE
..When the check is presented to State Street for payment, a sufficient num-
ber of full or fractional Cash Management Shares will be redeemed to cover
the amount of the check.
..Canceled checks will be returned to the Service Organization by State
Street.
..The check redemption privilege allows a Service Organization to receive the
dividends declared on the Cash Management Shares that are to be redeemed
until the check is actually processed. Because of this feature, accounts
may not be completely liquidated by check.
..If the amount of the check is greater than the value of the Cash Management
Shares held in the Service Organization's account, the check will be
returned unpaid. In this case, the Service Organization may be subject to
extra charges.
..Goldman Sachs Funds reserves the right to limit the availability of, modify
or terminate the check redemption privilege at any time with respect to any
or all Service Organizations.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Trust reserves the right to:
..Redeem the Cash Management Shares of any Service Organization whose account
balance falls below the minimum as a result of earlier redemptions. The
Funds will give 60 days' prior written notice to allow a Service Organiza-
tion to purchase sufficient additional shares of the Fund in order to avoid
such a redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in kind of securities (instead of cash)
from the Fund. If you receive redemptions in-kind, you should expect to
incur transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Cash Management Shares of a Fund at NAV
for shares of the corresponding class of any other Goldman Sachs Fund. The
7-SS
<PAGE>
exchange privilege may be materially modified or withdrawn at any time upon
60 days' written notice.
<TABLE>
<CAPTION>
Instructions For
Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses, and social security, or other taxpayer identification numbers
only if the exchange instructions are in writing and are signed by an
authorized person designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of Shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
8-SS
<PAGE>
SHAREHOLDER GUIDE
What Types Of Reports Will I Be Sent Regarding Investments In Cash
Management Shares?
Service Organizations will receive annual reports containing audited finan-
cial statements and semiannual reports. Upon request, Service Organizations
will also be provided with a printed confirmation for each transaction. Any
dividends and distributions paid by the Funds are also reflected in regular
statements issued by Goldman Sachs Funds to Service Organizations. Service
Organizations are responsible for providing these or other reports to their
customers who are the beneficial owners of Cash Management Shares in accor-
dance with the rules that apply to their accounts with the Service Organiza-
tions.
What Are The Distribution Fees Paid By Cash Management Shares?
The Trust has adopted a distribution plan (the "Plan") to pay distribution
fees for the sale and distribution of its shares. Because these fees are
paid out of the Fund's assets on an ongoing basis, over time, these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges. If the fees received by Goldman Sachs pursuant
to the Plans exceed its expenses, Goldman Sachs may realize a profit from
this arrangement. Goldman Sachs pays the distribution fee on a quarterly
basis.
Under the Plan, Goldman Sachs is entitled to a monthly fee from each Fund
for distribution services equal, on an annual basis, to 0.50%, of a Fund's
average daily net assets attributable to Cash Management Shares. Currently,
Goldman Sachs has voluntarily agreed to limit the amount of such fee to
0.07% of average daily net assets attributable to Cash Management Shares of
each Fund. As of the date of this Prospectus, Goldman Sachs has no intention
of modifying or discontinuing such limitation, but may do so in the future
at its discretion.
The distribution fees payable are subject to the requirements of Rule 12b-1
under the 1940 Act, and may be used (among other things) for:
..Compensation paid to and expenses incurred by Service Organizations,
Goldman Sachs and their respective officers, employees and sales
representatives;
..Commissions paid to Service Organizations;
..Allocable overhead;
..Telephone and travel expenses;
..Printing of prospectuses for prospective shareholders;
..Preparation and distribution of sales literature or advertising of any
type; and
..All other expenses incurred in connection with activities primarily
intended to result in the sale of Cash Management Shares.
9-SS
<PAGE>
Dividends
All or substantially all of each Fund's net investment income will be declared
as a dividend daily. Dividends will normally, but not always, be declared as of
4:00 p.m. New York time as a dividend and distributed to Service Organizations
monthly. Service Organizations may choose to have dividends paid in:
.. Cash
.. Additional shares of the same class of the same Fund
Service Organizations may indicate their election on the Account Application.
Any changes may be submitted in writing to Goldman Sachs at any time. If a
Service Organization does not indicate any choice, dividends and distributions
will be reinvested automatically in the applicable Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of each
month. Net short-term capital gains, if any, will be distributed in accordance
with federal income tax requirements and may be reflected in a Fund's daily
distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid excessive
fluctuations in the amount of monthly capital gains distributions, a portion of
any net capital gains realized on the disposition of securities during the
months of November and December may be distributed during the subsequent calen-
dar year. Although realized gains and losses on the assets of a Fund are
reflected in the NAV of the Fund, they are not expected to be of an amount
which would affect the Fund's NAV of $1.00 per share.
The income declared as a dividend for the Government Portfolio is based on
estimates of net investment income for the Fund. Actual income may differ from
estimates, and differences, if any, will be included in the calculation of sub-
sequent dividends.
14
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued by the U.S. Treasury.
Payment of principal and interest on these obligations is backed by the full
faith and credit of the U.S. Government. U.S. Treasury obligations include,
among other things, the separately traded principal and interest components of
securities guaranteed or issued by the U.S. Treasury if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-YY
<PAGE>
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies, authori-
ties, instrumentalities or sponsored enterprises if it is not obligated to do
so by law.
Certain Funds may also acquire U.S. Government securities in the form of custo-
dial receipts. Custodial receipts evidence ownership of future interest pay-
ments, principal payments or both on notes or bonds issued by the U.S. Govern-
ment, its agencies, instrumentalities, political subdivisions or authorities.
For certain securities law purposes, custodial receipts are not considered
obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit, commercial
paper, unsecured bank promissory notes, bankers' acceptances, time deposits and
other debt obligations. Certain Funds may invest in U.S. bank obligations when
a bank has more than $1 billion in total assets at the time of purchase or is a
subsidiary of such a bank, U.S. dollar-denominated obligations issued or
guaranteed by foreign banks that have more than $1 billion in total assets at
the time of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligation or by government
regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable and
adverse developments in or related to the banking industry. The activities of
U.S. and most foreign banks are subject to comprehensive regulations which, in
the case of U.S. regulations, have undergone substantial changes in the past
decade. The enactment of new legislation or regulations, as well as changes in
interpretation and enforcement of current laws, may affect the manner of opera-
tions and profitability of domestic and foreign banks. Significant developments
in the U.S. banking industry have included increased competition from other
types of financial institutions, increased acquisition activity and geographic
expansion. Banks may be particularly susceptible to certain economic factors,
such as interest rate changes and adverse developments in the real estate mar-
kets. Fiscal and monetary policy and general economic cycles can affect the
availability and cost of funds, loan demand and asset quality and thereby
impact the earnings and financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-backed
and receivables-backed securities are often subject to more rapid repayment
than their stated maturity date
2-YY
<PAGE>
APPENDIX A
would indicate as a result of the pass-through of prepayments of principal on
the underlying loans. During periods of declining interest rates, prepayment of
loans underlying asset-backed and receivables-backed securities can be expected
to accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such secu-
rities resulting from prepayments, and its ability to reinvest the returns of
principal at comparable yields is subject to generally prevailing interest
rates at that time. In addition, securities that are backed by credit card,
automobile and similar types of receivables generally do not have the benefit
of a security interest in collateral that is comparable in quality to mortgage
assets. There is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities. In the
event of a default, a Fund may suffer a loss if it cannot sell collateral
quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks
Foreign government obligations are U.S. dollar-denominated obligations (limited
to commercial paper and other notes) issued or guaranteed by a foreign govern-
ment or other entity located or organized in a foreign country that maintains a
short-term foreign currency rating in the highest short-term ratings category
by the requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign gov-
ernment, bank, corporation or other issuer, may present a greater degree of
risk than investments in securities of domestic issuers because of less public-
ly-available financial and other information, less securities regulation,
potential imposition of foreign withholding and other taxes, war, expropriation
or other adverse governmental actions. Foreign banks and their foreign branches
are not regulated by U.S. banking authorities, and generally are not bound by
the accounting, auditing and financial reporting standards applicable to U.S.
banks.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
primary dealers in U.S. Government securities and banks affiliated with primary
dealers. Repurchase agreements involve the purchase of securities subject to
the seller's agreement to repurchase them at a mutually agreed upon date and
price. The repurchase price will exceed the original purchase price, the
difference being income to the Fund, and will be unrelated to the interest rate
on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and other
collateral held by the Fund in connection with the repurchase agreement are
less than the repurchase price and Fund's costs associated with delay and
enforcement of the repurchase
3-YY
<PAGE>
agreement. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in the
collateral is unenforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distribu-
tions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, each Fund, together with other registered investment
companies having advisory agreements with the Investment 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.
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. Municipal obligations may include fixed rate notes and similar debt
instruments; variable and floating rate demand instruments; tax-exempt commer-
cial paper; municipal bonds; and unrated notes, paper, bonds or other instru-
ments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds. Gen-
eral obligation bonds are backed by the taxing power of the issuing municipal-
ity and are considered the safest type of municipal obligation. Revenue bonds
are backed by the revenues of a project or facility such as the tolls from a
toll bridge. Revenue bonds also include lease rental revenue bonds which are
issued by a state or local authority for capital projects and are secured by
annual lease payments from the state or locality sufficient to cover debt serv-
ice on the authority's obligations. Industrial development bonds ("private
activity bonds") are a specific type of revenue bond backed by the credit and
security of a private user and, therefore, have more potential risk. Municipal
bonds may be issued in a variety of forms, including commercial paper, tender
option bonds and variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal 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 the institution grants the security holder the
option, at periodic intervals, to tender its securities to the institution. As
consideration for providing the option, the financial institution receives
periodic fees equal to the difference between the bond's fixed coupon rate
4-YY
<PAGE>
APPENDIX A
and the rate, as determined by a remarketing or similar agent, that would cause
the securities, coupled with the tender option, to trade at par on the date of
such determination. Thus, after payment of this fee, the security holder effec-
tively holds a demand obligation that bears interest at the prevailing short-
term, tax-exempt rate. Certain tender option bonds may be illiquid. An institu-
tion will normally not be obligated to accept tendered bonds in the event of
certain defaults or a significant downgrading in the credit rating assigned to
the issuer of the bond. The tender option will be taken into account in deter-
mining the maturity of the tender option bonds and a Fund's average portfolio
maturity. There is a risk that a Fund will not be considered the owner of a
tender option bond for federal income tax purposes, and thus will not be enti-
tled to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the risk
that such revenues will be insufficient to satisfy the issuer's payment obliga-
tions. The entire amount of principal and interest on RAWs is due at maturity.
RAWs, including those with a maturity of more than 397 days, may also be
repackaged as instruments which include a demand feature that permits the
holder to sell the RAWs to a bank or other financial institution at a purchase
price equal to par plus accrued interest on each interest rate reset date.
Industrial Development Bonds. Certain Funds may invest in industrial develop-
ment bonds (private activity bonds), the interest from which would be an item
of tax preference when distributed by a Fund as "exempt-interest dividends" to
shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an economic, business or political development or change affecting one
municipal obligation would also affect the other municipal obligation. For
example, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the same
state, or (c) industrial development obligations. Concentration of a Fund's
investments in these municipal obligations will subject the Fund, to a greater
extent than if such investment was not so concentrated, to the risks of adverse
economic, business or political development affecting the particular state,
industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial insti-
tutions. The credit quality
5-YY
<PAGE>
of these banks and financial institutions could, therefore, cause a loss to a
Fund that invests in municipal obligations. Letters of credit and other obliga-
tions of foreign banks and financial institutions may involve risks in addition
to those of domestic obligations. See "Foreign Government Obligations and
Related Foreign Risks" above. In addition, the Funds may acquire securities in
the form of custodial receipts which evidence ownership of future interest pay-
ments, principal payments or both on obligations of certain state and local
governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obliga-
tion, a Fund may acquire the right to sell the obligation to another party at a
guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in interest
rate levels. Subject to the conditions for using amortized cost valuation under
the Investment Company Act, a Fund may consider the maturity of a variable or
floating rate obligation to be shorter than its ultimate stated maturity if the
obligation is a U.S. Treasury obligation or U.S. Government security, if the
obligation has a remaining maturity of 397 calendar days or less, or if the
obligation has a demand feature that permits the Fund to receive payment at any
time or at specified intervals not exceeding 397 calendar days. The issuers or
financial intermediaries providing demand features may support their ability to
purchase the obligations by obtaining credit with liquidity supports. These may
include lines of credit, which are conditional commitments to lend and letters
of credit, which will ordinarily be irrevocable, both of which may be issued by
domestic banks or foreign banks which have a branch, agency or subsidiary in
the United States. A Fund may purchase variable or floating rate obligations
from the issuers or may purchase certificates of participation, a type of
floating or variable rate obligation, which are interests in a pool of debt
obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued securi-
ties are purchased in order to secure what is considered to be an advantageous
price and yield to a Fund at the time of entering into the transaction. A for-
ward commitment involves entering into a contract to purchase or sell securi-
ties for a fixed price at a future date beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
before the settlement date. Conversely, the sale of securities on a forward
commitment basis involves the
6-YY
<PAGE>
APPENDIX A
risk that the value of the sold securities may increase before the settlement
date. Although a Fund would generally purchase securities on a when-issued or
forward commitment basis with the intention of acquiring the securities for its
portfolio, a Fund may dispose of when-issued securities or forward commitments
before settlement whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other investment
companies subject to the limitations prescribed by the Investment Company Act.
These limitations include a prohibition on any Fund acquiring more than 3% of
the voting shares of any other investment company, and a prohibition on invest-
ing more than 5% of a Fund's total assets in securities of any one investment
company or more than 10% of its total assets in securities of all investment
companies. Each Fund will indirectly bear its proportionate share of any man-
agement fees and other expenses paid by such other investment companies. Such
other investment companies will have investment objectives, policies and
restrictions substantially similar to those of the acquiring Fund and will be
subject to substantially the same risks.
Other Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordinary
course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain municipal leases and participation interests
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of more
than seven days
..Certain restricted securities, unless it is determined, based upon a review of
the trading markets for a specific restricted security, that a restricted
security is liquid because it is so-called "4(2) commercial paper" or is oth-
erwise eligible for resale pursuant to Rule 144A under the Securities Act of
1933.
Investing in restricted securities may decrease the liquidity of a Fund's port-
folio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from banks
for temporary or emergency purposes. A Fund may not make additional investments
if borrowings exceed 5% of its net assets. For more information, see the Addi-
tional Statement.
Downgraded Securities. After its purchase, a portfolio security may be assigned
a lower rating or cease to be rated. If this occurs, a Fund may continue to
hold the security if the Investment Adviser believes it is in the best interest
of the Fund and its shareholders.
7-YY
<PAGE>
Special Risks and Policies Applicable to the Tax-Exempt Funds:
Fundamental Policies. As a matter of fundamental policy, at least 80% of each
of the net assets of each of the Tax-Exempt Diversified, Tax-Exempt California
and Tax-Exempt New York Portfolios will ordinarily be invested in municipal
obligations, the interest from which is, in the opinion of bond counsel, if
any, excluded from gross income for federal income tax purposes. In addition,
as a matter of fundamental policy, at least 65% of each of the Tax-Exempt Cali-
fornia and Tax-Exempt New York Portfolio's total assets will be invested in
California and New York municipal obligations, except in extraordinary circum-
stances.
For these purposes, California and New York municipal obligations are obliga-
tions issued by or on behalf of the State of California or the State of New
York, respectively, and their respective political subdivisions, agencies and
instrumentalities and the government of Puerto Rico, the U.S. Virgin Islands
and Guam, the interest from which is excluded from gross income for federal
income tax purposes and is exempt from California State personal income tax or
New York State and New York City personal income tax. Each Tax-Exempt Fund may
temporarily invest in taxable money market instruments or, in the case of the
Tax-Exempt California and New York Portfolios, in municipal obligations that
are not California or New York municipal obligations, respectively, when
acceptable California and New York municipal obligations are not available or
when the Investment Adviser believes that the market conditions dictate a
defensive posture. Investments in taxable money market instruments will be lim-
ited to those meeting the quality standards of each Tax-Exempt Fund. The Tax-
Exempt California and Tax-Exempt New York Portfolios' distributions of interest
from municipal obligations other than California and New York municipal obliga-
tions, respectively, may be subject to California and New York State and New
York City personal income taxes.
Risks of Investing in California and New York: The Tax-Exempt California and
Tax-Exempt New York Portfolios concentrate their investments in California and
New York municipal obligations. Consequently, these Funds are more susceptible
to factors adversely affecting issuers of California and New York municipal
obligations, and may be riskier than comparable municipal bond funds and money
market funds that do not emphasize these issuers to this degree.
The Tax-Exempt California Portfolio's investments can be affected by political
and economic developments within the State of California (the "State"), and by
the financial condition of the State, its public authorities and political sub-
divisions. After suffering a severe recession in the early 1990's which caused
the State to experience financial difficulties, California's economy entered a
sustained recovery since late 1993 and the State's budget has returned to a
positive balance. California's long-term
8-YY
<PAGE>
APPENDIX A
credit rating has been raised after being reduced during the recession. To
respond to its own revenue shortfalls during the recession, the State reduced
assistance to its public authorities and political subdivisions. Cutbacks in
state aid could further adversely affect the financial condition of cities,
counties and education districts which are subject to their own fiscal
constraints. California voters in the past have passed amendments to the Cali-
fornia Constitution and other measures that limit the taxing and spending
authority of California governmental entities, and future voter initiatives
could result in adverse consequences affecting California municipal obliga-
tions. Also, the ultimate fiscal effect of federally-mandated reform of welfare
programs on the State and its local governments is still to be resolved.
These factors, among others (including the outcome of related pending litiga-
tion), could reduce the credit standing of certain issuers of California munic-
ipal obligations. A more detailed discussion of the risks of investing in Cali-
fornia is included in the Additional Statement.
The Tax-Exempt New York Portfolio's investments will be affected by political
and economic developments within the State of New York (the "State"), and by
the financial conditions of the State, its public authorities and political
subdivisions, particularly the City of New York (the "City"). The State and the
City face long-term economic problems that could seriously affect their ability
and that of other issuers of New York municipal obligations to meet their
financial obligations. Certain substantial issuers of New York municipal obli-
gations (including issuers whose obligations may be acquired by the Fund) have
experienced serious financial difficulties in recent years. These difficulties
have at times jeopardized the credit standing and impaired the borrowing abili-
ties of all New York issuers and have generally contributed to higher interest
costs for their borrowings and fewer markets for their outstanding debt obliga-
tions. Although several different issues of municipal obligations of the State
and its agencies and instrumentalities and of the City have been downgraded by
S&P and Moody's in recent years, the most recent actions of S&P and Moody's
have been to place the debt obligations of the State on Credit Watch with posi-
tive implications and to upgrade the debt obligations of the City, respective-
ly. Strong demand for New York municipal obligations has also at times had the
effect of permitting New York municipal obligations to be issued with yields
relatively lower, and after issuance, to trade in the market at prices rela-
tively higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experi-
enced by certain issuers of New York municipal obligations could result in
defaults or declines in the market values of those issuers' existing obliga-
tions and, possibly, in the obligations of other issuers of New York municipal
obligations. Although as of April 1, 1999 no issuers were in default with
respect to the payment of their New York municipal obligations, the occurrence
of any such default could materially affect adversely the market values and
marketability of all New York
9-YY
<PAGE>
municipal obligations and, consequently, the NAV of the Fund's holdings. A more
detailed discussion of the risks of investing in New York is included in the
Additional Statement.
If California, New York, or any of their local governmental entities are unable
to meet their financial obligations, the corresponding Fund's income, NAV,
ability to preserve or realize appreciation of capital or liquidity could be
adversely affected. Also, neither of these Funds is a diversified fund (except
to the extent that diversification is required by Rule 2a-7 or for federal
income tax purposes). Because they may invest a larger percentage of their
assets in the securities of fewer issuers than do diversified funds, these
Funds may be exposed to greater risk in that an adverse change in the condition
of one or a small number of issuers would have a greater impact on them.
10-YY
<PAGE>
[This page intentionally left blank]
1
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - ILA B units 1.00 0.04 (0.04)
1998 - ILA C units 1.00 0.04 (0.04)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
1997 - ILA B units 1.00 0.04 (0.04)
1997 - ILA C units (commenced August 15) 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
1996 - ILA B units (commenced May 8) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
2
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.32% $837,185 0.43% 5.19% 0.43% 5.19%
1.00 5.16 38,836 0.58 5.05 0.58 5.05
1.00 4.90 119,309 0.83 4.79 0.83 4.79
1.00 4.27 14,412 1.43 4.07 1.43 4.07
1.00 4.27 6,814 1.43 4.13 1.43 4.13
1.00 4.69c 2 0.93c 4.81c 1.43c 4.31c
- ------------------------------------------------------------------------------------
1.00 5.38 866,445 0.42 5.24 0.43 5.23
1.00 5.22 28,110 0.57 5.11 0.58 5.10
1.00 4.96 78,316 0.82 4.85 0.83 4.84
1.00 4.33 1,574 1.42 4.33 1.43 4.32
1.00 4.41c 1,897 1.42c 4.39c 1.43c 4.38c
- ------------------------------------------------------------------------------------
1.00 5.22 1,154,787 0.41 5.11 0.43 5.09
1.00 5.06 23,738 0.56 4.97 0.58 4.95
1.00 4.80 84,707 0.81 4.74 0.83 4.72
1.00 3.97c 346 1.41c 4.09c 1.43c 4.07c
- ------------------------------------------------------------------------------------
1.00 5.79 1,261,251 0.41 5.66 0.43 5.64
1.00 5.63 63,018 0.56 5.51 0.58 5.49
1.00 5.37 227,233 0.81 5.22 0.83 5.20
- ------------------------------------------------------------------------------------
1.00 4.07 1,963,846 0.40 3.94 0.42 3.92
1.00 3.91 149,234 0.55 3.79 0.57 3.77
1.00 3.66 170,453 0.80 3.65 0.82 3.63
- ------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment in
of period incomea unitholders
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares
(commenced May 1) 1.00 0.03 (0.03)
- --------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- --------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- --------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.33% $1,350,317 0.40% 5.17% 0.43% 5.14%
1.00 5.17 314,327 0.55 5.04 0.58 5.01
1.00 4.91 32,349 0.80 4.79 0.83 4.76
1.00 4.69c 2 0.90c 4.80c 1.43c 4.34c
- ---------------------------------------------------------------------------------
1.00 5.43 806,096 0.37 5.31 0.42 5.26
1.00 5.28 307,480 0.52 5.15 0.57 5.10
1.00 5.01 20,517 0.77 4.90 0.82 4.85
- ---------------------------------------------------------------------------------
1.00 5.27 703,097 0.36 5.15 0.43 5.08
1.00 5.12 257,258 0.51 5.00 0.58 4.93
1.00 4.86 28,845 0.76 4.75 0.83 4.68
- ---------------------------------------------------------------------------------
1.00 5.85 574,155 0.36 5.71 0.42 5.65
1.00 5.69 164,422 0.51 5.55 0.57 5.49
1.00 5.43 23,080 0.76 5.29 0.82 5.23
- ---------------------------------------------------------------------------------
1.00 4.13 559,470 0.35 4.01 0.43 3.93
1.00 3.98 145,867 0.50 3.88 0.58 3.80
1.00 3.72 21,862 0.75 3.61 0.83 3.53
- ---------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
GOVERNMENT PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea unitholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - Cash Management shares (commenced
May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.05 (0.05)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.21% $383,243 0.43% 5.09% 0.45% 5.07%
1.00 5.05 7,692 0.58 4.94 0.60 4.92
1.00 4.79 105,732 0.83 4.67 0.85 4.65
1.00 4.57c 2 0.93c 4.60c 1.45c 4.08c
- ---------------------------------------------------------------------------------
1.00 5.31 460,457 0.42 5.16 0.42 5.16
1.00 5.15 10,192 0.57 4.98 0.57 4.98
1.00 4.89 83,799 0.82 4.78 0.82 4.78
- ---------------------------------------------------------------------------------
1.00 5.15 694,651 0.41 5.04 0.44 5.01
1.00 4.99 36,055 0.56 4.89 0.59 4.86
1.00 4.73 94,228 0.81 4.63 0.84 4.60
- ---------------------------------------------------------------------------------
1.00 5.77 570,469 0.41 5.62 0.43 5.60
1.00 5.62 47,558 0.56 5.49 0.58 5.47
1.00 5.35 85,401 0.81 5.19 0.83 5.17
- ---------------------------------------------------------------------------------
1.00 3.94 881,520 0.40 3.78 0.44 3.74
1.00 3.79 95,483 0.55 3.62 0.59 3.58
1.00 3.53 156,930 0.80 3.50 0.84 3.46
- ---------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TAX-EXEMPT DIVERSIFIED PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net
beginning investment Distributions
of period incomea to unitholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- -----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units 1.00 0.03 (0.03)
- -----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
1996 - ILA Service units 1.00 0.03 (0.03)
- -----------------------------------------------------------------------------
1995 - ILA units 1.00 0.04 (0.04)
1995 - ILA Administration units 1.00 0.04 (0.04)
1995 - ILA Service units 1.00 0.03 (0.03)
- -----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.03 (0.03)
1994 - ILA Service units 1.00 0.02 (0.02)
- -----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.17% $1,562,285 0.35% 3.12% 0.41% 3.06%
1.00 3.02 26,509 0.50 2.98 0.56 2.92
1.00 2.76 37,850 0.75 2.72 0.81 2.66
1.00 2.61c 2 0.85c 2.66c 1.41c 2.17c
- ------------------------------------------------------------------------------------
1.00 3.39 1,479,486 0.32 3.33 0.41 3.24
1.00 3.23 27,967 0.47 3.16 0.56 3.07
1.00 2.97 30,513 0.72 2.97 0.81 2.88
- ------------------------------------------------------------------------------------
1.00 3.25 1,514,443 0.31 3.20 0.41 3.10
1.00 3.09 59,097 0.46 3.06 0.56 2.96
1.00 2.84 28,921 0.71 2.79 0.81 2.69
- ------------------------------------------------------------------------------------
1.00 3.72 1,342,585 0.31 3.65 0.42 3.54
1.00 3.57 48,773 0.46 3.51 0.57 3.40
1.00 3.31 49,647 0.71 3.24 0.82 3.13
- ------------------------------------------------------------------------------------
1.00 2.71 1,434,965 0.30 2.64 0.41 2.53
1.00 2.55 97,778 0.45 2.50 0.56 2.39
1.00 2.30 36,492 0.70 2.20 0.81 2.09
- ------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TAX-EXEMPT CALIFORNIA PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distribution
beginning investment to
of period incomea unitholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.02 (0.02)
1998 - Cash Management shares (commenced May
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (Re-commenced
September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 2.84% $584,615 0.41% 2.79% 0.41% 2.79%
1.00 2.68 512 0.56 2.84 0.56 2.84
1.00 2.43 2 0.81 2.48 0.81 2.48
1.00 2.25c 2 0.91c 2.37c 1.41c 1.87c
- ------------------------------------------------------------------------------------
1.00 3.15 591,003 0.42 3.10 0.42 3.10
1.00 3.00 360 0.57 2.98 0.57 2.98
1.00 2.87c 2 0.82c 2.90c 0.82c 2.90c
- ------------------------------------------------------------------------------------
1.00 3.03 440,476 0.41 2.99 0.42 2.98
1.00 2.88 142 0.56 2.84 0.57 2.83
- ------------------------------------------------------------------------------------
1.00 3.55 346,728 0.41 3.49 0.41 3.49
1.00 3.40 61 0.56 3.32 0.56 3.32
- ------------------------------------------------------------------------------------
1.00 2.53 227,399 0.40 2.50 0.41 2.49
1.00 2.37 790 0.55 2.33 0.56 2.32
- ------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
TAX-EXEMPT NEW YORK PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net
beginning investment Distributions
of period incomea to unitholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- -----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units (commenced
September 15) 1.00 0.01 (0.01)
- -----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
- -----------------------------------------------------------------------------
1995 - ILA units 1.00 0.03 (0.03)
1995 - ILA Administration units 1.00 0.03 (0.03)
- -----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.02 (0.02)
- -----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of Ratio of net
Net asset assets at Ratio of net investment net investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.02% $122,550 0.36% 2.96% 0.51% 2.81%
1.00 2.87 21,580 0.51 2.85 0.66 2.70
1.00 2.61 2 0.76 2.61 0.91 2.46
1.00 2.46c 1 0.86c 2.56c 1.51c 1.91c
- ------------------------------------------------------------------------------------
1.00 3.29 102,887 0.33 3.24 0.43 3.14
1.00 3.14 31,993 0.48 3.09 0.58 2.99
1.00 3.02c 2 0.73c 3.04c 0.83c 2.94c
- ------------------------------------------------------------------------------------
1.00 3.05 70,175 0.32 3.01 0.43 2.90
1.00 2.90 44,319 0.47 2.88 0.58 2.77
- ------------------------------------------------------------------------------------
1.00 3.51 90,537 0.30 3.44 0.44 3.30
1.00 3.35 26,724 0.45 3.28 0.59 3.14
- ------------------------------------------------------------------------------------
1.00 2.56 84,517 0.24 2.62 0.47 2.39
1.00 2.41 38,970 0.39 2.47 0.62 2.24
- ------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
FUND FEES AND EXPENSES
Index
xx General Investment Management
Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Portfolio
xx Money Market Portfolio
xx Government Portfolio
xx Tax-Exempt Diversified Portfolio
xx Tax-Exempt California Portfolio
xx Tax-Exempt New York Portfolio
xx Principal Risks of the
Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Taxation
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Dividends
xx Appendix
Additional Information on
Portfolio Risks,
Securities and Techniques
xx Appendix
Financial Highlights
15
<PAGE>
Institutional Liquid Assets Prospectus (ILA Cash Management Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone -- Call 1-800-621-2550
By mail -- Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail -- [email protected]
On the Internet -- Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC -- http://www.sec.gov
Goldman Sachs -- http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents by sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-6009. Information on the operation
of the public reference room may be obtained by calling the SEC at 1-800-
SEC-0330.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus
May , 1999
GOLDMAN SACHS INSTITUTIONAL LIQUID ASSETS
Prime Obligations
Portfolio
.ILA Service
("Units" or
"Shares"),
ILA Class B and
C ("Units" or
"Shares")
Tax-Exempt
Diversified
Portfolio
.ILA Service
(INSERT ARTWORK) ("Units" or
"Shares")
THE TERMS "PORTFOLIOS" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
PORTFOLIOS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------------------------------------
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
-------------------------------------------------------
[LOGO OF GOLDMAN
SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Fund's investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
1-TT
<PAGE>
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
..The Funds: Each Fund's securities are valued by the amortized cost method as
permitted under Rule 2a-7 of the Investment Company Act of 1940, as amended
(the "1940 Act"). Under Rule 2a-7, each Fund may invest only in U.S. dollar
denominated securities that are determined to present minimal credit risk and
meet certain other criteria, including those conditions relating to maturity,
diversification and credit quality. These operating policies may be more
restrictive than the fundamental policies set forth in the Statement of Addi-
tional Information (the "Additional Statement").
..Taxable Fund: Prime Obligations Portfolio
..Tax-Exempt Fund: Tax-Exempt Diversified Portfolio
..The Investors: The Funds are designed for investors seeking a high rate of
return, a stable net asset value ("NAV") and convenient liquidation privi-
leges.
..NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
..Maximum Remaining Maturity of Portfolio Investments: 13 months (as determined
pursuant to Rule 2a-7) at the time of purchase.
..Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days (as
required by Rule 2a-7).
..Investment Restrictions: Each Fund is subject to certain investment restric-
tions that are described in detail under "Investment Restrictions" in the
Additional Statement. Fundamental investment restrictions and the investment
objective of a Fund cannot be changed without approval of a majority of the
outstanding shares of that Fund. All investment policies not specifically des-
ignated as fundamental are non-fundamental and may be changed without share-
holder approval.
..Diversification: Diversification can help a Fund reduce the risks of invest-
ing. In accordance with current regulations of the Securities and Exchange
Commission (the "SEC"), each Fund may not invest more than 5% of the value of
its total assets at the time of purchase in the securities of any single
issuer except that each Fund may invest up to 25% of its total assets in the
securities of a single issuer for up to three business days. These limitations
do not apply to cash, certain repurchase agreements, U.S. Government Securi-
ties or securities of other investment companies. In addition, securities sub-
ject to certain unconditional guarantees and securities that are not "First
Tier Securities" as defined by the SEC are subject to different diversifica-
tion requirements as described in the Additional Statement.
2-TT
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable Funds:
The Prime Obligations Portfolio seeks 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.
Tax-Exempt Funds:
The Tax-Exempt Diversified Portfolio seeks to provide shareholders, to the
extent consistent with the preservation of capital and prescribed portfolio
standards, with a high level of income exempt from federal income tax by
investing primarily in municipal instruments.
The Tax-Exempt Funds pursue their investment objectives by limiting their
investments to securities 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, the inter-
est from which, if any, is in the opinion of bond counsel excluded from
gross income for federal income tax purposes, and not an item of tax prefer-
ence under the federal alternative minimum tax.
3-TT
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
Prime Tax-Exempt
Obligations Diversified
Fund Portfolio Portfolio
-----------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Obligations .
-----------------------------------------------------------------------------
U.S. Government Securities 11
-----------------------------------------------------------------------------
Bank Obligations .
U.S. banks only
-----------------------------------------------------------------------------
Commercial Paper . .
Tax-exempt only
-----------------------------------------------------------------------------
Taxable Municipals ./2/
-----------------------------------------------------------------------------
Tax-Exempt Municipals .
At least 80% of net
assets in tax-
exempt municipal
obligations (except
in extraordinary
circumstances)/3/
-----------------------------------------------------------------------------
Custodial Receipts . .
-----------------------------------------------------------------------------
Unrated Securities/4/ . .
-----------------------------------------------------------------------------
Investment Companies . .
Up to 10% of Up to 10% of total
total assets in
assets in other other investment
investment companies
companies
-----------------------------------------------------------------------------
Short-Term Obligations of Corporations .
and Other Entities U.S. entities
only
-----------------------------------------------------------------------------
Repurchase Agreements .
-----------------------------------------------------------------------------
Asset-Backed & Receivables-Backed .
Securities/1/
-----------------------------------------------------------------------------
Private Activity Bonds . (Does not intend to
invest)/5/
-----------------------------------------------------------------------------
Credit Quality/4/ First Tier/6/ First Tier/6/ or
Second Tier/7/
-----------------------------------------------------------------------------
Summary of Taxation for Taxable federal Tax-exempt federal
Distributions/8/ and state/9/ and taxable
state/10/
-----------------------------------------------------------------------------
Miscellaneous May (but does not
currently intend
to) invest up to
20% in securities
subject to the
federal alternative
minimum tax
("AMT")and may
temporarily invest
in the taxable
money market
instruments
described herein
-----------------------------------------------------------------------------
</TABLE>
4-TT
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Note: See Appendix A for a description of, and certain criteria applicable to,
each of these categories of investments.
/1/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/2/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/3/Ordinarily expect that 100% of the Fund's portfolio securities will be
invested in municipal obligations but the Fund may, for temporary defensive
purposes, hold cash or invest in short-term taxable securities.
/4/To the extent permitted by Rule 2a-7, securities without short-term ratings
may be purchased if they are deemed to be of comparable quality to First Tier
Securities, or to the extent that a Fund may purchase Second Tier Securities,
comparable in quality to Second Tier Securities. In addition, a Fund holding
a security supported by a guarantee or demand feature may rely on the credit
quality of the guarantee or demand feature in determining the credit quality
of the investment.
/5/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions. No more
than 25% of the value of a Fund's total assets may be invested in industrial
development bonds or similar obligations where the non-governmental entities
supplying the revenues from which such bonds or obligations are to be paid
are in the same industry.
/6/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a rating,
by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a Fund
under certain conditions to demand payment from, an entity with such
ratings. U.S. Government Securities are considered First Tier Securities.
/7/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow a
Fund under certain conditions to payment from, an entity with such ratings.
/8/See "Taxation" below for an explanation of the tax consequences summarized
in the table above.
/9/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government Securities interest
income.
/10/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
/11/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
5-TT
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Prime Tax-Exempt
Obligations Diversified
Portfolio Portfolio
- -------------------------------------------------------
<S> <C> <C>
Money Market . .
- -------------------------------------------------------
Interest Rate . .
- -------------------------------------------------------
Credit/Default . .
- -------------------------------------------------------
Management . .
- -------------------------------------------------------
Liquidity . .
- -------------------------------------------------------
Other . .
- -------------------------------------------------------
Government Securities -- --
- -------------------------------------------------------
Concentration -- .
- -------------------------------------------------------
Foreign -- .
- -------------------------------------------------------
Tax -- .
- -------------------------------------------------------
</TABLE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
6-TT
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risks that apply to the Tax-Exempt Diversified Portfolio:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a Fund could suffer a loss from investments in
municipal instruments which are backed by letters of credit or other forms
of credit enhancement issued by a foreign bank. Letters of credit and other
obligations of foreign banks may involve risks in addition to those of
domestic obligations because of less publicly available financial and other
information, less securities regulation, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors.
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends.
More information about the Fund's portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
7-TT
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of the Funds' Serv-
ice Shares from year to year and (b) how the average annual returns of the
Funds' Service Shares and the Prime Obligation Fund's Class B and C Shares
compare to the returns of a composite of mutual funds with similar invest-
ment objectives. The bar chart and table assume reinvestment of dividends
and distributions. A Fund's past performance is not necessarily an indica-
tion of how the Fund will perform in the future. The average annual total
return reflects the assumed contingent deferred sales charge ("CDSC") for
Class B Shares (5% maximum declining to 0% after six years) and the assumed
CDSC for Class C Shares (1% if redeemed within 12 months of purchase). Serv-
ice Shares are not subject to any initial sales charge or CDSC. Performance
reflects expense limitations in effect. If expense limitations were not in
place, a Fund's performance would have been reduced. You may obtain a Fund's
current yield by calling 1-800-621-2550.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
Best Quarter 1991 5.67%
Q1 '91 1.61% 1992 3.35%
1993 2.56%
Worst Quarter 1994 3.66%
Q2 '93 0.62% 1995 5.37%
1996 4.80%
1997 4.96%
1998 4.90%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year 5 Years Since Inception
------------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 6/1/90) 4.90% 4.73% 4.62%
------------------------------------------------------------------------
Class B (Inception 5/8/96)
Including CDSC -0.94% N/A 3.05%
------------------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 3.23% N/A 4.31%
------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Tax-Exempt Diversified Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
Best Quarter 1991 3.91%
Q1 '98 1.03% 1992 2.42
1993 1.84
Worst Quarter 1994 2.30
Q1 '98 0.42% 1995 3.31
1996 2.84
1997 2.97
1998 2.76
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1998 1 Year 5 Years Since Inception
-------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 7/2/90) 2.76% 2.84% 2.94%
-------------------------------------------------------------------
</TABLE>
4
<PAGE>
Fund Fees and Expenses (Service, Class B and C Shares)
This table describes the fees and expenses that you would pay if you buy and
hold ILA Service, Class B or Class C Shares of a Fund.
<TABLE>
<CAPTION>
Prime Tax-Exempt
Obligations Diversified
Portfolio Portfolio
------------------------------------------- -------------
(ILA Service) (ILA Class B+) (ILA Class C+) (ILA Service)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Fees
(fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None None
Maximum Deferred Sales Charge (Load)/1/ None 5.0%/2/ 1.0%/3/ None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None None
Redemption Fees/4/ None None None None
Exchange Fees/4/ None None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/5/
Management Fees 0.35% 0.35% 0.35% 0.35%
Class B and C Distribution and Service
Fees None 1.00% 1.00% None
ILA Service Fees 0.40% None None 0.40%
Other Expenses/6/ 0.08% 0.08% 0.08% 0.06%
- --------------------------------------------------------------------------------------------------
Total Fund Operating Expenses/7/ 0.83% 1.43% 1.43% 0.81%
- --------------------------------------------------------------------------------------------------
</TABLE>
+Investors wishing to purchase shares of the Prime Obligations Portfolio are
generally required to purchase ILA Service Shares. ILA Class B and Class C
Shares of the Prime Obligations Portfolio will typically be issued only in
exchange for Class B or Class C Shares, respectively, of another Goldman Sachs
Fund.
/1/The maximum contingent deferred sales charge ("CDSC") is a percentage of the
lesser of the net asset value ("NAV") at the time of redemption or the NAV when
the shares were originally purchased.
/2/A CDSC is imposed upon Class B Shares redeemed within six years of purchase
(or initial investment in a Goldman Sachs Fund from which an exchange is made)
at a rate of 5% in the first year, declining to 1% in the sixth year, and elim-
inated thereafter.
/3/A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of pur-
chase (or initial investment in a Goldman Sachs Fund from which an exchange is
made).
/4/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds and free automatic exchanges pursuant to
the Automatic Exchange Program, six free exchanges are permitted in each
12-month period. A fee of $12.50 may be charged for each subsequent exchange
during such period.
/5/The Funds' annual operating expenses have been restated to reflect current
fees.
/6/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each class plus all other ordinary expenses not detailed
above.
/7/The Investment Adviser has voluntarily agreed to reduce or limit "Total Fund
Operating Expenses" of each Fund (excluding distribution fees, service fees,
taxes, interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to 0.43% (rounded) of a Fund's average daily net
assets. The expense limitation may be terminated at any time at the option of
the Investment Adviser with the approval of the Trustees. If this occurs,
"Other Expenses" and "Total Fund Operating Expenses" may increase without
shareholder approval.
5
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the expense limitations) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in Service, Class B
or Class C Shares of a Fund, for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations
ILA Service Shares $ 85 $265 $460 $1,025
ILA Class B Shares
- Assuming complete
redemption at end of
period $646 $752 $982 $1,548
- Assuming no redemption $146 $452 $782 $1,548
ILA Class C Shares
- Assuming complete
redemption at end of
period $246 $452 $782 $1,713
- Assuming no redemption $146 $452 $782 $1,713
- ---------------------------------------------------------
Tax-Exempt Diversified
ILA Service Shares $ 83 $259 $450 $1,002
- ---------------------------------------------------------
</TABLE>
*ILA Class B Shares convert to ILA Service Shares eight years after purchase;
therefore, ILA Class B expenses in the hypothetical example below assume this
conversion.
Service Organizations may charge other fees directly to their customers who are
the beneficial owners of Service Shares in connection with their customers'
accounts. You should contact your Service Organization for information regard-
ing such charge. Such fees may affect the return such customers realize with
respect to their investments.
Certain institutions may receive other compensation in connection with the sale
and distribution of shares or for services to their customers' accounts and/or
the Funds. For additional information regarding such compensation, see "Share-
holder Guide" in the Prospectus and "Other Information" in the Additional
Statement.
6
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as Investment Adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and
disposition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not
provided by other organizations)
Pursuant to an SEC order, the Prime Obligations Portfolio may enter into
principal transactions in certain taxable money market instruments, includ-
ing repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser, is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.35% 0.35%
-------------------------------------------------------------------
Tax-Exempt Diversified 0.35% 0.29%
-------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled.
The Investment Adviser has voluntarily agreed to reduce or otherwise limit
the daily expenses of each Fund (excluding fees payable under service,
administration and distribution plans for certain share classes, taxes,
interest, brokerage
1-UU
<PAGE>
and litigation, indemnification and other extraordinary expenses) on an
annualized basis to 0.43% of the average daily net assets of the Fund. Such
reductions or limits, if any, are calculated monthly on a cumulative basis.
These reductions or limits may be discontinued or modified only with the
express approval of the Trustees.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Fund's
transfer agent ( the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service prov-
iders do not adequately address this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problem and the Investment Adviser will continue to
monitor the situation.
2-UU
<PAGE>
SERVICE PROVIDERS
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Funds' other service providers will be suffi-
cient to avoid any adverse effect on the Funds due to the Year 2000 Problem.
..In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000
preparedness of the issuers of securities held by the Funds. The Investment
Adviser may obtain such Year 2000 information from various sources which
the Investment Adviser believes to be reliable, including the issuers'
public regulatory filings. However, the Investment Adviser is not in a
position to verify the accuracy or completeness of such information.
3-UU
<PAGE>
Taxation
Each Fund intends to quality as a regulated investment company for federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Diversified Portfolio, fund dividends will generally
be taxable to you as ordinary income (unless your investment is in an IRA or
other tax-advantaged account) regardless of whether you reinvest in additional
shares or take them as cash. The Tax-Exempt Diversified Portfolio expects gen-
erally to distribute "exempt-interest dividends," which will be tax-exempt
income for federal income tax purposes. The tax status and amounts of the divi-
dends for each calendar year will be detailed in your annual tax statement from
the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Diversified Portfolio generally will not be deductible for federal
income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Diversified Portfolio may be an item of tax preference for purposes
of determining your federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Diver-
sified Portfolio) or on the value of the shares held by you. More tax informa-
tion is provided in the Additional Statement. You should also consult your own
tax adviser for information regarding all tax consequences applicable to your
investments in the Funds.
4-UU
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' shares.
HOW TO BUY SHARES
How Can I Purchase Shares Of The Funds?
Each Fund offers Service Shares, and the Prime Obligations Portfolio also
offers Class B and Class C Shares. You may purchase shares of the Funds on
any business day, at their net asset value ("NAV") next determined after
receipt of an order in proper form by State Street Bank & Trust Company
("State Street") as agent for Goldman Sachs or certain authorized institu-
tions ("Authorized Dealers"). No sales load is charged.
Service Shares may be purchased through Goldman Sachs acting as a Service
Organization or through Authorized Dealers. Class B and Class C shares may
be purchased through Goldman Sachs or through Authorized Dealers. Class B
and Class C Shares will typically be issued only upon an exchange of Class B
and Class C Shares of another equity or bond fund of the Goldman Sachs Trust
(the "Trust") or to accounts that intend to systematically exchange such
shares for Class B or Class C Shares of other Goldman Sachs Funds. If you do
not specify in your instructions to the Funds which class of shares you wish
to purchase, the Funds will assume that the instructions apply to Service
Shares since, unlike Class B and Class C Shares, they are normally not sub-
ject to any contingent deferred sales charge ("CDSC") and have lower fees.
In order to make an initial investment in a Fund, you must furnish to the
Fund, Goldman Sachs, your Service Organization or your Authorized Dealer the
information in the Account Application attached to this Prospectus.
To Open an Account:
..Complete the enclosed Account Application
..Mail your payment and Account Application to:
Your Authorized Dealer
- Purchases by check or Federal Reserve draft should be made payable to
your Authorized Dealer
- Your Authorized Dealer is responsible for forwarding payment promptly
(within three business days) to the Fund
1-VV
<PAGE>
or
Goldman Sachs Funds c/o National Financial Data Services ("NFDS"), P.O.
Box 419711, Kansas City, MO 64141-6711
- Purchases by check or Federal Reserve draft should be made payable to
Goldman Sachs Funds--(Name of Fund and Class of Shares)
- NFDS will not accept a check drawn on a foreign banks, cash, money
orders, travelers checques or credit card checks, a third-party check.
- Federal funds wires, Automated Clearing House Network ("ACH") transfers
or bank wires should be sent to the Trust c/o The Northern Trust Company
("Northern") as subcustodian for State Street
- It is expected that Federal Reserve drafts will ordinarily be converted
to federal funds on the day of receipt and that checks will be converted
to federal funds within two business days after receipt. ACH transfers
are expected to convert to federal funds on the business day following
receipt of the ACH transfer.
What Is My Minimum Investment In The Funds?
<TABLE>
<CAPTION>
All Funds Initial Additional
-----------------------------------------------------------------------------
<S> <C> <C>
Regular Accounts $5,000 None
-----------------------------------------------------------------------------
Systematic Exchange Program (Class B and C Shares
Only) $1,000 None
-----------------------------------------------------------------------------
Other Share Exchanges $5,000 or
full account
share balance,
whichever
is less None
-----------------------------------------------------------------------------
<CAPTION>
Prime Obligations Fund Only
-----------------------------------------------------------------------------
<S> <C> <C>
Tax-Sheltered Retirement Plans (excluding SIMPLE
IRAs and Education IRAs) $250 $ 50
-----------------------------------------------------------------------------
Uniform Gift to Minors Act Accounts/Uniform
Transfer to Minors Act Accounts $250 $ 50
-----------------------------------------------------------------------------
403(b) Plan Accounts $200 $ 50
-----------------------------------------------------------------------------
SIMPLE IRAs and Education IRAs $50 $ 50
-----------------------------------------------------------------------------
Automatic Investment Plan Accounts $50 $ 50
-----------------------------------------------------------------------------
</TABLE>
2-VV
<PAGE>
SHAREHOLDER GUIDE
What Alternative Sales Arrangements Are Available?
The Funds offer three classes of shares through this Prospectus:
<TABLE>
-----------------------------------------------------------
<S> <C> <C>
Initial Sales Charge Class B None
-----------------------------------
Class C None
-----------------------------------
Service
Shares None
-----------------------------------------------------------
CDSC Class B 6 Year declining CDSC with a
maximum of 5%
-----------------------------------
Class C 1% if shares are redeemed
within 12 months of purchase
-----------------------------------
Service None unless acquired in an
Shares exchange for shares subject
to a CDSC
-----------------------------------------------------------
Conversion Feature Class B Class B Shares convert to
ILA Service Units after 8
years
-----------------------------------
Class C None
-----------------------------------
Service
Shares None
-----------------------------------------------------------
</TABLE>
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and federal funds are received: Dividends begin:
--------------------------------------------------------------------------
<S> <C>
Prime Obligation Portfolio:
--------------------------------------------------------------------------
.By 3:00 p.m. New York time Same business day
--------------------------------------------------------------------------
.After 3:00 p.m. New York time Next business day
--------------------------------------------------------------------------
Tax-Exempt Diversified Portfolio:
--------------------------------------------------------------------------
.By 1:00 p.m. New York time Same business day
--------------------------------------------------------------------------
.After 1:00 p.m. New York time Next business day
--------------------------------------------------------------------------
</TABLE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Refuse to open an account if you fail to (i) provide a social security num-
ber or other taxpayer identification number; or (ii) certify that such num-
ber is correct (if required to do so under applicable law).
..Reject any purchase order for any reason.
..Modify or waive the minimum investment amounts.
..Modify the manner in which shares are offered.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Investment Adviser.
3-VV
<PAGE>
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange shares is deter-
mined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (usu-
ally 4:00 p.m. New York time). Fund shares will be priced on any day the
New York Stock Exchange is open, except for days on which Chicago, Boston,
or New York banks are closed for local holidays.
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be granted to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
A COMMON QUESTION REGARDING THE PURCHASE OF SERVICE SHARES
What Is The Offering Price Of Service Shares?
You may purchase Service Shares of the Funds at the next determined NAV
without an initial sales charge. Service Shares are not subject to any ini-
tial or contingent deferred sales charge or fee for distribution services.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
What Is The Offering Price Of Class B Shares?
You may purchase Class B Shares of the Funds at the next determined NAV
without an initial sales charge. However, Class B Shares redeemed within six
years of purchase will be subject to a CDSC at the rates shown in the table
below based on how long you held your shares.
4-VV
<PAGE>
SHAREHOLDER GUIDE
The CDSC schedule is as follows:
<TABLE>
<CAPTION>
CDSC as a
Percentage of
Year Since Dollar Amount
Purchase Subject to CDSC
-----------------------------------------------------------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter None
-----------------------------------------------------------------------------
</TABLE>
No CDSC is imposed upon exchanges of Class B Shares between the Prime Obli-
gation Portfolio and another Goldman Sachs Fund. However, shares acquired in
an exchange will be subject to the CDSC to the same extent as if there had
been no exchange.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing dis-
tribution-related services to the Funds in connection with the sale of Class
B Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4% of the amount invested is paid to Authorized Dealers.
What Should I Know About The Automatic Conversion Of Class B Shares?
Class B Shares of the Prime Obligations Portfolio will automatically convert
into Service Shares of that Fund at the end of the calendar quarter that is
eight years after the purchase date.
If you acquire Class B Shares of the Fund by exchange from Class B Shares of
another Goldman Sachs Fund, your Class B Shares will convert into Service
Shares of the Fund based on the date of the initial purchase and the CDSC
schedule of that purchase.
If you acquire Class B Shares through reinvestment of distributions, your
Class B Shares will convert into Service Shares based on the date of the
initial purchase of the shares on which the distribution was paid.
The conversion of Class B Shares to Service Shares will not occur at any
time the Prime Obligations Portfolio is advised that such conversions may
constitute taxable events for federal tax purposes, which the Funds believe
is unlikely. If conversions do not occur as a result of possible taxability,
Class B Shares would continue to be subject to higher expenses than Service
Shares for an indeterminate period.
5-VV
<PAGE>
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
What Is The Offering Price Of Class C Shares?
You may purchase Class C Shares of the Funds at the next determined NAV
without paying an initial sales charge. However, if you redeem Class C
Shares within 12 months of purchase, a CDSC of 1% will be deducted from the
redemption proceeds.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers.
An amount equal to 1% of the amount invested is paid by the Distributor to
Authorized Dealers.
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF SERVICE, CLASS B AND CLASS C
SHARES
What Else Do I Need To Know About The CDSC On Class B Or C Shares?
..No CDSC is charged on shares acquired from reinvested dividends or capital
gains distributions.
.When counting the number of months since a purchase of Class B or Class C
Shares was made, all payments made during a month will be combined and
considered to have been made on the first day of that month.8
..To keep your CDSC as low as possible, each time you place a request to sell
shares, the Funds will first sell any shares in your account that do not
carry a CDSC and then the shares in your account that have been held the
longest.
In What Situations May The CDSC On Service, Class B Or C Shares Be Waived Or
Reduced?
The CDSC on Service, Class B or Class C Shares that are subject to a CDSC
(i.e., because the Service Shares were acquired in an exchange transaction
for shares of a Goldman Sachs Fund that were subject to a CDSC) may be
waived or reduced if the redemption relates to:
..Retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans (each a "Retirement Plan");
..The death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a participant or benefi-
ciary in a Retirement Plan;
..Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
..Satisfying the minimum distribution requirements of the Code;
6-VV
<PAGE>
SHAREHOLDER GUIDE
..Establishing "substantially equal periodic payments" as described under
Section 72(t)(2) of the Code;
..The separation from service by a participant or beneficiary in a Retirement
Plan;
..The death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event;
..Excess contributions distributed from a Retirement Plan;
..Distributions from a qualified Retirement Plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; or
..Redemption proceeds which are to be reinvested in accounts or non-regis-
tered products over which GSAM or its advisory affiliates have investment
discretion.
In addition, Service, Class B and Class C Shares subject to a systematic
withdrawal plan may be redeemed without a CDSC. The Funds reserve the right
to limit such redemptions, on an annual basis to 10% of the value of your
Service Shares and 12% each of the value of your Class B and C Shares.
What Other Attributes of Service, Class B Or Class C Shares Should I Know
About?
..Service Shares. Service Shares are normally not subject to any initial
sales charge or CDSC. However, Service Shares are subject to a service fee
at the annual rate of 0.40% of a Fund's average daily net assets attribut-
able to Service Shares.
..Class B Shares. Class B Shares are subject to a CDSC but not an initial
sales charge. By not paying a front-end sales charge on non-money market
fund share purchases, your entire investment in Class B Shares is available
to work for you from the time you make your initial investment. However,
the distribution fee of up to 0.75% and service fee of up to 0.25% paid by
Class B Shares will cause your Class B Shares (until conversion to Service
Shares) to have a higher expense ratio, and thus lower performance and div-
idend payments, than Service Shares.
A maximum purchase limitation of $250,000 in the aggregate normally
applies to Class B Shares.
..Class C Shares. Class C Shares are also subject to a CDSC but not an ini-
tial sales charge. By not paying a front-end sales charge on non-money mar-
ket fund share purchases, your entire investment in Class C Shares is
available to work for you from the time you make your initial investment.
However, the distribution fee of 0.75% and service fee of 0.25% paid by
Class C Shares will cause your Class C Shares to have a higher expense
ratio, and thus lower performance and dividend payments, than Service
Shares (or Class B Shares after conversion to Service Shares).
7-VV
<PAGE>
Although Class C Shares are subject to a CDSC for only 12 months, Class C
Shares do not have the conversion feature applicable to Class B Shares and
your investment will, therefore, pay higher distribution fees indefinite-
ly.
A maximum purchase limitation of $1,000,000 in the aggregate normally
applies to purchases of Class C Shares.
Note: Authorized Dealers may receive different compensation for selling
Service, Class B or Class C Shares.
HOW TO SELL SHARES
How Can I Sell Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its shares on
any business day at their NAV next determined after receipt of such request
in proper form, subject to any applicable CDSC. You may request that redemp-
tion proceeds be sent to you by check or by wire (if the wire instructions
are on record).
If your shares are held in a "street name" or omnibus account, you should
contact your Authorized Dealer to make a redemption. Otherwise, redemptions
may be requested in writing or by telephone.
<TABLE>
<CAPTION>
Instructions For Redemptions:
---------------------------------------------------------------------------------
<S> <C> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (see details below)
.Mail your request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 49711
Kansas City, MO 64141-6711
---------------------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m. New York time)
.You may redeem up to $50,000 of your shares
within any 7 calendar day period
.Proceeds which are sent directly to a Goldman Sachs
brokerage account are not subject to the $50,000 limit
---------------------------------------------------------------------------------
</TABLE>
8-VV
<PAGE>
SHAREHOLDER GUIDE
You may also take advantage of the check redemption privilege described
below.
When Do I Need A Signature Guarantee To Redeem Shares?
A signature guarantee is required if:
..You are requesting in writing to redeem shares in an amount over $50,000;
..You would like the redemption proceeds sent to an address that is not your
address of record; or
..You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
Additional documentation may be required for executors, trustees or corpora-
tions or when deemed appropriate by the Transfer Agent.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption requests from any person identify-
ing himself or herself as the owner of an account or the owner's registered
representative where the owner has not declined in writing to use this serv-
ice. Thus, you risk possible losses if a telephone redemption is not autho-
rized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Proceeds of telephone redemption requests will be sent only to your address
of record or authorized bank account designated on your Account Application
(unless you provide written instructions and a signature guarantee, indi-
cating another address or account) and exchanges of shares normally will be
made only to an identically registered account.
..Telephone redemptions will not be accepted during the 30-day period follow-
ing any change in your address of record.
..The telephone redemption option does not apply to shares held in a "street
name" account. "Street name" accounts are accounts maintained and serviced
9-VV
<PAGE>
by your Authorized Dealer. If your account is held in "street name," you
should contact your registered representative of record, who may make tele-
phone redemptions on your behalf.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
When Will Redemption Proceeds Be Wired Or Mailed?
Redemption proceeds will normally be wired or mailed to the recordholder of
shares as follows:
<TABLE>
<CAPTION>
Redemption Request
Received Redemption Proceeds Dividends
-------------------------------------------------------------------------------
<S> <C> <C>
Prime Obligations Fund:
-------------------------------------------------------------------------------
.By 3:00 p.m. New York .Wired same business day Not earned on day
time
.Checks sent next business day request is received
-------------------------------------------------------------------------------
.After 3:00 p.m. New York .Wired next business day Earned on day
time
.Checks sent within two request is received
business days
-------------------------------------------------------------------------------
Tax-Exempt Diversified
Fund:
-------------------------------------------------------------------------------
.By 12:00 p.m. New York .Wired same business day Not earned on day
time
.Check sent next business request is received
day
-------------------------------------------------------------------------------
.After 12:00 p.m. New .Wired next business day Earned on day
York time
.Checks sent within two request is received
business days
-------------------------------------------------------------------------------
</TABLE>
.Although redemption proceeds will normally be wired or mailed as
described above, each Fund reserves the right to pay redemption proceeds
up to three business days following receipt of a properly executed wire
transfer redemption request. If you are selling shares you recently paid
for by check, the Fund will pay you when your check has cleared, which
may take up to 15 days. If the Federal Reserve Bank is closed on the day
that the redemption proceeds would ordinarily be wired, wiring the
redemption proceeds may be delayed one additional business day.
.A transaction fee of $7.50 may be charged for payments of redemption pro-
ceeds by wire. Your bank may also charge wiring fees. You should contact
your bank directly to learn whether it charges such fees.
.Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you
should deal directly with your bank or any such intermediaries.
10-VV
<PAGE>
SHAREHOLDER GUIDE
.If the redeemed shares were recently paid for by check, the Fund will pay
the redemption proceeds when the check has cleared, which may take up to
15 days.
What Should I Know About The Check Redemption Privilege (Service Shares
Only)?
You may elect to have a special account with State Street for the purpose of
redeeming shares from your account by check. The following general policies
govern the check redemption privilege:
..You will be provided with a supply of checks when State Street receives a
completed signature card and authorization form. Checks drawn on the
account may be payable to the order of any person in any amount over $500,
but cannot be certified.
.The payee of the check may cash or deposit it just like any other check
drawn on a bank.
.When the check is presented to State Street for payment, a sufficient
number of full or fractional shares will be redeemed to cover the amount
of the check.
.Canceled checks will be returned to you by State Street.
..The check redemption privilege allows you to receive the dividends declared
on the shares that are to be redeemed until the check is actually proc-
essed. Because of this feature, accounts may not be completely liquidated
by check.
..If the amount of the check is greater than the value of the Service Shares
held in your account, the check will be returned unpaid. In this case, you
may be subject to extra charges.
..Goldman Sachs Funds reserves the right to limit the availability of, modify
or terminate the check redemption privilege at any time with respect to any
or all shareholders.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
..Redeem the shares of any account whose balance falls below the minimum as a
result of earlier redemptions. The Funds will give 60 days' prior written
notice to allow you to purchase sufficient additional shares of the Fund in
order to avoid such redemption.
11-VV
<PAGE>
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction cost upon the disposition of those securities.
..Redeem shares in other circumstances determined by the Board of Trustees to
be in the best interest of the Trust.
Can I Exchange My Investment From One Fund To Another?
You may exchange Service Shares of each Fund and Class B and C Shares of the
Prime Obligations Portfolio for shares of the same class or an equivalent
class of any other Goldman Sachs Fund. The exchange privilege may be materi-
ally modified or withdrawn at a time upon 60 days written notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund name and Class of Shares
.The dollar amount you want to exchange
.Mail the request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 419711
Kansas City, MO 64141-6711
or for overnight delivery--
Goldman Sachs Funds
c/o NFDS
330 West 9th St.
Poindexter Bldg.
1st Floor
Kansas City, MO 64105
or your Authorized Dealer
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..Six free exchanges are allowed in each 12 month period.
..A $12.50 fee may be charged for each subsequent exchange.
12-VV
<PAGE>
SHAREHOLDER GUIDE
..There is no charge for exchanges made pursuant to the Automatic Exchange
Program.
..Exchanges of Class B and Class C Shares will be made at NAV and will be
subject to the CDSC of the original shares held. For purposes of determin-
ing the amount of any applicable CDSC, the length of time a shareholder has
owned the shares acquired will be measured from the date the shareholder
acquired the original shares subject to a CDSC, and will not be affected by
any subsequent exchange.
..Goldman Sachs and NFDS may use reasonable procedures described under "What
Do I Need To Know About Telephone Redemption Requests?" in an effort to
prevent unauthorized or fraudulent telephone exchange requests.
..Exchanges of Service Shares from each Fund will be made into the relevant
Goldman Sachs Fund at the public offering price, which may include a sales
charge, unless a sales charge has previously been paid on the investment
represented by the exchanged shares (i.e., the shares to be exchanged were
originally issued in exchange for shares on which a sales charge was paid),
in which case the exchange will be made at NAV. Service Shares acquired in
an exchange transaction for shares of a Goldman Sachs Fund will be subject
to the CDSC, if any, of the shares originally held.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund. The minimum ini-
tial exchange is $5,000 or the full account share balance, whichever is
less.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only
if the exchange instructions are in writing and accompanied by a signature
guarantee.
..If your shares are held in a "street name" or omnibus account, you should
contact your Authorized Dealer to make an exchange.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
13-VV
<PAGE>
SHAREHOLDER SERVICES
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
You may be able to make systematic cash investments through your bank via
ACH transfer or your checking account via bank draft each month. Forms for
this option are available from Goldman Sachs, your Authorized Dealer or you
may check the appropriate box on the Account Application. A minimum invest-
ment of $50 is required for Automatic Investment Plans.
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
You may elect to exchange automatically a specified dollar amount of shares
of a Fund for shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge is imposed.
..Sales subject to a CDSC acquired under this program may be subject to a
CDSC at the time of redemption from the Fund into which the exchange is
made depending upon the date and value of your original purchase.
..Automatic exchanges are made monthly on the 15th day of each month or the
first business day thereafter.
..Minimum dollar amount: $50 per month.
Do I Have Any Reinvestment Privileges With Respect to Class B or C Shares?
You may redeem Class B or Class C shares of a Fund and reinvest a portion or
all of the redemption proceeds (plus any additional amounts needed to round
off purchases to the nearest full share). To be eligible for this privilege,
you must hold the shares you want to redeem for at least 30 days and must
reinvest the share proceeds within 90 days after you redeem. You may rein-
vest as follows:
..If you redeem Class B Shares of the Prime Obligations Portfolio, you may
reinvest any or all of the redemption proceeds (plus that amount necessary
to acquire a fractional share to round off the purchase to the nearest full
share) in Service Shares of Prime Obligations Portfolio and Tax-Exempt
Diversified Portfolio or Class A Shares of any Goldman Sachs Fund at NAV.
The amount of the CDSC paid upon redemption will not be credited to your
account.
..If you redeem Class C Shares of the Prime Obligations Portfolio, you may
reinvest any or all of the redemption proceeds (plus that amount necessary
to acquire a fractional share to round off the purchase to the nearest full
share) in Class C Shares of the Prime Obligations Portfolio or Class C
Shares of any other Goldman Sachs Fund.
14-VV
<PAGE>
SHAREHOLDER GUIDE
..You should obtain and read the applicable prospectuses before investing in
any other Funds.
..If you redeem Class C Shares, pay a CDSC upon redemption and reinvest in
Class C Shares subject to the conditions set forth above, your account will
be credited with the amount of the CDSC previously charged, and the rein-
vested shares will continue to be subject to a CDSC. In this case, the
holding period of the Class C Shares acquired through reinvestment for pur-
poses of computing the CDSC payable upon a subsequent redemption will
include the holding period of the redeemed shares.
..The reinvestment privilege may be exercised once annually by a shareholder
upon written request, except that this time limit does not apply to trans-
actions the sole purpose of which is to reinvest the proceeds at NAV in a
tax-sheltered retirement plan.
..A reinvesting shareholder may be subject to tax as a result of a redemp-
tion. Shareholders should consult their own tax advisers concerning the tax
consequences of a redemption and reinvestment.
..You may be subject to tax as a result of a redemption. You should consult
your tax adviser concerning the tax consequences of a redemption and rein-
vestment.
Can I Have Automatic Withdrawals Made On A Regular Basis?
You may draw on your account systematically via check or ACH transfer in any
amount of $50 or more.
..It is normally undesirable to maintain a systematic withdrawal plan at the
same time that you are purchasing additional Class B or Class C Shares
because of the imposition of a CDSC on your redemptions of Class B or Class
C Shares.
..You must have a minimum balance of $5,000 in a Fund.
..Checks are mailed on or about the 25th day of each month.
..Each systematic withdrawal is a redemption and therefore a taxable transac-
tion.
..The CDSC applicable to Class B or Class C Shares redeemed under the system-
atic withdrawal plan may be waived.
What Types of Reports Will I Be Sent Regarding Investments in Shares?
You will receive an annual report containing audited financial statements
and a semiannual report. To eliminate unnecessary duplication, only one copy
of such reports will be sent to shareholders with the same mailing address.
If you would like a duplicate copy to be mailed to you, please contact
Goldman Sachs Funds at 1-800-526-7384.
What Should I Know When I Purchase Shares Through An Authorized Dealer?
Authorized Dealers and other financial intermediaries may provide varying
arrangements for their clients to purchase and redeem Fund shares. They may
charge
15-VV
<PAGE>
additional fees not described in this Prospectus to their customers for such
services.
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distribu-
tions relating to your account will be performed by the Authorized Dealer,
and not by the Fund and its Transfer Agent. Since the Funds will have no
record of your transactions, you should contact your Authorized Dealer to
purchase, redeem or exchange shares, to make changes in or give instructions
concerning your account or to obtain information about your account. The
transfer of shares in a "street name" account to an account with another
dealer or to an account directly with the Fund involves special procedures
and will require you to obtain historical purchase information about the
shares in the account from the Authorized Dealer.
Authorized Dealers and other financial intermediaries may be authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust, may
designate other intermediaries to accept such orders. In these cases:
..A Fund will be deemed to have received an order that is in proper form by
or on behalf of a customer when the order is accepted by the Authorized
Dealer or intermediary on a business day, and the order will be priced at
the Fund's NAV per share (adjusted for any applicable sales charge) next
determined after such acceptance.
..Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Funds within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary directly to learn
whether they are authorized to accept orders for the Trust.
The Investment Adviser, Distributor and/or their affiliates pay additional
compensation from time to time, out of their assets and not as an additional
charge to the Funds, to selected Authorized Dealers Service Organization and
other persons in connection with the sale, distribution and/or servicing of
shares of the Funds and other Goldman Sachs Funds. Subject to applicable
NASD regulations, the Investment Adviser, Distributor and/or their affili-
ates may also contribute to various cash and non-cash incentive arrangements
to promote the sale of shares. This additional compensation can vary among
institutions depending upon such factors as the amounts their customers have
invested (or may invest) in particular Goldman Sachs Funds, the particular
program involved, or the amount of reimbursable expenses.
In addition to Service, Class B and Class C Shares, each Fund also offers
other classes of shares to investors. These other share classes are subject
to different
16-VV
<PAGE>
SHAREHOLDER GUIDE
fees and expenses (which affect performance), have different minimum invest-
ment requirements and are entitled to different services. Information
regarding these other share classes may be obtained from your sales repre-
sentative or from Goldman Sachs by calling the number on the back cover of
this Prospectus.
DISTRIBUTION SERVICES AND FEES
What Are The Different Distribution And Service Fees Paid By Service, Class
B and Class C Shares?
The Trust has adopted plans (each a "Plan") under which Service, Class B and
Class C Shares bear service fees and (in the case of Class B and Class C
Shares) distribution fees paid to Service Organizations and Goldman Sachs.
If the fees received by Goldman Sachs pursuant to the Plans exceed its
expenses, Goldman Sachs may realize a profit from this arrangement. Goldman
Sachs pays the distribution and service fees on a quarterly basis.
Under the Plan for Service Shares, Service Organizations agree to provide
services in connection with their customers' investments in Service Shares,
such as:
.Acting, directly or through an agent, as the sole shareholder of record
.Maintaining account record for customers
.Processing orders to purchase, redeem or exchange shares for customers
.Responding to inquiries from prospective and existing shareholders
.Assisting customers with investment procedures
For their services, Service Organizations are entitled to receive payments
from the Trust of up to 0.40% (on an annualized basis) of the average daily
net assets of the Service Shares of the Funds that are attributable to or
held in the name of a Service Organization for its customers.
Under the Plans for Class B and Class C Shares, Goldman Sachs is entitled to
a monthly fee from each Fund for distribution services equal, on an annual
basis, to 0.75% of a Fund's average daily net assets attributed to Class B
and Class C Shares. Because these fees are paid out of the Fund's assets on
an ongoing basis, over time, these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
The distribution fees are subject to the requirements of Rule 12b-1 under
the 1940 Act, and may be used (among other things) for:
..Compensation paid to and expenses incurred by Authorized Dealers, Goldman
Sachs and their respective officers, employees and sales representatives;
..Commissions paid to Authorized Dealers;
..Allocable overhead;
17-VV
<PAGE>
..Telephone and travel expenses;
..Interest and other costs associated with the financing of such compensation
and expenses;
..Printing of prospectuses for prospective shareholders;
..Preparation and distribution of sales literature or advertising of any
type; and
..All other expenses incurred in connection with activities primarily
intended to result in the sale of Class B and Class C Shares.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the shares have been held for one year.
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
Under the Plans for Class B and Class C Shares, Goldman Sachs is also enti-
tled to receive a separate fee equal on an annual basis to 0.25% of each
Fund's average daily net assets attributed to Class B or Class C Shares.
This fee is for personal and account maintenance services, and may be used
to make payments to Goldman Sachs, Authorized Dealers and their officers,
sales representatives and employees for responding to inquiries of, and fur-
nishing assistance to, shareholders regarding ownership of their shares or
their accounts or similar services not otherwise provided on behalf of the
Funds. If the fees received by Goldman Sachs pursuant to the Plans exceed
its expenses, Goldman Sachs may realize a profit from this arrangement.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.25% service fee as an ongoing commission to Authorized Dealers after
the shares have been held for one year.
18-VV
<PAGE>
Dividends
All or substantially all of each Fund's net investment income will be
declared as a dividend daily. Dividends will normally, but not always, be
declared as of 4:00 p.m. New York time as a dividend and distributed month-
ly. Shareholders of record may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
Reinvestment in additional shares will not be subject to a CDSC. Service
Organizations or shareholders may indicate their election on the Account
Application. Any changes may be submitted in writing to Goldman Sachs at any
time. If a Service Organization or shareholder does not indicate any choice,
dividends and distributions will be reinvested automatically in the applica-
ble Fund.
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with federal income tax requirements and may be reflected in a
Fund's daily distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and December may be distributed during the
subsequent calendar year. Although realized gains and losses on the assets
of a Fund are reflected in the NAV of the Fund, they are not expected to be
of an amount which would affect the Fund's NAV of $1.00 per share.
7
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities, and Related Custodial
Receipts. U.S. Treasury obligations are securities issued by the U.S. Treasury.
Payment of principal and interest on these obligations is backed by the full
faith and credit of the U.S. Government. U.S. Treasury obligations include,
among other things, the separately traded principal and interest components of
securities guaranteed or issued by the U.S. Treasury if such components are
traded independently under the Separate Trading of Registered Interest and
Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-ZZ
<PAGE>
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Each Fund may also acquire U.S. Government securities in the form of custo-
dial receipts. Custodial receipts evidence ownership of future interest pay-
ments, principal payments or both on notes or bonds issued by the U.S. Gov-
ernment, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit, commer-
cial paper, unsecured bank promissory notes, bankers' acceptances, time
deposits and other debt obligations. A Fund may invest in U.S. bank obliga-
tions when a bank has more than $1 billion in total assets at the time of
purchase or is a subsidiary of such a bank. Bank obligations may be general
obligations of the parent bank or may be limited to the issuing branch by
the terms of the specific obligation or by government regulation.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases installment contracts and personal property. Asset-
backed and receivables-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying asset-
backed and receivables-backed securities can be expected to accelerate.
Accordingly, a Fund's ability to maintain positions in such securities will
be affected by reductions in the principal amount of such securities result-
ing from prepayments, and its ability to reinvest the returns of principal
at comparable yields is subject to generally prevailing interest rates at
that time. In addition, securities that are backed by credit card, automo-
bile and similar types of receivables generally do not have the benefit of a
security interest in collateral that is comparable in quality to mortgage
assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities. In the event of a default, a Fund may suffer a loss if it cannot
sell collateral quickly and receive the amount it is owed.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
primary dealers in U.S. Government securities and banks affiliated with pri-
mary dealers. Repurchase agreements involve the purchase of securities sub-
ject to the
2-ZZ
<PAGE>
Appendix A
seller's agreement to repurchase them at a mutually agreed upon date and
price. The repurchase price will exceed the original purchase price, the
difference being income to the Fund, and will be unrelated to the interest
rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is unenforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, each Fund, together with other registered invest-
ment companies having advisory agreements with the Investment 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.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obligations. Industrial
development bonds ("private activity bonds") are a specific type of revenue
bond backed by the credit and security of a private user and, therefore,
have more potential risk. Municipal bonds may be issued in a variety of
forms, including commercial paper, tender option bonds and variable and
floating rate securities.
3-ZZ
<PAGE>
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. The Funds may invest in industrial development
bonds (private activity bonds), the interest from which would be an item of
tax preference when distributed by a Fund as "exempt-interest dividends" to
shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of its
total assets in municipal obligations which are related in such a way that
an economic, business or political development or change affecting one
municipal obligation would also affect the other municipal obligation. For
example, a Fund may invest all of its assets in (a) municipal obligations
the interest of which is paid solely from revenues from similar projects
such as hospitals, electric utility systems, multi-family housing, nursing
homes, commercial facilities (including hotels),
4-ZZ
<PAGE>
Appendix A
steel companies or life care facilities, (b) municipal obligations whose
issuers are in the same state, or (c) industrial development obligations.
Concentration of a Fund's investments in these municipal obligations will
subject the Fund, to a greater extent than if such investment was not so
concentrated, to the risks of adverse economic, business or political devel-
opment affecting the particular state, industry or other area of concentra-
tion.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions because of less publicly-available financial and other information,
less securities regulation, potential imposition of foreign withholding and
other taxes, war, expropriation or other adverse governmental actions. For-
eign banks and their foreign branches are not regulated by U.S. banking
authorities, and generally are not bound by the accounting, auditing and
financial reporting standards applicable to U.S. banks. In addition, the
Funds may acquire securities in the form of custodial receipts which evi-
dence ownership of future interest payments, principal payments or both on
obligations of certain state and local governments and authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand fea ture that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
conditional commitments to lend and letters of credit, which will ordinarily
be irrevocable, both of which may
5-ZZ
<PAGE>
be issued by domestic banks or foreign banks which have a branch, agency or
subsidiary in the United States. A Fund may purchase variable or floating
rate obligations from the issuers or may purchase certificates of participa-
tion, a type of floating or variable rate obligation, which are interests in
a pool of debt obligations held by a bank or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain municipal leases and participation interests
..Certain stripped mortgage-backed securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
6-ZZ
<PAGE>
Appendix A
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33- 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
Special Risk Policies Applicable to the Tax-Exempt Diversified Fund:
Fundamental Policies. As a matter of fundamental policy, at least 80% of the
net assets of the Tax-Exempt Diversified Fund will ordinarily be invested in
municipal obligations, the interest from which is, in the opinion of bond
counsel, if any, excluded from gross income for federal income tax purposes.
The Tax-Exempt Diversified Fund may temporarily invest in taxable money mar-
ket instruments when the Investment Adviser believes that the market condi-
tions dictate a defensive posture. Investments in taxable money market
instruments will be limited to those meeting the quality standards of the
Tax-Exempt Diversified Fund.
7-ZZ
<PAGE>
[This page intentionally left blank]
1
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.05 $(0.05)
1998 - ILA Administration units 1.00 0.05 (0.05)
1998 - ILA Service units 1.00 0.05 (0.05)
1998 - ILA B units 1.00 0.04 (0.04)
1998 - ILA C units 1.00 0.04 (0.04)
1998 - Cash Management shares
(commenced May 1) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.05 (0.05)
1997 - ILA Administration units 1.00 0.05 (0.05)
1997 - ILA Service units 1.00 0.05 (0.05)
1997 - ILA B units 1.00 0.04 (0.04)
1997 - ILA C units (commenced August
15) 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.05 (0.05)
1996 - ILA Administration units 1.00 0.05 (0.05)
1996 - ILA Service units 1.00 0.05 (0.05)
1996 - ILA B units (commenced May 8) 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.06 (0.06)
1995 - ILA Administration units 1.00 0.06 (0.06)
1995 - ILA Service units 1.00 0.05 (0.05)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.04 (0.04)
1994 - ILA Administration units 1.00 0.04 (0.04)
1994 - ILA Service units 1.00 0.04 (0.04)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
2
<PAGE>
<TABLE>
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end period average net average net average net average net
of period Total returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.32% $837,185 0.43% 5.19% 0.43% 5.19%
1.00 5.16 38,836 0.58 5.05 0.58 5.05
1.00 4.90 119,309 0.83 4.79 0.83 4.79
1.00 4.27 14,412 1.43 4.07 1.43 4.07
1.00 4.27 6,814 1.43 4.13 1.43 4.13
1.00 4.69c 2 0.93c 4.81c 1.43c 4.31c
- ------------------------------------------------------------------------------------------
1.00 5.38 866,445 0.42 5.24 0.43 5.23
1.00 5.22 28,110 0.57 5.11 0.58 5.10
1.00 4.96 78,316 0.82 4.85 0.83 4.84
1.00 4.33 1,574 1.42 4.33 1.43 4.32
1.00 4.41c 1,897 1.42c 4.39c 1.43c 4.38c
- ------------------------------------------------------------------------------------------
1.00 5.22 1,154,787 0.41 5.11 0.43 5.09
1.00 5.06 23,738 0.56 4.97 0.58 4.95
1.00 4.80 84,707 0.81 4.74 0.83 4.72
1.00 3.97c 346 1.41c 4.09c 1.43c 4.07c
- ------------------------------------------------------------------------------------------
1.00 5.79 1,261,251 0.41 5.66 0.43 5.64
1.00 5.63 63,018 0.56 5.51 0.58 5.49
1.00 5.37 227,233 0.81 5.22 0.83 5.20
- ------------------------------------------------------------------------------------------
1.00 4.07 1,963,846 0.40 3.94 0.42 3.92
1.00 3.91 149,234 0.55 3.79 0.57 3.77
1.00 3.66 170,453 0.80 3.65 0.82 3.63
- ------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
TAX-EXEMPT DIVERSIFIED PORTFOLIO
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to unit/
of period incomea shareholders
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998 - ILA units $1.00 $0.03 $(0.03)
1998 - ILA Administration units 1.00 0.03 (0.03)
1998 - ILA Service units 1.00 0.03 (0.03)
1998 - Cash Management shares (commenced
May 1) 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
1997 - ILA units 1.00 0.03 (0.03)
1997 - ILA Administration units 1.00 0.03 (0.03)
1997 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1996 - ILA units 1.00 0.03 (0.03)
1996 - ILA Administration units 1.00 0.03 (0.03)
1996 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1995 - ILA units 1.00 0.04 (0.04)
1995 - ILA Administration units 1.00 0.04 (0.04)
1995 - ILA Service units 1.00 0.03 (0.03)
- ----------------------------------------------------------------------------
1994 - ILA units 1.00 0.03 (0.03)
1994 - ILA Administration units 1.00 0.03 (0.03)
1994 - ILA Service units 1.00 0.02 (0.02)
- ----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average units outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of net investment
value at end of expenses to income to expenses to income to
end Total period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.17% $1,562,285 0.35% 3.12% 0.41% 3.06%
1.00 3.02 26,509 0.50 2.98 0.56 2.92
1.00 2.76 37,850 0.75 2.72 0.81 2.66
1.00 2.61c 2 0.85c 2.66c 1.41c 2.10c
- ------------------------------------------------------------------------------------
1.00 3.39 1,479,486 0.32 3.33 0.41 3.24
1.00 3.23 27,967 0.47 3.16 0.56 3.07
1.00 2.97 30,513 0.72 2.97 0.81 2.88
- ------------------------------------------------------------------------------------
1.00 3.25 1,514,443 0.31 3.20 0.41 3.10
1.00 3.09 59,097 0.46 3.06 0.56 2.96
1.00 2.84 28,921 0.71 2.79 0.81 2.69
- ------------------------------------------------------------------------------------
1.00 3.72 1,342,585 0.31 3.65 0.42 3.54
1.00 3.57 48,773 0.46 3.51 0.57 3.40
1.00 3.31 49,647 0.71 3.24 0.82 3.13
- ------------------------------------------------------------------------------------
1.00 2.71 1,434,965 0.30 2.64 0.41 2.53
1.00 2.55 97,778 0.45 2.50 0.56 2.39
1.00 2.30 36,492 0.70 2.20 0.81 2.09
- ------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Index
xx General Investment Management
Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Portfolio
xx Tax-Exempt Diversified Portfolio
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Taxation
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Dividends
A-1 Appendix Additional Information on
Portfolio Risks, Securities and
Techniques
B-1 Appendix Financial Highlights
8
<PAGE>
Institutional Liquid Assets Prospectus
(ILA Service Units ILA Class B and C Units)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone -- Call 1-800-621-2550
By mail -- Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail -- [email protected]
On the Internet -- Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC -- http://www.sec.gov
Goldman Sachs -- http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC at
1-800-SEC-0330.
[GOLDMAN SACHS LOGO APPEARS HERE]
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus FST SHARES
May , 1999
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
.Prime Obligations Fund
.Money Market Fund
.Premium Money Market Fund
.Treasury Obligations Fund
.Treasury Instruments Fund
(INSERT ARTWORK) .Government Fund
.Federal Fund
.Tax-Free Money Market Fund
.Municipal Money Market Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------------------------------
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
----------------------------------------------
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Funds' investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
1-CC
<PAGE>
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
.. The Funds: Each Fund's securities are valued by the amortized cost method
as permitted under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "1940 Act"). Under Rule 2a-7, each Fund may invest only in
U.S. dollar-denominated securities that are determined to present minimal
credit risk and meet certain other criteria including, conditions relating
to maturity, diversification and credit quality. These operating policies
may be more restrictive than the fundamental policies set forth in the
Statement of Additional Information (the "Additional Statement").
. Taxable Funds: Prime Obligations, Money Market, Premium Money Market,
Treasury Obligations and Government Funds.
. Tax-Advantaged Funds: Treasury Instruments and Federal Funds.
. Tax-Exempt Funds: Tax-Free Money Market and Municipal Money Market
Funds.
.. The Investors: The Funds are designed for institutional investors seeking
a high rate of return, a stable net asset value ("NAV") and convenient
liquidation privileges. The Funds are particularly suitable for banks,
corporations and other financial institutions that seek investment of
short-term funds for their own accounts or for the accounts of their cus-
tomers. Shares of the Government Fund are intended to qualify as eligible
investments for federally chartered credit unions pursuant to Sections
107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of
the National Credit Union Administration ("NCUA") Rules and Regulations
and NCUA Letter Number 155. The Fund intends to review changes in the
applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be nec-
essary so that the investments of the Fund qualify as eligible investments
under the Federal Credit Union Act and the regulations thereunder. Shares
of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chart-
ered credit union should consult qualified legal counsel to determine
whether the Government Fund is a permissible investment under the law
applicable to it.
2-CC
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
.. NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
.. Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
.. Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
.. Investment Restrictions: Each Fund is subject to certain investment
restrictions that are described in detail under "Investment Restrictions" in
the Additional Statement. Fundamental investment restrictions and the
investment objective of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund. The Treasury Obligations
Fund's policy of limiting its investments to U.S. Treasury obligations and
related repurchase agreements is also fundamental. All investment policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval.
.. Diversification. Diversification can help a Fund reduce the risks of
investing. In accordance with current regulations of the Securities and
Exchange Commission (the "SEC"), each Fund may not invest more than 5% of the
value of its total assets at the time of purchase in the securities of any
single issuer. However, a Fund may invest up to 25% of the value of the total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agree-ments, U.S.
Government securities or securities of other investment compa-nies. In
addition, securities subject to certain unconditional guarantees and
securities that are not "First Tier Securities" as defined by the SEC are
subject to different diversification requirements as described in the
Additional Statement.
3-CC
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Premium Money Market, Treasury Obliga-
tions, Treasury Instruments, Government, Federal, Tax-Free Money Market and
Municipal Money Market Funds seek to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments.
In order to obtain a rating from a rating organization, the Premium Money
Market Fund will observe special investment restrictions.
The Treasury Instruments and Federal Funds pursue their investment objec-
tives by limiting their investments to certain U.S. Treasury obligations and
U.S. Government securities (each as defined in Appendix A), respectively,
the interest from which is generally exempt from state income taxation. You
should consult your tax adviser to determine whether distributions from the
Treasury Instruments and Federal Funds (and any other Fund that may hold
such obligations) derived from interest on such obligations are exempt from
state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Free Money Market and Municipal Money Market Funds pursue their
investment objectives by limiting their investments to securities issued by
or on behalf of states, territories, and possessions of the United States
and their political subdivisions, agencies, authorities and instrumentali-
ties, and the District of Columbia, the interest from which, if any, is in
the opinion of bond counsel excluded from gross income for federal income
tax purposes, and with respect to the Tax-Free Money Market Fund, not an
item of tax preference under the federal alternative minimum tax. With
respect to the Municipal Money Market Fund, such interest may not necessar-
ily be exempt from the federal alternative minimum tax.
4-CC
<PAGE>
[This page intentionally left blank]
5-CC
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. Treasury U.S. Government Bank Commercial
Fund Obligations Securities Obligations Paper
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations ./4/ . . .
U.S. banks only
--------------------------------------------------------------------------------------------------
Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Premium Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Treasury Obligations ./3/
--------------------------------------------------------------------------------------------------
Treasury Instruments ./3/
--------------------------------------------------------------------------------------------------
Government ./4/ .
--------------------------------------------------------------------------------------------------
Federal ./4/ .
--------------------------------------------------------------------------------------------------
Tax-Free Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
Municipal Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and charge-
offs and declines in total deposits) the Funds may, for temporary defensive
purposes, invest less than 25% of their total assets in bank obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-CC
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated
Fund Municipals Municipals Receipts Securities/7/ Investment Companies
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Premium Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Treasury Obligations
-----------------------------------------------------------------------------------------------------------------
Treasury Instruments
-----------------------------------------------------------------------------------------------------------------
Government .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Tax-Free Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
Municipal Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/13/ Miscellaneous
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -------------------------------------------------------------------------------------------------------------
(Does not First/8/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and taxable state/14/ invest up to 20% in securities subject to
invest)/6/,/7/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -------------------------------------------------------------------------------------------------------------
(May invest up First/8/ or Tax-exempt federal May (but does not currently intend to)
to 100% of its Second Tier/11/ and taxable state/14/ invest up to 100% in AMT securities
total assets in and may temporarily invest in the taxable
private activity money market instruments described herein
bonds)/7/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-CC
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Premium
Prime Money Money Treasury
Obligations Market Market Obligations
Fund Fund Fund Fund
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- ----------------------------------------------------------------
Interest Rate . . . .
- ----------------------------------------------------------------
Credit/Default . . . .
- ----------------------------------------------------------------
Management . . . .
- ----------------------------------------------------------------
Liquidity . . . .
- ----------------------------------------------------------------
Other . . . .
- ----------------------------------------------------------------
Government Securities -- -- -- --
- ----------------------------------------------------------------
Concentration -- . . --
- ----------------------------------------------------------------
Foreign -- . . --
- ----------------------------------------------------------------
Tax -- -- -- --
- ----------------------------------------------------------------
</TABLE>
10-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Free Municipal
Treasury Money Money
Instruments Government Federal Market Market
Fund Fund Fund Fund Fund
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
-- . . -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
-- -- -- -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
</TABLE>
11-CC
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Funds:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Premium Money Market, Tax-Free Money
Market and Municipal Money Market Funds:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Free Money Market and Municipal Money Market Funds, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market and Premium Money Market Funds may not invest more than 25% of
their total assets in the securities of any one foreign government.
12-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market and Premium Money Market Funds:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market and Premium Money Market Funds intend to
invest more than 25% of their total assets in bank obligations. Banks may
be particularly susceptible to certain economic factors such as interest
rate changes, adverse developments in the real estate market, fiscal and
monetary policy and general economic cycles.
Risk that applies to the Tax-Free Money Market and Municipal Money Market
Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-CC
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's FST
Shares from year to year; and (b) how the average annual returns of a Fund's
FST Shares compare to the returns of a composite of mutual funds with simi-
lar investment objectives. The bar chart and table assume reinvestment of
dividends and distributions. A Fund's past performance is not necessarily an
indication of how the Fund will perform in the future. Performance reflects
expense limitations in effect. If expense limitations were not in place, a
Fund's performance would have been reduced. You may obtain a Fund's current
yield by calling 1-800-621-2550. No information has been provided for the
Municipal Money Market Fund because it has not yet commenced operations.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.78%
Worst Quarter:
Q2 '93 0.78%
[CHART APPEARS HERE]
1991 6.26%
1992 3.88%
1993 3.18%
1994 4.28%
1995 6.02%
1996 5.41%
1997 5.60%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------
<S> <C> <C> <C>
FST SHARES (Inception 3/8/90) 5.55% 5.37% 5.31%
---------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.52%
Worst Quarter:
Q4 '98 1.30%
[CHART APPEARS HERE]
1995 6.07%
1996 5.45%
1997 5.63%
1998 5.55%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
---------------------------------------------------------------
<S> <C> <C> <C>
FST SHARES (Inception 5/18/94) 5.55% 5.55% 5.57%
---------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Premium Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.39%
Worst Quarter:
Q4 '98 1.30%
[CHART APPEARS HERE]
1998 5.55%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------
<S> <C> <C>
FST SHARES (Inception 8/1/97) 5.55% 5.60%
-------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q1 '91 1.65%
Worst Quarter:
Q2 '93 0.76%
[CHART APPEARS HERE]
1991 6.08%
1992 3.80%
1993 3.12%
1994 4.13%
1995 5.96%
1996 5.35%
1997 5.50%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------
<S> <C> <C> <C>
FST SHARES (Inception 4/25/90) 5.40% 5.27% 5.17%
---------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Treasury Instruments Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '98 1.28%
Worst Quarter:
Q4 '98 1.13%
[CHART APPEARS HERE]
1998 5.05%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------
<S> <C> <C>
FST SHARES (Inception 3/03/97) 5.05% 5.14%
-------------------------------------------------------
</TABLE>
7
<PAGE>
Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.52%
Worst Quarter:
Q1 '94 0.79%
[CHART APPEARS HERE]
1994 4.26%
1995 6.00%
1996 5.38%
1997 5.54%
1998 5.46%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR 5 YEARS SINCE INCEPTION
---------------------------------------------------------------
<S> <C> <C> <C>
FST SHARES (Inception 4/6/93) 5.46% 5.33% 5.04%
---------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Federal Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.36%
Worst Quarter:
Q4 '98 1.27%
[CHART APPEARS HERE]
1998 5.41%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------
<S> <C> <C>
FST SHARES (Inception 2/28/97) 5.41% 5.46%
-------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Free Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.02%
Worst Quarter:
Q4 '98 0.78%
[CHART APPEARS HERE]
1995 3.89%
1996 3.39%
1997 3.54%
1998 3.34%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER
31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
---------------------------------------------------------------
<S> <C> <C> <C>
FST SHARES (Inception 7/19/94) 3.34% 3.42% 3.53%
---------------------------------------------------------------
</TABLE>
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
Fund Fees and Expenses (FST Shares)
This table describes the fees and expenses that you would pay if you buy and
hold FST Shares of a Fund.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Other Expenses/3/ 0.035% 0.025% 0.085%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.240% 0.230% 0.290%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Distribution and Service Fees None None None
Other Expenses/3/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.18% 0.18% 0.18%
------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
None None None
None None None
None None None
None None None
None None None
0.205% 0.205% 0.205%
0.025% 0.085% 0.025%
- --------------------------------------------------------------------------------------------------
0.230% 0.240% 0.230%
- --------------------------------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Funds which are actually incurred are as set forth below. The
expense waivers and limitations may be terminated at any time
at the option of the Investment Adviser. If this occurs,
"Other Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Distribution and Service Fees None None None
Other Expenses/3/ 0.01% 0.01% 0.01%
--------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.18% 0.18% 0.18%
--------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Fund Fees and Expenses (continued)
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Other Expenses/3/ 0.035% 0.025% 0.285%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.240% 0.230% 0.490%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Distribution and Service Fees None None None
Other Expenses/3/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.18% 0.18% 0.18%
------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect current
fees, except for the Municipal Money Market Fund, which are based on estimated
amounts for the current fiscal year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Funds equal to 0.035%. AS A RESULT OF FEE WAIVERS, THE
CURRENT MANAGEMENT FEES OF THE FUNDS ARE 0.17% OF THE FUNDS' AVERAGE DAILY NET
ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF THE INVEST-
MENT ADVISER.
/3/The Investment Adviser has voluntarily agreed to reduce or limit "Other
Expenses" of each Fund (excluding management fees, taxes, interest, brokerage
fees and litigation, indemnification and other extraordinary expenses) to 0.01%
of each Fund's average daily net assets.
15
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in FST
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME OBLIGATIONS $25 $77 $135 $306
- -------------------------------------------------------
MONEY MARKET $24 $74 $130 $293
- -------------------------------------------------------
PREMIUM MONEY MARKET $30 $93 $163 $368
- -------------------------------------------------------
TREASURY OBLIGATIONS $24 $74 $130 $293
- -------------------------------------------------------
TREASURY INSTRUMENTS $30 $93 $163 $368
- -------------------------------------------------------
GOVERNMENT $24 $74 $130 $293
- -------------------------------------------------------
FEDERAL $25 $77 $135 $306
- -------------------------------------------------------
TAX-FREE MONEY MARKET $24 $74 $130 $293
- -------------------------------------------------------
MUNICIPAL MONEY MARKET N/A N/A N/A N/A
- -------------------------------------------------------
</TABLE>
Institutions that invest in FST Shares on behalf of their customers may charge
other fees directly to their customer accounts in connection with their invest-
ments. You should contact your institution for information regarding such
charges. Such fees may affect the return their customers realize with respect
to their investments.
Certain institutions that invest in FST Shares on behalf of their customers may
receive other compensation in connection with the sale and distribution of FST
Shares of the Funds or for services to their customers' accounts and/or the
Funds. For additional information regarding such compensation, see "Shareholder
Guide" in the Prospectus and "Other Information" in the Additional Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as investment adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and dispo-
sition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not pro-
vided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.205% 0.17%
-------------------------------------------------------------------
Money Market 0.205% 0.17%
-------------------------------------------------------------------
Premium Money Market 0.205% 0.17%
-------------------------------------------------------------------
Treasury Obligations 0.205% 0.17%
-------------------------------------------------------------------
Treasury Instruments 0.205% 0.17%
-------------------------------------------------------------------
Government 0.205% 0.17%
-------------------------------------------------------------------
Federal 0.205% 0.17%
-------------------------------------------------------------------
Tax-Free Money Market 0.205% 0.17%
-------------------------------------------------------------------
Municipal Money Market 0.205% N/A*
-------------------------------------------------------------------
</TABLE>
* As of December 31, 1998, the Municipal Money Market Fund had not commenced
operations.
1-DD
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
The Investment Adviser has voluntarily agreed not to impose a portion of its
management fee and/or to reduce or otherwise limit the daily expenses of
each Fund (excluding fees payable under service and administration plans for
certain share classes, taxes, interest, brokerage and litigation, indemnifi-
cation and other extraordinary expenses). GSAM may discontinue or modify any
such reductions or limitations in the future at its discretion.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service prov-
iders do not adequately address this problem in a timely manner.
2-DD
<PAGE>
SERVICE PROVIDERS
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
3-DD
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, Fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. The tax status and amounts of the dividends for each calendar year
will be detailed in your annual tax statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-DD
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Shares.
HOW TO BUY SHARES
How Can I Purchase Shares Of The Funds?
You may purchase Shares of the Funds on any business day at their net asset
value ("NAV") next determined after receipt of an order. Shares begin earn-
ing dividends after the receipt of the purchase amount in federal funds. No
sales load is charged. You may place a purchase order in writing or by tele-
phone.
--------------------------------------------------------
By Writing: Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
--------------------------------------------------------
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
You may send your payment as follows:
..Wire federal funds to The Northern Trust Company ("Northern"), as sub-cus-
todian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds -(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
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<PAGE>
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
If an effective order and
federal funds are received: Dividends begin:
----------------------------------------------------
Taxable and Tax-Advantaged Funds
(except Government, Treasury Obligations and
Premium Money Market Funds):
.By 3:00 p.m. New York time Same business day
.After 3:00 p.m. New York time Next business day
----------------------------------------------------
Government, Treasury Obligations and Premium
Money Market Funds:
.By 5:00 p.m. New York time Same business day
.After 5:00 p.m. New York time Next business day
----------------------------------------------------
Municipal Money Market Fund:
.By 1:00 p.m. New York time Same business day
.After 1:00 p.m. New York time Next business day
----------------------------------------------------
Tax-Free Money Market Fund:
.By 2:00 p.m. New York time Same business day
.After 2:00 p.m. New York time Next business day
----------------------------------------------------
How Do I Purchase Shares Through A Financial Institution?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of the Trust, pur-
chase, redemption and exchange orders placed by or on behalf of their cus-
tomers and may designate other intermediaries to accept such orders, if
approved by the Trust. In these cases:
.. A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
.. Authorized institutions or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your institution or intermediary directly to learn
whether it is authorized to accept orders for the Trust.
2-EE
<PAGE>
SHAREHOLDER GUIDE
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Funds' FST Shares. These
payments may be in addition to other payments borne by the Funds.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to certain institutions and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs Funds. Subject to applicable NASD regulations,
the Investment Adviser, Distributor and/or their affiliates may also con-
tribute to various cash and non-cash incentive arrangements to promote the
sale of shares. This additional compensation can vary among institutions
depending upon such factors as the amounts their customers have invested (or
may invest) in particular Goldman Sachs Funds, the particular program
involved, or the amount of reimbursable expenses.
In addition to FST Shares, each Fund also offers other classes of shares to
investors. These other share classes are subject to different fees and
expenses (which affect performance) and are entitled to different services
than FST Shares. Information regarding these other share classes may be
obtained from your sales representative or from Goldman Sachs by calling the
number on the back cover of this Prospectus.
What Is My Minimum Investment In The Funds?
--------------------------------------------------------
Minimum initial investment $10 million
(may be allocated among
the Funds)
--------------------------------------------------------
Minimum account balance $10 million
--------------------------------------------------------
Minimum subsequent investments None
--------------------------------------------------------
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
3-EE
<PAGE>
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange FST Shares is
determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class) - (Liabilities of the Class)
NAV = ----------------------------------------------------------------
Number of Outstanding Shares of the Class
Fund NAV Calculated
------------------------------------------------------------------------------
Prime Obligations, Money Market, As of the close of regular trading of the
Federal, Tax-Free Money Market, New York Stock Exchange (usually 4:00 p.m.
Treasury Instruments and New York time) on each business day
Municipal Money Market Funds
------------------------------------------------------------------------------
Premium Money Market, Treasury As of 5:00 p.m. New York time on
Obligations and Government Funds each business day
------------------------------------------------------------------------------
..NAV per share of each class is calculated by State Street each business
day. Fund Shares will be priced on any day the New York Stock Exchange is
open, except for days on which Chicago, Boston or New York banks are closed
for local holidays.
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its FST Shares
upon request on any business day at their NAV next determined after receipt
of
4-EE
<PAGE>
SHAREHOLDER GUIDE
such request in proper form. You may request that redemption proceeds be
sent to you by check or by wire (if the wire instructions are on record).
Redemptions may be requested in writing or by telephone.
Instructions For Redemptions:
-------------------------------------------------------------------
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee
.Mail your request to:
Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-------------------------------------------------------------------
By Telephone: If you have not declined telephone redemption
privileges on your Account Application
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-------------------------------------------------------------------
Certain institutions and intermediaries are authorized to accept redemption
requests on behalf of the Funds as described under "How Do I Purchase Shares
Through A Financial Institution?" A redemption may also be made with respect
to certain Funds by means of the check redemption privilege described in the
Additional Statement.
When Do I Need A Signature Guarantee To Redeem Shares?
Your redemption request must include a signature guarantee if any of the
following situations apply:
..You would like the redemption proceeds sent to an address that is not your
address of record; or
..You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
5-EE
<PAGE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption requests by
telephone, Goldman Sachs employs reasonable procedures specified by the
Trust to confirm that such instructions are genuine. If reasonable proce-
dures are not employed, the Trust may be liable for any loss due to unautho-
rized or fraudulent transactions. The following general policies are cur-
rently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
6-EE
<PAGE>
SHAREHOLDER GUIDE
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
your Account Application as follows:
Redemption Request Received Redemption Proceeds Dividends
-----------------------------------------------------------------------------
Taxable and Tax-Advantaged Funds
(except Government, Treasury Obligations and
Premium Money Market Funds):
-----------------------------------------------------------------------------
.By 3:00 p.m. New York time Wired same business Not earned on
day day request is
received
-----------------------------------------------------------------------------
.After 3:00 p.m. New York time Wired next business Earned on day
day request is
received
-----------------------------------------------------------------------------
Government, Treasury Obligations and
Premium Money Market Funds:
-----------------------------------------------------------------------------
.By 5:00 p.m. New York time Wired same business Not earned on
day day request is
received
-----------------------------------------------------------------------------
.After 5:00 p.m. New York time Wired next business Earned on day
day request is
received
-----------------------------------------------------------------------------
Municipal Money Market Fund:
-----------------------------------------------------------------------------
.By 12:00 p.m. New York time Wired same business Not earned on
day day request is
received
-----------------------------------------------------------------------------
.After 12:00 p.m. New York time Wired next business Earned on day
day request is
received
-----------------------------------------------------------------------------
Tax-Free Money Market Fund:
-----------------------------------------------------------------------------
.By 1:00 p.m. New York time Wired same business Not earned on
day day request is
received
-----------------------------------------------------------------------------
.After 1:00 p.m. New York time Wired next business Earned on day
day request is
received
-----------------------------------------------------------------------------
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..To change the bank designated on your Account Application you must send
written instructions signed by an authorized person designated on the
Account Application to the Transfer Agent.
7-EE
<PAGE>
..Neither the Trust, Goldman Sachs nor any other institution assume any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
..If the redeemed shares were recently paid for by check, the Fund will pay
the redemption proceeds when the check has cleared, which may take up to 15
days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption request:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
..Redeem your shares if your account balance falls below the minimum as a
result of earlier redemptions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
You may exchange FST Shares of a Fund at NAV for shares of the corresponding
class of any other Goldman Sachs Fund. The exchange privilege may be materi-
ally modified or withdrawn at any time upon 60 days' written notice to you.
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund name and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares,
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege on your Account Application
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-----------------------------------------------------------------------
8-EE
<PAGE>
SHAREHOLDER GUIDE
..You should keep in mind the following factors when making or considering an
exchange:
.You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
.Telephone exchanges normally will be made only to an identically regis-
tered account. Shares may be exchanged among accounts with different
names, addresses, and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and are signed by
an authorized person designated on the Account Application.
.Exchanges are available only in states where exchanges may be legally
made.
.It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
.Goldman Sachs may use reasonable procedures described under "What Do I
Need to Know About Telephone Redemption Requests?" in an effort to prevent
unauthorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Shares?
You will receive an annual report containing audited financial statements
and a semiannual report. To eliminate unnecessary duplication, only one copy
of such reports will be sent to shareholders with the same mailing address.
If you would like a duplicate copy to be mailed to you, please contact
Goldman Sachs Funds at 1-800-621-2550. You will also be provided with an
individual monthly statement. Upon request, you will be provided with a
printed confirmation for each transaction in your account. Any dividends and
distributions paid by the Funds are also reflected in regular statements
issued by Goldman Sachs to recordholders.
9-EE
<PAGE>
Dividends
Dividends will be distributed to shareholders monthly. You may choose to have
dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time. If you do not indicate any
choice, your dividends and distributions will be reinvested automatically in
the applicable Fund.
All or substantially all of each Fund's net investment income will be declared
as a dividend daily. Dividends will normally, but not always, be declared as of
the following times:
<TABLE>
<CAPTION>
DIVIDEND DECLARATION TIME
FUND (NEW YORK TIME)
--------------------------------------------------
<S> <C>
PRIME OBLIGATIONS 4:00 p.m.
--------------------------------------------------
MONEY MARKET 4:00 p.m.
--------------------------------------------------
PREMIUM MONEY MARKET 5:00 p.m.
--------------------------------------------------
TREASURY OBLIGATIONS 5:00 p.m.
--------------------------------------------------
TREASURY INSTRUMENTS 4:00 p.m.
--------------------------------------------------
GOVERNMENT 5:00 p.m.
--------------------------------------------------
FEDERAL 4:00 p.m.
--------------------------------------------------
TAX-FREE MONEY MARKET 4:00 p.m.
--------------------------------------------------
MUNICIPAL MONEY MARKET 4:00 p.m.
--------------------------------------------------
</TABLE>
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of each
month. Net short-term capital gains, if any, will be distributed in accordance
with federal income tax requirements and may be reflected in a Fund's daily
distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid excessive
fluctuations in the amount of monthly capital gains distributions, a portion of
any net capital gains realized on the disposition of securities during the
months of November and
17
<PAGE>
December may be distributed during the subsequent calendar year. Although real-
ized gains and losses on the assets of a Fund are reflected in the NAV of the
Fund, they are not expected to be of an amount which would affect the Fund's
NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations, Government and
Premium Money Market Funds is based on estimates of net investment income for
each Fund. Actual income may differ from estimates, and differences, if any,
will be included in the calculation of subsequent dividends.
18
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
2-FF
<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
3-FF
<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
4-FF
<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
5-FF
<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
6-FF
<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
8-FF
<PAGE>
[This page intentionally left blank]
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred Shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Preferred Shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Years Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
2
<PAGE>
Appendix B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $5,831,773 0.18% 5.39% 0.24% 5.33%
1.00 5.45 132,558 0.28 5.26 0.34 5.20
1.00 5.29 331,196 0.43 5.14 0.49 5.08
1.00 5.03 336,205 0.68 4.89 0.74 4.83
- --------------------------------------------------------------------------------
1.00 5.60 3,867,739 0.18 5.46 0.23 5.41
1.00 5.50 152,767 0.28 5.38 0.33 5.33
1.00 5.34 241,607 0.43 5.22 0.48 5.17
1.00 5.08 176,133 0.68 4.97 0.73 4.92
- --------------------------------------------------------------------------------
1.00 5.41 3,901,797 0.18 5.29 0.23 5.24
1.00 5.28c 127,126 0.28c 5.19c 0.33c 5.14c
1.00 5.14 215,898 0.43 5.06 0.48 5.01
1.00 4.88 115,114 0.68 4.78 0.73 4.73
- --------------------------------------------------------------------------------
1.00 6.02 3,295,791 0.18 5.86 0.22 5.82
1.00 5.75 147,894 0.43 5.59 0.47 5.55
1.00 5.49 65,278 0.68 5.33 0.72 5.29
- --------------------------------------------------------------------------------
1.00 4.38c 2,774,849 0.18c 4.38c 0.24c 4.32c
1.00 4.12c 66,113 0.43c 4.18c 0.49c 4.12c
1.00 3.86c 41,372 0.68c 3.98c 0.74c 3.92c
- --------------------------------------------------------------------------------
1.00 3.18 1,831,413 0.17 3.11 0.25 3.03
1.00 2.92 35,250 0.42 2.86 0.50 2.78
1.00 2.66 14,001 0.67 2.61 0.75 2.53
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.06 (0.06)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST Shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced July 14) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced May 18) 1.00 0.03 (0.03)
1994-FST Administration shares (commenced
May 20) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $4,995,782 0.18% 5.40% 0.23% 5.35%
1.00 5.45 93,218 0.28 5.30 0.33 5.25
1.00 5.29 399,474 0.43 5.16 0.48 5.11
1.00 5.03 496,520 0.68 4.86 0.73 4.81
- ---------------------------------------------------------------------------------
1.00 5.63 4,346,519 0.18 5.50 0.23 5.45
1.00 5.53 20,258 0.28 5.44 0.33 5.39
1.00 5.37 221,256 0.43 5.26 0.48 5.21
1.00 5.11 316,304 0.68 4.99 0.73 4.94
- ---------------------------------------------------------------------------------
1.00 5.45 2,540,366 0.18 5.33 0.23 5.28
1.00 5.31c 17,510 0.28c 5.23c 0.33c 5.18c
1.00 5.19 165,766 0.43 5.04 0.48 4.99
1.00 4.93 234,376 0.68 4.84 0.73 4.79
- ---------------------------------------------------------------------------------
1.00 6.07 2,069,197 0.15 5.89 0.23 5.81
1.00 5.80 137,412 0.40 5.61 0.48 5.53
1.00 5.41c 4,219 0.65c 4.93c 0.73c 4.85c
- ---------------------------------------------------------------------------------
1.00 4.91c 862,971 0.11c 4.88c 0.25c 4.74c
1.00 4.65c 66,560 0.36c 4.82c 0.50c 4.68c
- ---------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PREMIUM MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced August 1) 1.00 0.02 (0.02)
1997-FST Preferred Shares (commenced August
1) 1.00 0.02 (0.02)
1997-FST Administration shares (commenced
August 1) 1.00 0.02 (0.02)
1997-FST Service shares (commenced August
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $479,851 0.16% 5.38% 0.29% 5.25%
1.00 5.45 107,517 0.26 5.29 0.39 5.16
1.00 5.29 13,728 0.41 5.08 0.54 4.95
1.00 5.03 19,655 0.66 4.79 0.79 4.66
- -------------------------------------------------------------------------------
1.00 5.73c 218,192 0.08c 5.59c 0.43c 5.24c
1.00 5.62c 558 0.18c 5.50c 0.53c 5.15c
1.00 5.47c 1,457 0.33c 5.33c 0.68c 4.98c
1.00 5.20c 814 0.58c 5.17c 0.93c 4.82c
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Year Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.40% $3,521,389 0.18% 5.22% 0.23% 5.17%
1.00 5.29 285,240 0.28 5.20 0.33 5.15
1.00 5.14 1,080,454 0.43 4.94 0.48 4.89
1.00 4.87 501,619 0.68 4.69 0.73 4.64
- ---------------------------------------------------------------------------------
1.00 5.50 2,217,943 0.18 5.36 0.23 5.31
1.00 5.40 245,355 0.28 5.32 0.33 5.27
1.00 5.24 738,865 0.43 5.12 0.48 5.07
1.00 4.98 312,991 0.68 4.87 0.73 4.82
- ---------------------------------------------------------------------------------
1.00 5.35 2,291,051 0.18 5.22 0.24 5.16
1.00 5.24c 46,637 0.28c 5.11c 0.34c 5.05c
1.00 5.09 536,895 0.43 4.97 0.49 4.91
1.00 4.83 220,560 0.68 4.72 0.74 4.66
- ---------------------------------------------------------------------------------
1.00 5.96 1,587,715 0.18 5.73 0.23 5.68
1.00 5.69 283,186 0.43 5.47 0.48 5.42
1.00 5.43 139,117 0.68 5.21 0.73 5.16
- ---------------------------------------------------------------------------------
1.00 4.23c 958,196 0.18c 4.13c 0.25c 4.06c
1.00 3.97c 82,124 0.43c 4.24c 0.50c 4.17c
1.00 3.71c 81,162 0.68c 3.82c 0.75c 3.75c
- ---------------------------------------------------------------------------------
1.00 3.11 812,420 0.17 3.01 0.24 2.94
1.00 2.85 24,485 0.42 2.76 0.49 2.69
1.00 2.60 35,656 0.67 2.51 0.74 2.44
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced March 3) 1.00 0.04 (0.04)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March 5) 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.05% $822,207 0.18% 4.74% 0.29% 4.63%
1.00 4.94 2 0.28 4.68 0.39 4.57
1.00 4.79 23,676 0.43 4.62 0.54 4.51
1.00 4.53 17,128 0.68 4.37 0.79 4.26
- -------------------------------------------------------------------------------
1.00 5.25c 496,419 0.18c 5.09c 0.29c 4.98c
1.00 5.13c 2 0.28c 5.00c 0.39c 4.89c
1.00 4.99c 4,159 0.43c 4.84c 0.54c 4.73c
1.00 4.71c 20,177 0.68c 4.62c 0.79c 4.51c
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced May 16) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1993-FST shares (commenced April 6) 1.00 0.03 (0.03)
1993-FST Administration shares (com-
menced September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.46% $1,563,875 0.18% 5.32% 0.23% 5.27%
1.00 5.36 245,628 0.28 5.15 0.33 5.10
1.00 5.20 407,363 0.43 5.06 0.48 5.01
1.00 4.94 699,481 0.68 4.83 0.73 4.78
- --------------------------------------------------------------------------------
1.00 5.54 1,478,539 0.18 5.41 0.24 5.35
1.00 5.43 7,147 0.28 5.34 0.34 5.28
1.00 5.28 299,804 0.43 5.15 0.49 5.09
1.00 5.02 580,200 0.68 4.91 0.74 4.85
- --------------------------------------------------------------------------------
1.00 5.38 858,769 0.18 5.25 0.24 5.19
1.00 5.26c 112 0.28c 5.14c 0.34c 5.08c
1.00 5.12 145,108 0.43 5.01 0.49 4.95
1.00 4.86 223,554 0.68 4.74 0.74 4.68
- --------------------------------------------------------------------------------
1.00 6.00 743,884 0.18 5.81 0.24 5.75
1.00 5.74 82,386 0.43 5.54 0.49 5.48
1.00 5.40c 14,508 0.68c 5.08c 0.74c 5.02c
- --------------------------------------------------------------------------------
1.00 4.36c 258,350 0.15c 4.64c 0.25c 4.54c
1.00 4.10c 54,253 0.40c 4.67c 0.50c 4.57c
- --------------------------------------------------------------------------------
1.00 3.14c 44,697 0.08c 3.10c 0.59c 2.59c
1.00 2.87c 14,126 0.35c 2.85c 0.76c 2.44c
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
FEDERAL FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -----------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced February 28) 1.00 0.05 (0.05)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March
25) 1.00 0.04 (0.04)
- -----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.41% $2,346,254 0.18% 5.24% 0.24% 5.18%
1.00 5.31 26,724 0.28 5.20 0.34 5.14
1.00 5.15 690,084 0.43 5.02 0.49 4.96
1.00 4.89 321,124 0.68 4.78 0.74 4.72
- --------------------------------------------------------------------------------
1.00 5.51c 1,125,681 0.18c 5.39c 0.27c 5.30c
1.00 5.43c 194,375 0.28c 5.26c 0.37c 5.17c
1.00 5.27c 625,334 0.43c 5.15c 0.52c 5.06c
1.00 5.00c 228,447 0.68c 4.78c 0.77c 4.69c
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- --------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.03 $(0.03)
1998-FST Preferred shares 1.00 0.03 (0.03)
1998-FST Administration
shares 1.00 0.03 (0.03)
1998-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1997-FST shares 1.00 0.04 (0.04)
1997-FST Preferred shares 1.00 0.03 (0.03)
1997-FST Administration
shares 1.00 0.03 (0.03)
1997-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1996-FST shares 1.00 0.03 (0.03)
1996-FST Preferred shares
(commenced May 1) 1.00 0.02 (0.02)
1996-FST Administration
shares 1.00 0.03 (0.03)
1996-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1995-FST shares 1.00 0.04 (0.04)
1995-FST Administration
shares 1.00 0.04 (0.04)
1995-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced
July 19) 1.00 0.02 (0.02)
1994-FST Administration
shares (commenced August
1) 1.00 0.01 (0.01)
1994-FST Service shares
(commenced September 23) 1.00 0.01 (0.01)
- --------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.34% $1,456,002 0.18% 3.28% 0.23% 3.23%
1.00 3.24 20,882 0.28 3.17 0.33 3.12
1.00 3.08 146,800 0.43 3.04 0.48 2.99
1.00 2.83 50,990 0.68 2.77 0.73 2.72
- --------------------------------------------------------------------------------
1.00 3.54 939,407 0.18 3.50 0.24 3.44
1.00 3.43 35,152 0.28 3.39 0.34 3.33
1.00 3.28 103,049 0.43 3.27 0.49 3.21
1.00 3.02 42,578 0.68 3.01 0.74 2.95
- --------------------------------------------------------------------------------
1.00 3.39 440,838 0.18 3.35 0.23 3.30
1.00 3.30c 28,731 0.28c 3.26c 0.33c 3.21c
1.00 3.13 51,661 0.43 3.10 0.48 3.05
1.00 2.88 19,855 0.68 2.85 0.73 2.80
- --------------------------------------------------------------------------------
1.00 3.89 448,367 0.14 3.81 0.24 3.71
1.00 3.63 20,939 0.39 3.54 0.49 3.44
1.00 3.38 19,860 0.64 3.32 0.74 3.22
- --------------------------------------------------------------------------------
1.00 3.41c 183,570 0.07c 3.42c 0.31c 3.18c
1.00 3.19c 2,042 0.32c 3.25c 0.56c 3.01c
1.00 3.11c 2,267 0.57c 3.32c 0.81c 3.08c
- --------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Index
1 General Investment and Management Shareholder's Guide
Approach
How to Buy Shares
2 Fund Performance
How to Sell Shares
3 Prime Obligations Fund
Dividends
4 Money Market Fund
A-1 Appendix
5 Premium Money Market Fund Additional Information
on Portfolio Risks,
6 Treasury Obligations Fund Securities and
Techniques
7 Treasury Instruments Fund
B-1 Appendix
8 Government Fund Financial Highlights
9 Federal Fund
10 Tax-Free Money Market Fund
Municipal Money Market Fund
Principal Risks of the Funds
12 Funds Fees and Expenses
Service Providers
Taxation
19
<PAGE>
Financial Square Funds
Prospectus (FST Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone--Call 1-800-621-2550
By mail--Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By [email protected]
On the Internet--Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC--http://www.sec.gov
Goldman Sachs--http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC
at 1-800-SEC-0330.
[LOGO]
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus FST
ADMINISTRATION
SHARES
May , 1999
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
.Prime Obligations Fund
.Money Market Fund
.Premium Money Market Fund
.Treasury Obligations Fund
.Treasury Instruments Fund
.Government Fund
.Federal Fund
(INSERT ARTWORK)
.Tax-Free Money Market Fund
.Municipal Money Market Fund
[LOGO OF GOLDMAN SACHS
APPEARS HERE]
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Funds' investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
1-CC
<PAGE>
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
.. The Funds: Each Fund's securities are valued by the amortized cost method
as permitted under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "1940 Act"). Under Rule 2a-7, each Fund may invest only in
U.S. dollar-denominated securities that are determined to present minimal
credit risk and meet certain other criteria including, conditions relating
to maturity, diversification and credit quality. These operating policies
may be more restrictive than the fundamental policies set forth in the
Statement of Additional Information (the "Additional Statement").
. Taxable Funds: Prime Obligations, Money Market, Premium Money Market,
Treasury Obligations and Government Funds.
. Tax-Advantaged Funds: Treasury Instruments and Federal Funds.
. Tax-Exempt Funds: Tax-Free Money Market and Municipal Money Market
Funds.
.. The Investors: The Funds are designed for institutional investors seeking
a high rate of return, a stable net asset value ("NAV") and convenient
liquidation privileges. The Funds are particularly suitable for banks,
corporations and other financial institutions that seek investment of
short-term funds for their own accounts or for the accounts of their cus-
tomers. Shares of the Government Fund are intended to qualify as eligible
investments for federally chartered credit unions pursuant to Sections
107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of
the National Credit Union Administration ("NCUA") Rules and Regulations
and NCUA Letter Number 155. The Fund intends to review changes in the
applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be nec-
essary so that the investments of the Fund qualify as eligible investments
under the Federal Credit Union Act and the regulations thereunder. Shares
of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chart-
ered credit union should consult qualified legal counsel to determine
whether the Government Fund is a permissible investment under the law
applicable to it.
2-CC
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
.. NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
.. Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
.. Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
.. Investment Restrictions: Each Fund is subject to certain investment
restrictions that are described in detail under "Investment Restrictions" in
the Additional Statement. Fundamental investment restrictions and the
investment objective of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund. The Treasury Obligations
Fund's policy of limiting its investments to U.S. Treasury obligations and
related repurchase agreements is also fundamental. All investment policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval.
.. Diversification. Diversification can help a Fund reduce the risks of
investing. In accordance with current regulations of the Securities and
Exchange Commission (the "SEC"), each Fund may not invest more than 5% of the
value of its total assets at the time of purchase in the securities of any
single issuer. However, a Fund may invest up to 25% of the value of the total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agree-ments, U.S.
Government securities or securities of other investment compa-nies. In
addition, securities subject to certain unconditional guarantees and
securities that are not "First Tier Securities" as defined by the SEC are
subject to different diversification requirements as described in the
Additional Statement.
3-CC
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Premium Money Market, Treasury Obliga-
tions, Treasury Instruments, Government, Federal, Tax-Free Money Market and
Municipal Money Market Funds seek to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments.
In order to obtain a rating from a rating organization, the Premium Money
Market Fund will observe special investment restrictions.
The Treasury Instruments and Federal Funds pursue their investment objec-
tives by limiting their investments to certain U.S. Treasury obligations and
U.S. Government securities (each as defined in Appendix A), respectively,
the interest from which is generally exempt from state income taxation. You
should consult your tax adviser to determine whether distributions from the
Treasury Instruments and Federal Funds (and any other Fund that may hold
such obligations) derived from interest on such obligations are exempt from
state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Free Money Market and Municipal Money Market Funds pursue their
investment objectives by limiting their investments to securities issued by
or on behalf of states, territories, and possessions of the United States
and their political subdivisions, agencies, authorities and instrumentali-
ties, and the District of Columbia, the interest from which, if any, is in
the opinion of bond counsel excluded from gross income for federal income
tax purposes, and with respect to the Tax-Free Money Market Fund, not an
item of tax preference under the federal alternative minimum tax. With
respect to the Municipal Money Market Fund, such interest may not necessar-
ily be exempt from the federal alternative minimum tax.
4-CC
<PAGE>
[This page intentionally left blank]
5-CC
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. Treasury U.S. Government Bank Commercial
Fund Obligations Securities Obligations Paper
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations ./4/ . . .
U.S. banks only
--------------------------------------------------------------------------------------------------
Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Premium Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Treasury Obligations ./3/
--------------------------------------------------------------------------------------------------
Treasury Instruments ./3/
--------------------------------------------------------------------------------------------------
Government ./4/ .
--------------------------------------------------------------------------------------------------
Federal ./4/ .
--------------------------------------------------------------------------------------------------
Tax-Free Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
Municipal Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and charge-
offs and declines in total deposits) the Funds may, for temporary defensive
purposes, invest less than 25% of their total assets in bank obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-CC
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated
Fund Municipals Municipals Receipts Securities/7/ Investment Companies
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Premium Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Treasury Obligations
-----------------------------------------------------------------------------------------------------------------
Treasury Instruments
-----------------------------------------------------------------------------------------------------------------
Government .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Tax-Free Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
Municipal Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/13/ Miscellaneous
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -------------------------------------------------------------------------------------------------------------
(Does not First/8/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and taxable state/14/ invest up to 20% in securities subject to
invest)/6/,/7/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -------------------------------------------------------------------------------------------------------------
(May invest up First/8/ or Tax-exempt federal May (but does not currently intend to)
to 100% of its Second Tier/11/ and taxable state/14/ invest up to 100% in AMT securities
total assets in and may temporarily invest in the taxable
private activity money market instruments described herein
bonds)/7/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-CC
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Premium
Prime Money Money Treasury
Obligations Market Market Obligations
Fund Fund Fund Fund
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- ----------------------------------------------------------------
Interest Rate . . . .
- ----------------------------------------------------------------
Credit/Default . . . .
- ----------------------------------------------------------------
Management . . . .
- ----------------------------------------------------------------
Liquidity . . . .
- ----------------------------------------------------------------
Other . . . .
- ----------------------------------------------------------------
Government Securities -- -- -- --
- ----------------------------------------------------------------
Concentration -- . . --
- ----------------------------------------------------------------
Foreign -- . . --
- ----------------------------------------------------------------
Tax -- -- -- --
- ----------------------------------------------------------------
</TABLE>
10-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Free Municipal
Treasury Money Money
Instruments Government Federal Market Market
Fund Fund Fund Fund Fund
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
-- . . -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
-- -- -- -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
</TABLE>
11-CC
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Funds:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Premium Money Market, Tax-Free Money
Market and Municipal Money Market Funds:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Free Money Market and Municipal Money Market Funds, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market and Premium Money Market Funds may not invest more than 25% of
their total assets in the securities of any one foreign government.
12-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market and Premium Money Market Funds:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market and Premium Money Market Funds intend to
invest more than 25% of their total assets in bank obligations. Banks may
be particularly susceptible to certain economic factors such as interest
rate changes, adverse developments in the real estate market, fiscal and
monetary policy and general economic cycles.
Risk that applies to the Tax-Free Money Market and Municipal Money Market
Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-CC
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Admin-
istration Shares from year to year; and (b) how the average annual returns
of a Fund's Administration Shares compare to the returns of a composite of
mutual funds with similar investment objectives. The bar chart and table
assume reinvestment of dividends and distributions. A Fund's past perfor-
mance is not necessarily an indication of how the Fund will perform in the
future. Performance reflects expense limitations in effect. If expense limi-
tations were not in place, a Fund's performance would have been reduced. You
may obtain a Fund's current yield by calling 1-800-621-2550. No information
has been provided for the Municipal Money Market Fund because it has not yet
commenced operations.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best
Quarter:
Q2 '95 1.45%
Worst
Quarter:
Q2 '93 0.71%
[PRIME OBLIGATIONS FUND BAR CHART APPEARS HERE]
1993 2.93%
1994 4.02%
1995 5.75%
1996 5.14%
1997 5.34%
1998 5.29%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C>
ADMINISTRATION SHARES (INCEPTION 11/9/92) 5.29% 5.11% 4.70%
--------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.46%
Worst Quarter:
Q4 '98 1.24%
[MONEY MARKET FUND BAR CHART APPEARS HERE]
1995 5.80%
1996 5.19%
1997 5.37%
1998 5.29%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C>
ADMINISTRATION SHARES (INCEPTION 5/20/94) 5.29% 5.28% 5.31%
--------------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Premium Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.32%
Worst Quarter:
Q4 '98 1.24%
[PREMIUM MONEY MARKET FUND BAR CHART APPEARS HERE]
1998 5.29%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------------
<S> <C> <C>
ADMINISTRATION SHARES (INCEPTION 8/1/97) 5.29% 5.34%
-----------------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.44%
Worst Quarter:
Q1 '94 0.72%
[TREASURY OBLIGATIONS FUND BAR CHART APPEARS HERE]
1994 3.87%
1995 5.69%
1996 5.09%
1997 5.24%
1998 5.14%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------------
<S> <C> <C> <C>
ADMINISTRATION SHARES (INCEPTION 1/21/93) 5.14% 5.01% 4.66%
--------------------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Treasury Instruments Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '98 1.22%
Worst Quarter:
Q4 '98 1.07%
[TREASURY INNSTRUMENTS FUND BAR CHART APPEARS HERE]
1998 4.79%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------------
<S> <C> <C>
ADMINISTRATION SHARES (INCEPTION 4/1/97) 4.79% 4.88%
-----------------------------------------------------------------
</TABLE>
7
<PAGE>
Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.45%
Worst Quarter:
Q1 '94 0.73%
[GOVERNMENT FUND BAR CHART APPEARS HERE]
1994 4.00%
1995 5.74%
1996 5.12%
1997 5.28%
1998 5.20%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------------------
<S> <C> <C> <C>
ADMINISTRATION SHARES (INCEPTION 9/1/93) 5.20% 5.07% 4.93%
-------------------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Federal Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q4 '98 1.29%
Worst Quarter:
Q3 '98 1.27%
[FEDERAL FUND BAR CHART APPEARS HERE]
1998 5.15%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------------
<S> <C> <C>
ADMINISTRATION SHARES (INCEPTION 4/1/97) 5.15% 5.20%
-----------------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Free Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 0.95%
Worst Quarter:
Q4 '98 0.72%
[TAX-FREE MONEY MARKET FUND BAR CHART APPEARS HERE]
1995 3.63%
1996 3.13%
1997 3.28%
1998 3.08%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998 1 YEAR 3 YEARS SINCE INCEPTION
-------------------------------------------------------------------------
<S> <C> <C> <C>
ADMINISTRATION SHARES (INCEPTION 8/1/94) 3.08% 3.17% 3.27%
-------------------------------------------------------------------------
</TABLE>
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
Fund Fees and Expenses (Administration Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Administration Shares of a Fund.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Administration Fees 0.250% 0.250% 0.250%
Other Expenses/3/ 0.035% 0.025% 0.085%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses* 0.490% 0.480% 0.054%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Administration Fees/3/ 0.25% 0.25% 0.25%
Other Expenses/4/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.43% 0.43% 0.43%
------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
None None None
None None None
None None None
None None None
None None None
0.205% 0.205% 0.205%
0.250% 0.250% 0.250%
0.025% 0.085% 0.025%
- --------------------------------------------------------------------------------------------------
0.480% 0.540% 0.480%
- --------------------------------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Administration Fees/3/ 0.25% 0.25% 0.25%
Other Expenses/4/ 0.01% 0.01% 0.01%
--------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.43% 0.43% 0.43%
--------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Administration Fees 0.250% 0.250% 0.250%
Other Expenses/3/ 0.035% 0.025% 0.285%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses/3/ 0.490% 0.480% 0.740%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Administration Fees/3/ 0.25% 0.25% 0.25%
Other Expenses/4/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.43% 0.43% 0.43%
------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect current
fees, except for the Municipal Money Market Fund, which are based on estimated
amounts for the current fiscal year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Funds equal to 0.035%. AS A RESULT OF FEE WAIVERS, THE
CURRENT MANAGEMENT FEES OF THE FUNDS ARE 0.17% OF THE FUNDS' AVERAGE DAILY NET
ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF THE INVEST-
MENT ADVISER.
/3/Service Organizations may charge other fees directly to their customers who
are beneficial owners of Administration Shares in connection with their custom-
ers' accounts. Such fees may affect the return customers realize with respect
to their investments.
/4/The Investment Adviser has voluntarily agreed to reduce or limit "Other
Expenses" of each Fund (excluding management fees, administration fees, taxes,
interest, brokerage fees and litigation, indemnification and other extraordi-
nary expenses) to 0.01% of each Fund's average daily net assets.
15
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Adminis-
tration Shares of a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME OBLIGATIONS $50 $157 $274 $616
- -------------------------------------------------------
MONEY MARKET $49 $154 $269 $604
- -------------------------------------------------------
PREMIUM MONEY MARKET $55 $173 $302 $677
- -------------------------------------------------------
TREASURY OBLIGATIONS $49 $154 $269 $604
- -------------------------------------------------------
TREASURY INSTRUMENTS $55 $173 $302 $677
- -------------------------------------------------------
GOVERNMENT $49 $154 $269 $604
- -------------------------------------------------------
FEDERAL $50 $157 $274 $616
- -------------------------------------------------------
TAX-FREE MONEY MARKET $49 $154 $269 $604
- -------------------------------------------------------
MUNICIPAL MONEY MARKET N/A N/A N/A N/A
- -------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who are
the beneficial owners of Administration Shares in connection with their custom-
ers' accounts. You should contact your Service Organization for information
regarding such charges. Such fees may affect the return their customers realize
with respect to their investments.
Certain Service Organizations that invest in Administration Shares on behalf of
their customers may receive other compensation in connection with the sale and
distribution of Administration Shares or for services to their customers'
accounts and/or the Funds. For additional information regarding such compensa-
tion, see "Shareholder Guide" in the Prospectus and "Other Information" in the
Additional Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as investment adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and dispo-
sition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not pro-
vided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.205% 0.17%
-------------------------------------------------------------------
Money Market 0.205% 0.17%
-------------------------------------------------------------------
Premium Money Market 0.205% 0.17%
-------------------------------------------------------------------
Treasury Obligations 0.205% 0.17%
-------------------------------------------------------------------
Treasury Instruments 0.205% 0.17%
-------------------------------------------------------------------
Government 0.205% 0.17%
-------------------------------------------------------------------
Federal 0.205% 0.17%
-------------------------------------------------------------------
Tax-Free Money Market 0.205% 0.17%
-------------------------------------------------------------------
Municipal Money Market 0.205% N/A*
-------------------------------------------------------------------
</TABLE>
* As of December 31, 1998, the Municipal Money Market Fund had not commenced
operations.
1-DD
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
The Investment Adviser has voluntarily agreed not to impose a portion of its
management fee and/or to reduce or otherwise limit the daily expenses of
each Fund (excluding fees payable under service and administration plans for
certain share classes, taxes, interest, brokerage and litigation, indemnifi-
cation and other extraordinary expenses). GSAM may discontinue or modify any
such reductions or limitations in the future at its discretion.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service prov-
iders do not adequately address this problem in a timely manner.
2-DD
<PAGE>
SERVICE PROVIDERS
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
3-DD
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, Fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. The tax status and amounts of the dividends for each calendar year
will be detailed in your annual tax statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-DD
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Administration
Shares.
HOW TO BUY SHARES
How Can I Purchase Administration Shares Of The Funds?
Generally, Administration Shares may be purchased only through institutions
that have agreed to provide account administration and maintenance services
to their customers who are the beneficial owners of Administration Shares.
These institutions are called "Service Organizations." Customers of a Serv-
ice Organization will normally give their purchase instructions to the Serv-
ice Organization, and the Service Organization will, in turn, place purchase
orders with Goldman Sachs. Service Organizations will set times by which
purchase orders and payments must be received by them from their customers.
Generally, Administration Shares may be purchased from the Funds on any
business day at their net asset value ("NAV") next determined after receipt
of an order by Goldman Sachs from a Service Organization. Shares begin earn-
ing dividends after the Fund's receipt of the purchase amount in federal
funds. No sales load is charged.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place a purchase order in writing or by telephone.
--------------------------------------------------------
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------
Before or immediately after placing an initial purchase order, a Service
Organization should complete and send to Goldman Sachs the Account Applica-
tion. Subsequent purchase orders should be accompanied by information iden-
tifying the account and the Fund in which Administration Shares are to be
purchased.
Service Organizations may send their payments as follows:
..Wire federal funds to The Northern Trust Company ("Northern"), as sub-
custodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
1-II
<PAGE>
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern, as sub-custodian for State Street;
or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds --
(Name of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago,
IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or
a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
If an effective order and federal funds are received: Dividends begin:
-----------------------------------------------------------------------------
Taxable and Tax-Advantaged Funds
(except Government, Treasury Obligations and Premium Money Market Funds):
.By 3:00 p.m. New York time Same business day
.After 3:00 p.m. New York time Next business day
-----------------------------------------------------------------------------
Government, Treasury Obligations and Premium Money Market
Funds:
.By 5:00 p.m. New York time Same business day
.After 5:00 p.m. New York time Next business day
-----------------------------------------------------------------------------
Municipal Money Market Fund:
.By 1:00 p.m. New York time Same business day
.After 1:00 p.m. New York time Next business day
-----------------------------------------------------------------------------
Tax-Free Money Market Fund:
.By 2:00 p.m. New York time Same business day
.After 2:00 p.m. New York time Next business day
-----------------------------------------------------------------------------
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Administration Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on
2-II
<PAGE>
SHAREHOLDER GUIDE
behalf of their customers, and may designate other intermediaries to accept
such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to an administration plan adopted by the Trust's Board of Trustees,
Service Organizations are entitled to receive payments for their services
from the Trust of up to 0.25% (on an annualized basis) of the average daily
net assets of the Administration Shares of the Funds, which are attributable
to or held in the name of the Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Service
Organizations depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses.
In addition to Administration Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), and are entitled to different serv-
ices than Administration Shares. Information regarding these other share
classes may be obtained from your sales representative or from Goldman Sachs
by calling the number on the back cover of this Prospectus.
3-II
<PAGE>
What Is My Minimum Investment In The Funds?
----------------------------------------------------
Minimum initial investment $10 million (may be
allocated among the
Funds)
----------------------------------------------------
Minimum account balance $10 million
----------------------------------------------------
Minimum subsequent investments None
----------------------------------------------------
A Service Organization may impose a minimum amount for initial and subse-
quent investments in Administration Shares and may establish other require-
ments such as a minimum account balance. A Service Organization may redeem
Administration Shares held by non-complying accounts, and may impose a
charge for any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Administration
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class) - (Liabilities of the Class)
NAV = ---------------------------------------------------------------
Number of Outstanding Shares of the Class
Fund NAV Calculated
---------------------------------------------------------------------------
Prime Obligations, Money As of the close of regular trading of the New
Market, Federal, Tax-Free York Stock Exchange (usually 4:00 p.m.
Money Market, Treasury New York time) on each business day
Instruments and Municipal
Money Market Funds
---------------------------------------------------------------------------
Premium Money Market, As of 5:00 p.m. New York time on each
Treasury Obligations and business day
Government Funds
--------------------------------------------------------------------------
..NAV per share of each class is calculated by State Street each business
day. Fund Shares will be priced on any day the New York Stock Exchange is
open,
4-II
<PAGE>
SHAREHOLDER GUIDE
except for days on which Chicago, Boston or New York banks are closed for
local holidays.
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Administration Shares Of The Funds?
Generally, Administration Shares may be sold (redeemed) only through Service
Organizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem Administration Shares upon request on any business day
at their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
-----------------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: 1-800-621-2550 (8:00 a.m. to 4:00 p.m. New York time)
-----------------------------------------------------------------------
</TABLE>
Certain Service Organizations are authorized to accept redemption requests
on behalf of the Funds as described above under "What Do I Need To Know
About Service Organizations?" A redemption may also be made with respect to
certain Funds by means of the check redemption privilege described in the
Additional Statement.
5-II
<PAGE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
6-II
<PAGE>
SHAREHOLDER GUIDE
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
a Service Organization's Account Application as follows:
<TABLE>
<CAPTION>
Redemption Request Received Redemption Proceeds Dividends
--------------------------------------------------------------------------------
<S> <C> <C>
Taxable and Tax-Advantaged
Funds
(except Government, Treasury Obligations and
Premium Money Market Funds):
--------------------------------------------------------------------------------
.By 3:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 3:00 p.m. New York time Wired next business day Earned on day request
is received
--------------------------------------------------------------------------------
Government, Treasury
Obligations
and Premium Money Market Funds:
--------------------------------------------------------------------------------
.By 5:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 5:00 p.m. New York time Wired next business day Earned on day request
is received
--------------------------------------------------------------------------------
Municipal Money Market Fund:
--------------------------------------------------------------------------------
.By 12:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 12:00 p.m. New York Wired next business day Earned on day request
time is received
--------------------------------------------------------------------------------
Tax-Free Money Market Fund:
--------------------------------------------------------------------------------
.By 1:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 1:00 p.m. New York time Wired next business day Earned on day request
is received
--------------------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..Neither the Trust nor Goldman Sachs assumes any further responsibility for
the performance of intermediaries or your Service Organization in the
transfer process. If a problem with such performance arises, you should
deal directly with such intermediaries or Service Organization.
7-II
<PAGE>
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption request:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Trust reserves the right to:
..Redeem the Administration Shares of any Service Organization whose account
balance falls below the minimum as a result of earlier redemptions. The
Funds will give 60 days' prior written notice to allow a Service Organiza-
tion to purchase sufficient additional shares of the Fund in order to avoid
such a redemption.
..Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Administration Shares of a Fund at NAV
for shares of the corresponding class of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon
60 days' written notice.
8-II
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund name and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares,
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses, and social security, or other taxpayer identification numbers
only if the exchange instructions are in writing and are signed by an
authorized person designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
9-II
<PAGE>
What Types Of Reports Will I Be Sent Regarding Investments In Administration
Shares?
Service Organizations will receive annual reports containing audited finan-
cial statements and semiannual reports. Upon request, Service Organizations
will also be provided with a printed confirmation for each transaction. Any
dividends and distributions paid by the Funds are also reflected in regular
statements issued by Goldman Sachs to Service Organizations. Service Organi-
zations are responsible for providing these or other reports to their cus-
tomers who are the beneficial owners of Administration Shares in accordance
with the rules that apply to their accounts with the Service Organizations.
10-II
<PAGE>
Dividends
Dividends will be distributed to Service Organizations monthly. Service
Organizations may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
Service Organizations may indicate their election on the Account Applica-
tion. Any changes may be submitted in writing to Goldman Sachs at any time.
If a Service Organization does not indicate any choice, dividends and dis-
tributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund's net investment income will be
declared as a dividend daily. Dividends will normally, but not always, be
declared as of the following times:
<TABLE>
<S> <C>
DIVIDEND DECLARATION TIME
FUND (NEW YORK TIME)
--------------------------------------------------
PRIME OBLIGATIONS 4:00 p.m.
--------------------------------------------------
MONEY MARKET 4:00 p.m.
--------------------------------------------------
PREMIUM MONEY MARKET 5:00 p.m.
--------------------------------------------------
TREASURY OBLIGATIONS 5:00 p.m.
--------------------------------------------------
TREASURY INSTRUMENTS 4:00 p.m.
--------------------------------------------------
GOVERNMENT 5:00 p.m.
--------------------------------------------------
FEDERAL 4:00 p.m.
--------------------------------------------------
TAX-FREE MONEY MARKET 4:00 p.m.
--------------------------------------------------
MUNICIPAL MONEY MARKET 4:00 p.m.
--------------------------------------------------
</TABLE>
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with federal income tax requirements and may be reflected in a
Fund's daily distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and
17
<PAGE>
December may be distributed during the subsequent calendar year. Although
realized gains and losses on the assets of a Fund are reflected in the NAV
of the Fund, they are not expected to be of an amount which would affect the
Fund's NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations, Government
and Premium Money Market Funds is based on estimates of net investment
income for each Fund. Actual income may differ from estimates, and differ-
ences, if any, will be included in the calculation of subsequent dividends.
18
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
2-FF
<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
3-FF
<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
4-FF
<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
5-FF
<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
6-FF
<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
8-FF
<PAGE>
[This page intentionally left blank]
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred Shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Preferred Shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Years Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
2
<PAGE>
Appendix B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $5,831,773 0.18% 5.39% 0.24% 5.33%
1.00 5.45 132,558 0.28 5.26 0.34 5.20
1.00 5.29 331,196 0.43 5.14 0.49 5.08
1.00 5.03 336,205 0.68 4.89 0.74 4.83
- --------------------------------------------------------------------------------
1.00 5.60 3,867,739 0.18 5.46 0.23 5.41
1.00 5.50 152,767 0.28 5.38 0.33 5.33
1.00 5.34 241,607 0.43 5.22 0.48 5.17
1.00 5.08 176,133 0.68 4.97 0.73 4.92
- --------------------------------------------------------------------------------
1.00 5.41 3,901,797 0.18 5.29 0.23 5.24
1.00 5.28c 127,126 0.28c 5.19c 0.33c 5.14c
1.00 5.14 215,898 0.43 5.06 0.48 5.01
1.00 4.88 115,114 0.68 4.78 0.73 4.73
- --------------------------------------------------------------------------------
1.00 6.02 3,295,791 0.18 5.86 0.22 5.82
1.00 5.75 147,894 0.43 5.59 0.47 5.55
1.00 5.49 65,278 0.68 5.33 0.72 5.29
- --------------------------------------------------------------------------------
1.00 4.38c 2,774,849 0.18c 4.38c 0.24c 4.32c
1.00 4.12c 66,113 0.43c 4.18c 0.49c 4.12c
1.00 3.86c 41,372 0.68c 3.98c 0.74c 3.92c
- --------------------------------------------------------------------------------
1.00 3.18 1,831,413 0.17 3.11 0.25 3.03
1.00 2.92 35,250 0.42 2.86 0.50 2.78
1.00 2.66 14,001 0.67 2.61 0.75 2.53
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.06 (0.06)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST Shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced July 14) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced May 18) 1.00 0.03 (0.03)
1994-FST Administration shares (commenced
May 20) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $4,995,782 0.18% 5.40% 0.23% 5.35%
1.00 5.45 93,218 0.28 5.30 0.33 5.25
1.00 5.29 399,474 0.43 5.16 0.48 5.11
1.00 5.03 496,520 0.68 4.86 0.73 4.81
- ---------------------------------------------------------------------------------
1.00 5.63 4,346,519 0.18 5.50 0.23 5.45
1.00 5.53 20,258 0.28 5.44 0.33 5.39
1.00 5.37 221,256 0.43 5.26 0.48 5.21
1.00 5.11 316,304 0.68 4.99 0.73 4.94
- ---------------------------------------------------------------------------------
1.00 5.45 2,540,366 0.18 5.33 0.23 5.28
1.00 5.31c 17,510 0.28c 5.23c 0.33c 5.18c
1.00 5.19 165,766 0.43 5.04 0.48 4.99
1.00 4.93 234,376 0.68 4.84 0.73 4.79
- ---------------------------------------------------------------------------------
1.00 6.07 2,069,197 0.15 5.89 0.23 5.81
1.00 5.80 137,412 0.40 5.61 0.48 5.53
1.00 5.41c 4,219 0.65c 4.93c 0.73c 4.85c
- ---------------------------------------------------------------------------------
1.00 4.91c 862,971 0.11c 4.88c 0.25c 4.74c
1.00 4.65c 66,560 0.36c 4.82c 0.50c 4.68c
- ---------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PREMIUM MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced August 1) 1.00 0.02 (0.02)
1997-FST Preferred Shares (commenced August
1) 1.00 0.02 (0.02)
1997-FST Administration shares (commenced
August 1) 1.00 0.02 (0.02)
1997-FST Service shares (commenced August
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $479,851 0.16% 5.38% 0.29% 5.25%
1.00 5.45 107,517 0.26 5.29 0.39 5.16
1.00 5.29 13,728 0.41 5.08 0.54 4.95
1.00 5.03 19,655 0.66 4.79 0.79 4.66
- -------------------------------------------------------------------------------
1.00 5.73c 218,192 0.08c 5.59c 0.43c 5.24c
1.00 5.62c 558 0.18c 5.50c 0.53c 5.15c
1.00 5.47c 1,457 0.33c 5.33c 0.68c 4.98c
1.00 5.20c 814 0.58c 5.17c 0.93c 4.82c
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Year Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.40% $3,521,389 0.18% 5.22% 0.23% 5.17%
1.00 5.29 285,240 0.28 5.20 0.33 5.15
1.00 5.14 1,080,454 0.43 4.94 0.48 4.89
1.00 4.87 501,619 0.68 4.69 0.73 4.64
- ---------------------------------------------------------------------------------
1.00 5.50 2,217,943 0.18 5.36 0.23 5.31
1.00 5.40 245,355 0.28 5.32 0.33 5.27
1.00 5.24 738,865 0.43 5.12 0.48 5.07
1.00 4.98 312,991 0.68 4.87 0.73 4.82
- ---------------------------------------------------------------------------------
1.00 5.35 2,291,051 0.18 5.22 0.24 5.16
1.00 5.24c 46,637 0.28c 5.11c 0.34c 5.05c
1.00 5.09 536,895 0.43 4.97 0.49 4.91
1.00 4.83 220,560 0.68 4.72 0.74 4.66
- ---------------------------------------------------------------------------------
1.00 5.96 1,587,715 0.18 5.73 0.23 5.68
1.00 5.69 283,186 0.43 5.47 0.48 5.42
1.00 5.43 139,117 0.68 5.21 0.73 5.16
- ---------------------------------------------------------------------------------
1.00 4.23c 958,196 0.18c 4.13c 0.25c 4.06c
1.00 3.97c 82,124 0.43c 4.24c 0.50c 4.17c
1.00 3.71c 81,162 0.68c 3.82c 0.75c 3.75c
- ---------------------------------------------------------------------------------
1.00 3.11 812,420 0.17 3.01 0.24 2.94
1.00 2.85 24,485 0.42 2.76 0.49 2.69
1.00 2.60 35,656 0.67 2.51 0.74 2.44
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced March 3) 1.00 0.04 (0.04)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March 5) 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.05% $822,207 0.18% 4.74% 0.29% 4.63%
1.00 4.94 2 0.28 4.68 0.39 4.57
1.00 4.79 23,676 0.43 4.62 0.54 4.51
1.00 4.53 17,128 0.68 4.37 0.79 4.26
- -------------------------------------------------------------------------------
1.00 5.25c 496,419 0.18c 5.09c 0.29c 4.98c
1.00 5.13c 2 0.28c 5.00c 0.39c 4.89c
1.00 4.99c 4,159 0.43c 4.84c 0.54c 4.73c
1.00 4.71c 20,177 0.68c 4.62c 0.79c 4.51c
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced May 16) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1993-FST shares (commenced April 6) 1.00 0.03 (0.03)
1993-FST Administration shares (com-
menced September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.46% $1,563,875 0.18% 5.32% 0.23% 5.27%
1.00 5.36 245,628 0.28 5.15 0.33 5.10
1.00 5.20 407,363 0.43 5.06 0.48 5.01
1.00 4.94 699,481 0.68 4.83 0.73 4.78
- --------------------------------------------------------------------------------
1.00 5.54 1,478,539 0.18 5.41 0.24 5.35
1.00 5.43 7,147 0.28 5.34 0.34 5.28
1.00 5.28 299,804 0.43 5.15 0.49 5.09
1.00 5.02 580,200 0.68 4.91 0.74 4.85
- --------------------------------------------------------------------------------
1.00 5.38 858,769 0.18 5.25 0.24 5.19
1.00 5.26c 112 0.28c 5.14c 0.34c 5.08c
1.00 5.12 145,108 0.43 5.01 0.49 4.95
1.00 4.86 223,554 0.68 4.74 0.74 4.68
- --------------------------------------------------------------------------------
1.00 6.00 743,884 0.18 5.81 0.24 5.75
1.00 5.74 82,386 0.43 5.54 0.49 5.48
1.00 5.40c 14,508 0.68c 5.08c 0.74c 5.02c
- --------------------------------------------------------------------------------
1.00 4.36c 258,350 0.15c 4.64c 0.25c 4.54c
1.00 4.10c 54,253 0.40c 4.67c 0.50c 4.57c
- --------------------------------------------------------------------------------
1.00 3.14c 44,697 0.08c 3.10c 0.59c 2.59c
1.00 2.87c 14,126 0.35c 2.85c 0.76c 2.44c
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
FEDERAL FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -----------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced February 28) 1.00 0.05 (0.05)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March
25) 1.00 0.04 (0.04)
- -----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.41% $2,346,254 0.18% 5.24% 0.24% 5.18%
1.00 5.31 26,724 0.28 5.20 0.34 5.14
1.00 5.15 690,084 0.43 5.02 0.49 4.96
1.00 4.89 321,124 0.68 4.78 0.74 4.72
- --------------------------------------------------------------------------------
1.00 5.51c 1,125,681 0.18c 5.39c 0.27c 5.30c
1.00 5.43c 194,375 0.28c 5.26c 0.37c 5.17c
1.00 5.27c 625,334 0.43c 5.15c 0.52c 5.06c
1.00 5.00c 228,447 0.68c 4.78c 0.77c 4.69c
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- --------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.03 $(0.03)
1998-FST Preferred shares 1.00 0.03 (0.03)
1998-FST Administration
shares 1.00 0.03 (0.03)
1998-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1997-FST shares 1.00 0.04 (0.04)
1997-FST Preferred shares 1.00 0.03 (0.03)
1997-FST Administration
shares 1.00 0.03 (0.03)
1997-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1996-FST shares 1.00 0.03 (0.03)
1996-FST Preferred shares
(commenced May 1) 1.00 0.02 (0.02)
1996-FST Administration
shares 1.00 0.03 (0.03)
1996-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1995-FST shares 1.00 0.04 (0.04)
1995-FST Administration
shares 1.00 0.04 (0.04)
1995-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced
July 19) 1.00 0.02 (0.02)
1994-FST Administration
shares (commenced August
1) 1.00 0.01 (0.01)
1994-FST Service shares
(commenced September 23) 1.00 0.01 (0.01)
- --------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.34% $1,456,002 0.18% 3.28% 0.23% 3.23%
1.00 3.24 20,882 0.28 3.17 0.33 3.12
1.00 3.08 146,800 0.43 3.04 0.48 2.99
1.00 2.83 50,990 0.68 2.77 0.73 2.72
- --------------------------------------------------------------------------------
1.00 3.54 939,407 0.18 3.50 0.24 3.44
1.00 3.43 35,152 0.28 3.39 0.34 3.33
1.00 3.28 103,049 0.43 3.27 0.49 3.21
1.00 3.02 42,578 0.68 3.01 0.74 2.95
- --------------------------------------------------------------------------------
1.00 3.39 440,838 0.18 3.35 0.23 3.30
1.00 3.30c 28,731 0.28c 3.26c 0.33c 3.21c
1.00 3.13 51,661 0.43 3.10 0.48 3.05
1.00 2.88 19,855 0.68 2.85 0.73 2.80
- --------------------------------------------------------------------------------
1.00 3.89 448,367 0.14 3.81 0.24 3.71
1.00 3.63 20,939 0.39 3.54 0.49 3.44
1.00 3.38 19,860 0.64 3.32 0.74 3.22
- --------------------------------------------------------------------------------
1.00 3.41c 183,570 0.07c 3.42c 0.31c 3.18c
1.00 3.19c 2,042 0.32c 3.25c 0.56c 3.01c
1.00 3.11c 2,267 0.57c 3.32c 0.81c 3.08c
- --------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Index
xx General Investment Management
Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Fund
xx Money Market Fund
xx Premium Money Market Fund
xx Treasury Obligations Fund
xx Treasury Instruments Fund
xx Government Fund
xx Federal Fund
xx Tax-Free Money Market Fund
xx Municipal Money Market Fund
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Taxation
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Dividends
xx Appendix
Additional Information on
Portfolio Risks,
Securities and Techniques
xx Appendix
Financial Highlights
19
<PAGE>
Financial Square Funds
Prospectus (FST Administration Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone--Call 1-800-621-2550
By mail--Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By [email protected]
On the Internet--Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC--http://www.sec.gov
Goldman Sachs--http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC
at 1-800-SEC-0330.
[LOGO]
The Fund's investment company registration number is 811-5349.
<PAGE>
Prospectus FST SERVICE
SHARES
May , 1999
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
.Prime Obligations Fund
.Money Market Fund
.Premium Money Market Fund
.Treasury Obligations Fund
.Treasury Instruments Fund
(INSERT ARTWORK) .Government Fund
.Federal Fund
.Tax- Free Money Market Fund
.Municipal Money Market Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------------
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
------------------------------------------------
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Funds' investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
1-CC
<PAGE>
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
.. The Funds: Each Fund's securities are valued by the amortized cost method
as permitted under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "1940 Act"). Under Rule 2a-7, each Fund may invest only in
U.S. dollar-denominated securities that are determined to present minimal
credit risk and meet certain other criteria including, conditions relating
to maturity, diversification and credit quality. These operating policies
may be more restrictive than the fundamental policies set forth in the
Statement of Additional Information (the "Additional Statement").
. Taxable Funds: Prime Obligations, Money Market, Premium Money Market,
Treasury Obligations and Government Funds.
. Tax-Advantaged Funds: Treasury Instruments and Federal Funds.
. Tax-Exempt Funds: Tax-Free Money Market and Municipal Money Market
Funds.
.. The Investors: The Funds are designed for institutional investors seeking
a high rate of return, a stable net asset value ("NAV") and convenient
liquidation privileges. The Funds are particularly suitable for banks,
corporations and other financial institutions that seek investment of
short-term funds for their own accounts or for the accounts of their cus-
tomers. Shares of the Government Fund are intended to qualify as eligible
investments for federally chartered credit unions pursuant to Sections
107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of
the National Credit Union Administration ("NCUA") Rules and Regulations
and NCUA Letter Number 155. The Fund intends to review changes in the
applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be nec-
essary so that the investments of the Fund qualify as eligible investments
under the Federal Credit Union Act and the regulations thereunder. Shares
of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chart-
ered credit union should consult qualified legal counsel to determine
whether the Government Fund is a permissible investment under the law
applicable to it.
2-CC
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
.. NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
.. Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
.. Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
.. Investment Restrictions: Each Fund is subject to certain investment
restrictions that are described in detail under "Investment Restrictions" in
the Additional Statement. Fundamental investment restrictions and the
investment objective of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund. The Treasury Obligations
Fund's policy of limiting its investments to U.S. Treasury obligations and
related repurchase agreements is also fundamental. All investment policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval.
.. Diversification. Diversification can help a Fund reduce the risks of
investing. In accordance with current regulations of the Securities and
Exchange Commission (the "SEC"), each Fund may not invest more than 5% of the
value of its total assets at the time of purchase in the securities of any
single issuer. However, a Fund may invest up to 25% of the value of the total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agree-ments, U.S.
Government securities or securities of other investment compa-nies. In
addition, securities subject to certain unconditional guarantees and
securities that are not "First Tier Securities" as defined by the SEC are
subject to different diversification requirements as described in the
Additional Statement.
3-CC
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Premium Money Market, Treasury Obliga-
tions, Treasury Instruments, Government, Federal, Tax-Free Money Market and
Municipal Money Market Funds seek to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments.
In order to obtain a rating from a rating organization, the Premium Money
Market Fund will observe special investment restrictions.
The Treasury Instruments and Federal Funds pursue their investment objec-
tives by limiting their investments to certain U.S. Treasury obligations and
U.S. Government securities (each as defined in Appendix A), respectively,
the interest from which is generally exempt from state income taxation. You
should consult your tax adviser to determine whether distributions from the
Treasury Instruments and Federal Funds (and any other Fund that may hold
such obligations) derived from interest on such obligations are exempt from
state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Free Money Market and Municipal Money Market Funds pursue their
investment objectives by limiting their investments to securities issued by
or on behalf of states, territories, and possessions of the United States
and their political subdivisions, agencies, authorities and instrumentali-
ties, and the District of Columbia, the interest from which, if any, is in
the opinion of bond counsel excluded from gross income for federal income
tax purposes, and with respect to the Tax-Free Money Market Fund, not an
item of tax preference under the federal alternative minimum tax. With
respect to the Municipal Money Market Fund, such interest may not necessar-
ily be exempt from the federal alternative minimum tax.
4-CC
<PAGE>
[This page intentionally left blank]
5-CC
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. Treasury U.S. Government Bank Commercial
Fund Obligations Securities Obligations Paper
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations ./4/ . . .
U.S. banks only
--------------------------------------------------------------------------------------------------
Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Premium Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Treasury Obligations ./3/
--------------------------------------------------------------------------------------------------
Treasury Instruments ./3/
--------------------------------------------------------------------------------------------------
Government ./4/ .
--------------------------------------------------------------------------------------------------
Federal ./4/ .
--------------------------------------------------------------------------------------------------
Tax-Free Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
Municipal Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and charge-
offs and declines in total deposits) the Funds may, for temporary defensive
purposes, invest less than 25% of their total assets in bank obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-CC
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated
Fund Municipals Municipals Receipts Securities/7/ Investment Companies
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Premium Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Treasury Obligations
-----------------------------------------------------------------------------------------------------------------
Treasury Instruments
-----------------------------------------------------------------------------------------------------------------
Government .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Tax-Free Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
Municipal Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/13/ Miscellaneous
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -------------------------------------------------------------------------------------------------------------
(Does not First/8/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and taxable state/14/ invest up to 20% in securities subject to
invest)/6/,/7/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -------------------------------------------------------------------------------------------------------------
(May invest up First/8/ or Tax-exempt federal May (but does not currently intend to)
to 100% of its Second Tier/11/ and taxable state/14/ invest up to 100% in AMT securities
total assets in and may temporarily invest in the taxable
private activity money market instruments described herein
bonds)/7/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-CC
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Premium
Prime Money Money Treasury
Obligations Market Market Obligations
Fund Fund Fund Fund
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- ----------------------------------------------------------------
Interest Rate . . . .
- ----------------------------------------------------------------
Credit/Default . . . .
- ----------------------------------------------------------------
Management . . . .
- ----------------------------------------------------------------
Liquidity . . . .
- ----------------------------------------------------------------
Other . . . .
- ----------------------------------------------------------------
Government Securities -- -- -- --
- ----------------------------------------------------------------
Concentration -- . . --
- ----------------------------------------------------------------
Foreign -- . . --
- ----------------------------------------------------------------
Tax -- -- -- --
- ----------------------------------------------------------------
</TABLE>
10-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Free Municipal
Treasury Money Money
Instruments Government Federal Market Market
Fund Fund Fund Fund Fund
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
-- . . -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
-- -- -- -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
</TABLE>
11-CC
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Funds:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Premium Money Market, Tax-Free Money
Market and Municipal Money Market Funds:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Free Money Market and Municipal Money Market Funds, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market and Premium Money Market Funds may not invest more than 25% of
their total assets in the securities of any one foreign government.
12-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market and Premium Money Market Funds:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market and Premium Money Market Funds intend to
invest more than 25% of their total assets in bank obligations. Banks may
be particularly susceptible to certain economic factors such as interest
rate changes, adverse developments in the real estate market, fiscal and
monetary policy and general economic cycles.
Risk that applies to the Tax-Free Money Market and Municipal Money Market
Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-CC
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Service
Shares from year to year; and (b) how the average annual returns of a Fund's
Service Shares compare to the returns of a composite of mutual funds with
similar investment objectives. The bar chart and table assume reinvestment
of dividends and distributions. A Fund's past performance is not necessarily
an indication of how the Fund will perform in the future. Performance
reflects expense limitations in effect. If expense limitations were not in
place, a Fund's performance would have been reduced. You may obtain a Fund's
current yield by calling 1-800-621-2550. No information has been provided
for the Municipal Money Market Fund because it has not yet commenced opera-
tions.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.38%
Worst Quarter:
Q2 '93 0.65%
[BAR GRAPH APPEARS HERE]
Prime
Year Obligations
- ---- -----------
1993 2.67
1994 3.76
1995 5.49
1996 4.88
1997 5.08
1998 5.03
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR 5 YEARS SINCE INCEPTION
-------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE SHARES (Inception 1/8/92) 5.03% 4.85% 4.32%
-------------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q4 '97 1.28%
Worst Quarter
Q4 '98 1.18%
[BAR GRAPH APPEARS HERE]
1996 4.93%
1997 5.11%
1998 5.03%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR 3 YEARS SINCE INCEPTION
-------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE SHARES (Inception 7/14/95) 5.03% 5.02% 5.07%
-------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Premium Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.26%
Worst Quarter:
Q4 '98 1.17%
[BAR GRAPH APPEARS HERE]
1998 5.03%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 8/1/97) 5.03% 5.08%
-----------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 1.37%
Worst Quarter:
Q2 '93 0.64%
[BAR GRAPH APPEARS HERE]
1992 3.29%
1993 2.61%
1994 3.62%
1995 5.43%
1996 4.83%
1997 4.98%
1998 4.87%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR 5 YEARS SINCE INCEPTION
--------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE SHARES (Inception 10/15/91) 4.87% 4.74% 4.24%
--------------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Treasury Instruments Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '98 1.16%
Worst Quarter:
Q4 '98 1.01%
[BAR GRAPH APPEARS HERE]
1998 4.15%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 3/5/97) 4.53% 4.61%
-----------------------------------------------------------
</TABLE>
7
<PAGE>
Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q4 '97 1.26%
Worst Quarter:
Q4 '98 1.14%
[BAR GRAPH APPEARS HERE]
1996 4.86%
1997 5.02%
1998 4.94%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR 3 YEARS SINCE INCEPTION
-------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE SHARES (Inception 5/16/95) 4.94% 4.94% 5.02%
-------------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Federal Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.23%
Worst Quarter:
Q4 '98 1.14%
[BAR GRAPH APPEARS HERE]
1998 4.89%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-----------------------------------------------------------
<S> <C> <C>
SERVICE SHARES (Inception 3/25/97) 4.89% 4.94%
-----------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Free Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '95 0.89%
Worst Quarter:
Q4 '98 0.66%
[BAR GRAPH APPEARS HERE]
1995 3.38%
1996 2.88%
1997 3.02%
1998 2.83%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR 3 YEARS SINCE INCEPTION
-------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE SHARES (Inception 9/23/94) 2.83% 2.91% 3.03%
-------------------------------------------------------------------
</TABLE>
10
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
Fund Fees and Expenses (Service Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Service Shares of a Fund.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Service Fees/3/ 0.500% 0.500% 0.500%
Other Expenses/4/ 0.035% 0.025% 0.085%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses/4/ 0.740% 0.730% 0.790%
- ------------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.68% 0.68% 0.68%
------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
None None None
None None None
None None None
None None None
None None None
0.205% 0.205% 0.205%
0.500% 0.500% 0.500%
0.025% 0.085% 0.025%
- ---------------------------------------------------------------------------------------------------
0.730% 0.790% 0.730%
- ---------------------------------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.01% 0.01% 0.01%
--------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.68% 0.68% 0.68%
--------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Service Fees/3/ 0.500% 0.500% 0.500%
Other Expenses/4/ 0.035% 0.025% 0.285%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses/4/ 0.740% 0.730% 0.990%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.68% 0.68% 0.68%
------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect current
fees, except for the Municipal Money Market Fund which are based on estimated
amounts for the current fiscal year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Funds equal to 0.035%. AS A RESULT OF FEE WAIVERS, THE
CURRENT MANAGEMENT FEES OF THE FUNDS ARE 0.17% OF THE FUNDS' AVERAGE DAILY NET
ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF THE INVEST-
MENT ADVISER.
/3/Service Organizations may charge other fees directly to their customers who
are beneficial owners of Service Shares in connection with their customers'
accounts. Such fees may affect the return customers realize with respect to
their investments.
/4/The Investment Adviser has voluntarily agreed to reduce or limit "Other
Expenses" of each Fund (excluding management fees, service fees, taxes, inter-
est, brokerage fees and litigation, indemnification and other extraordinary
expenses) to 0.01% of each Fund's average daily net assets.
15
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Service
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME OBLIGATIONS $76 $237 $411 $918
- -------------------------------------------------------
MONEY MARKET $75 $233 $406 $906
- -------------------------------------------------------
PREMIUM MONEY MARKET $81 $252 $439 $978
- -------------------------------------------------------
TREASURY OBLIGATIONS $75 $233 $406 $906
- -------------------------------------------------------
TREASURY INSTRUMENTS $81 $252 $439 $978
- -------------------------------------------------------
GOVERNMENT $75 $233 $406 $906
- -------------------------------------------------------
FEDERAL $76 $237 $411 $918
- -------------------------------------------------------
TAX-FREE MONEY MARKET $75 $233 $406 $906
- -------------------------------------------------------
MUNICIPAL MONEY MARKET N/A N/A N/A N/A
- -------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who are
the beneficial owners of Administration Shares in connection with their custom-
ers' accounts. You should contact your Service Organization for information
regarding such charges. Such fees may affect the return their customers realize
with respect to their investments.
Certain Service Organizations that invest in Service Shares on behalf of their
customers may also receive other compensation in connection with the sale and
distribution of Service Shares or for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"Shareholder Guide" in the Prospectus and "Other Information" in the Additional
Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as investment adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and dispo-
sition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not pro-
vided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.205% 0.17%
-------------------------------------------------------------------
Money Market 0.205% 0.17%
-------------------------------------------------------------------
Premium Money Market 0.205% 0.17%
-------------------------------------------------------------------
Treasury Obligations 0.205% 0.17%
-------------------------------------------------------------------
Treasury Instruments 0.205% 0.17%
-------------------------------------------------------------------
Government 0.205% 0.17%
-------------------------------------------------------------------
Federal 0.205% 0.17%
-------------------------------------------------------------------
Tax-Free Money Market 0.205% 0.17%
-------------------------------------------------------------------
Municipal Money Market 0.205% N/A*
-------------------------------------------------------------------
</TABLE>
* As of December 31, 1998, the Municipal Money Market Fund had not commenced
operations.
1-DD
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
The Investment Adviser has voluntarily agreed not to impose a portion of its
management fee and/or to reduce or otherwise limit the daily expenses of
each Fund (excluding fees payable under service and administration plans for
certain share classes, taxes, interest, brokerage and litigation, indemnifi-
cation and other extraordinary expenses). GSAM may discontinue or modify any
such reductions or limitations in the future at its discretion.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service prov-
iders do not adequately address this problem in a timely manner.
2-DD
<PAGE>
SERVICE PROVIDERS
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
3-DD
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, Fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. The tax status and amounts of the dividends for each calendar year
will be detailed in your annual tax statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-DD
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their net asset value ("NAV") next determined after receipt
of an order by Goldman Sachs from a Service Organization. Shares begin earn-
ing dividends after the Fund's receipt of the purchase amount in federal
funds. No sales load is charged.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations may
place a purchase order in writing or by telephone.
<TABLE>
<CAPTION>
------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
------------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
------------------------------------------------------------
</TABLE>
Before or immediately after placing an initial purchase order, a Service
Organization should complete and send to Goldman Sachs the Account Applica-
tion. Subsequent purchase orders should be accompanied by information iden-
tifying the account and the Fund in which Service Shares are to be pur-
chased.
1-JJ
<PAGE>
Service Organizations may send their payments as follows:
..Wire federal funds to The Northern Trust Company ("Northern"), as sub-cus-
todian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern, as sub-custodian for State Street;
or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds --
(Name of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago,
IL 60606-6372. The Fund will not accept a check drawn on a foreign bank or
a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and federal funds are received: Dividends begin:
------------------------------------------------------------------------------
<S> <C>
Taxable and Tax-Advantaged Funds:
(except Government, Treasury Obligations and Premium Money
Market Funds)
.By 3:00 p.m. New York time Same business day
.After 3:00 p.m. New York time Next business day
------------------------------------------------------------------------------
Government, Treasury Obligations and Premium
Money Market Funds:
.By 5:00 p.m. New York time Same business day
.After 5:00 p.m. New York time Next business day
------------------------------------------------------------------------------
Municipal Money Market Fund:
.By 1:00 p.m. New York time Same business day
.After 1:00 p.m. New York time Next business day
------------------------------------------------------------------------------
Tax-Free Money Market Fund:
.By 2:00 p.m. New York time Same business day
.After 2:00 p.m. New York time Next business day
------------------------------------------------------------------------------
</TABLE>
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
2-JJ
<PAGE>
SHAREHOLDER GUIDE
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payments for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, which are attributable to or held
in the name of the Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Service
Organizations depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses.
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), and are entitled to different services
than Service Shares. Information regarding these other share classes may be
obtained from your sales representative or from Goldman Sachs by calling the
number on the back cover of this Prospectus.
3-JJ
<PAGE>
What Is My Minimum Investment In The Funds?
<TABLE>
----------------------------------------------------
<S> <C>
Minimum initial investment $10 million (may be
allocated among the
Funds)
----------------------------------------------------
Minimum account balance $10 million
----------------------------------------------------
Minimum subsequent investments None
----------------------------------------------------
</TABLE>
A Service Organization may impose a minimum amount for initial and subse-
quent investments in Service Shares and may establish other requirements
such as a minimum account balance. A Service Organization may redeem Service
Shares held by non-complying accounts, and may impose a charge for any spe-
cial services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = -------------------------------------------
Number of Outstanding Shares of the Class
<TABLE>
<CAPTION>
Fund NAV Calculated
--------------------------------------------------------------------------
<S> <C>
Prime Obligations, Money As of the close of regular trading of the New
Market, Federal, Tax-Free York Stock Exchange (usually 4:00 p.m.
Money Market, Treasury New York time) on each business day
Instruments and Municipal
Money Market Funds
--------------------------------------------------------------------------
Premium Money Market,
Treasury Obligations and As of 5:00 p.m. New York time on each
Government Funds business day
--------------------------------------------------------------------------
</TABLE>
..NAV per share of each class is calculated by State Street each business
day. Fund Shares will be priced on any day the New York Stock Exchange is
open, except for days on which Chicago, Boston or New York banks are closed
for local holidays.
4-JJ
<PAGE>
SHAREHOLDER GUIDE
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
<CAPTION>
------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6572
------------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
------------------------------------------------------------
</TABLE>
Certain Service Organizations are authorized to accept redemption requests
on behalf of the Funds as described under "What Do I Need To Know About
Service Organizations?" A redemption may also be made with respect to cer-
tain Funds by means of the check redemption privilege described in the Addi-
tional Statement.
5-JJ
<PAGE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
6-JJ
<PAGE>
SHAREHOLDER GUIDE
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
a Service Organization's Account Application as follows:
<TABLE>
<CAPTION>
Redemption Request Received Redemption Proceeds Dividends
--------------------------------------------------------------------------------
<S> <C> <C>
Taxable and Tax-Advantaged Funds
(except Government, Treasury
Obligations and Premium Money
Market Funds):
--------------------------------------------------------------------------------
.By 3:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 3:00 p.m. New York time Wired next business day Earned on day request
is received
--------------------------------------------------------------------------------
Government, Treasury Obligations
and Premium Money Market Funds:
--------------------------------------------------------------------------------
.By 5:00 p.m. New York time Wired same business day Not earned on day
requestis received
--------------------------------------------------------------------------------
.After 5:00 p.m. New York time Wired next business day Earned on day
request is received
--------------------------------------------------------------------------------
Municipal Money Market Fund:
--------------------------------------------------------------------------------
.By 12:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 12:00 p.m. New York time Wired next business day Earned on day
request is received
--------------------------------------------------------------------------------
Tax-Free Money Market Fund:
--------------------------------------------------------------------------------
.By 1:00 p.m. New York time Wired same business day Not earned on day
request is received
--------------------------------------------------------------------------------
.After 1:00 p.m. New York time Wired next business day Earned on day
request is received
--------------------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinarily be wired, wiring the redemption proceeds may be delayed
one additional business day.
..Neither the Trust nor Goldman Sachs assumes any further responsibility for
the performance of intermediaries or your Service Organization in the
transfer process. If a problem with such performance arises, you should
deal directly with such intermediaries or Service Organization.
7-JJ
<PAGE>
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption request:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Trust reserves the right to:
..Redeem the Service Shares of any Service Organization whose account balance
falls below the minimum as a result of earlier redemptions. The Funds will
give 60 days' prior written notice to allow a Service Organization to pur-
chase sufficient additional shares of the Fund in order to avoid such a
redemption.
..Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
shares of the corresponding class of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon
60 days' written notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund name and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares,
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege on your Account Application:
.1-800-621-2550 (8:00 a.m. to 4:00 p.m. New
York time)
-----------------------------------------------------------------------
</TABLE>
8-JJ
<PAGE>
SHAREHOLDER GUIDE
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirement of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses, and social security or other taxpayer identification numbers
only if the exchange instructions are in writing and are signed by an
authorized person designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Service
Shares?
Service Organizations will receive annual reports containing audited finan-
cial statements and semiannual reports. Upon request, Service Organizations
will also be provided with a printed confirmation for each transaction. Any
dividends and distributions paid by the Funds are also reflected in regular
statements issued by Goldman Sachs to Service Organizations. Service Organi-
zations are responsible for providing these or other reports to their cus-
tomers who are the beneficial owners of Service Shares in accordance with
the rules that apply to their accounts with the Service Organizations.
9-JJ
<PAGE>
Dividends
Dividends will be distributed to Service Organizations monthly. Service
Organizations may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
Service Organizations may indicate their election on the Account Applica-
tion. Any changes may be submitted in writing to Goldman Sachs at any time.
If a Service Organization does not indicate any choice, dividends and dis-
tributions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund's net investment income will be
declared as a dividend daily. Dividends will normally, but not always, be
declared as of the following times:
<TABLE>
<CAPTION>
DIVIDEND DECLARATION TIME
FUND (NEW YORK TIME)
--------------------------------------------------
<S> <C>
PRIME OBLIGATIONS 4:00 p.m.
--------------------------------------------------
MONEY MARKET 4:00 p.m.
--------------------------------------------------
PREMIUM MONEY MARKET 5:00 p.m.
--------------------------------------------------
TREASURY OBLIGATIONS 5:00 p.m.
--------------------------------------------------
TREASURY INSTRUMENTS 4:00 p.m.
--------------------------------------------------
GOVERNMENT 5:00 p.m.
--------------------------------------------------
FEDERAL 4:00 p.m.
--------------------------------------------------
TAX-FREE MONEY MARKET 4:00 p.m.
--------------------------------------------------
MUNICIPAL MONEY MARKET 4:00 p.m.
--------------------------------------------------
</TABLE>
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with federal income tax requirements and may be reflected in a
Fund's daily distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and December may be distributed during the
subsequent calendar year. Although real-
17
<PAGE>
ized gains and losses on the assets of a Fund are reflected in the NAV of
the Fund, they are not expected to be of an amount which would affect the
Fund's NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations, Government
and Premium Money Market Funds is based on estimates of net investment
income for each Fund. Actual income may differ from estimates, and differ-
ences, if any, will be included in the calculation of subsequent dividends.
18
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
2-FF
<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
3-FF
<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
4-FF
<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
5-FF
<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
6-FF
<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
8-FF
<PAGE>
[This page intentionally left blank]
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred Shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Preferred Shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Years Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
2
<PAGE>
Appendix B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $5,831,773 0.18% 5.39% 0.24% 5.33%
1.00 5.45 132,558 0.28 5.26 0.34 5.20
1.00 5.29 331,196 0.43 5.14 0.49 5.08
1.00 5.03 336,205 0.68 4.89 0.74 4.83
- --------------------------------------------------------------------------------
1.00 5.60 3,867,739 0.18 5.46 0.23 5.41
1.00 5.50 152,767 0.28 5.38 0.33 5.33
1.00 5.34 241,607 0.43 5.22 0.48 5.17
1.00 5.08 176,133 0.68 4.97 0.73 4.92
- --------------------------------------------------------------------------------
1.00 5.41 3,901,797 0.18 5.29 0.23 5.24
1.00 5.28c 127,126 0.28c 5.19c 0.33c 5.14c
1.00 5.14 215,898 0.43 5.06 0.48 5.01
1.00 4.88 115,114 0.68 4.78 0.73 4.73
- --------------------------------------------------------------------------------
1.00 6.02 3,295,791 0.18 5.86 0.22 5.82
1.00 5.75 147,894 0.43 5.59 0.47 5.55
1.00 5.49 65,278 0.68 5.33 0.72 5.29
- --------------------------------------------------------------------------------
1.00 4.38c 2,774,849 0.18c 4.38c 0.24c 4.32c
1.00 4.12c 66,113 0.43c 4.18c 0.49c 4.12c
1.00 3.86c 41,372 0.68c 3.98c 0.74c 3.92c
- --------------------------------------------------------------------------------
1.00 3.18 1,831,413 0.17 3.11 0.25 3.03
1.00 2.92 35,250 0.42 2.86 0.50 2.78
1.00 2.66 14,001 0.67 2.61 0.75 2.53
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.06 (0.06)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST Shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced July 14) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced May 18) 1.00 0.03 (0.03)
1994-FST Administration shares (commenced
May 20) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $4,995,782 0.18% 5.40% 0.23% 5.35%
1.00 5.45 93,218 0.28 5.30 0.33 5.25
1.00 5.29 399,474 0.43 5.16 0.48 5.11
1.00 5.03 496,520 0.68 4.86 0.73 4.81
- ---------------------------------------------------------------------------------
1.00 5.63 4,346,519 0.18 5.50 0.23 5.45
1.00 5.53 20,258 0.28 5.44 0.33 5.39
1.00 5.37 221,256 0.43 5.26 0.48 5.21
1.00 5.11 316,304 0.68 4.99 0.73 4.94
- ---------------------------------------------------------------------------------
1.00 5.45 2,540,366 0.18 5.33 0.23 5.28
1.00 5.31c 17,510 0.28c 5.23c 0.33c 5.18c
1.00 5.19 165,766 0.43 5.04 0.48 4.99
1.00 4.93 234,376 0.68 4.84 0.73 4.79
- ---------------------------------------------------------------------------------
1.00 6.07 2,069,197 0.15 5.89 0.23 5.81
1.00 5.80 137,412 0.40 5.61 0.48 5.53
1.00 5.41c 4,219 0.65c 4.93c 0.73c 4.85c
- ---------------------------------------------------------------------------------
1.00 4.91c 862,971 0.11c 4.88c 0.25c 4.74c
1.00 4.65c 66,560 0.36c 4.82c 0.50c 4.68c
- ---------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PREMIUM MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced August 1) 1.00 0.02 (0.02)
1997-FST Preferred Shares (commenced August
1) 1.00 0.02 (0.02)
1997-FST Administration shares (commenced
August 1) 1.00 0.02 (0.02)
1997-FST Service shares (commenced August
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $479,851 0.16% 5.38% 0.29% 5.25%
1.00 5.45 107,517 0.26 5.29 0.39 5.16
1.00 5.29 13,728 0.41 5.08 0.54 4.95
1.00 5.03 19,655 0.66 4.79 0.79 4.66
- -------------------------------------------------------------------------------
1.00 5.73c 218,192 0.08c 5.59c 0.43c 5.24c
1.00 5.62c 558 0.18c 5.50c 0.53c 5.15c
1.00 5.47c 1,457 0.33c 5.33c 0.68c 4.98c
1.00 5.20c 814 0.58c 5.17c 0.93c 4.82c
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Year Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.40% $3,521,389 0.18% 5.22% 0.23% 5.17%
1.00 5.29 285,240 0.28 5.20 0.33 5.15
1.00 5.14 1,080,454 0.43 4.94 0.48 4.89
1.00 4.87 501,619 0.68 4.69 0.73 4.64
- ---------------------------------------------------------------------------------
1.00 5.50 2,217,943 0.18 5.36 0.23 5.31
1.00 5.40 245,355 0.28 5.32 0.33 5.27
1.00 5.24 738,865 0.43 5.12 0.48 5.07
1.00 4.98 312,991 0.68 4.87 0.73 4.82
- ---------------------------------------------------------------------------------
1.00 5.35 2,291,051 0.18 5.22 0.24 5.16
1.00 5.24c 46,637 0.28c 5.11c 0.34c 5.05c
1.00 5.09 536,895 0.43 4.97 0.49 4.91
1.00 4.83 220,560 0.68 4.72 0.74 4.66
- ---------------------------------------------------------------------------------
1.00 5.96 1,587,715 0.18 5.73 0.23 5.68
1.00 5.69 283,186 0.43 5.47 0.48 5.42
1.00 5.43 139,117 0.68 5.21 0.73 5.16
- ---------------------------------------------------------------------------------
1.00 4.23c 958,196 0.18c 4.13c 0.25c 4.06c
1.00 3.97c 82,124 0.43c 4.24c 0.50c 4.17c
1.00 3.71c 81,162 0.68c 3.82c 0.75c 3.75c
- ---------------------------------------------------------------------------------
1.00 3.11 812,420 0.17 3.01 0.24 2.94
1.00 2.85 24,485 0.42 2.76 0.49 2.69
1.00 2.60 35,656 0.67 2.51 0.74 2.44
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced March 3) 1.00 0.04 (0.04)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March 5) 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.05% $822,207 0.18% 4.74% 0.29% 4.63%
1.00 4.94 2 0.28 4.68 0.39 4.57
1.00 4.79 23,676 0.43 4.62 0.54 4.51
1.00 4.53 17,128 0.68 4.37 0.79 4.26
- -------------------------------------------------------------------------------
1.00 5.25c 496,419 0.18c 5.09c 0.29c 4.98c
1.00 5.13c 2 0.28c 5.00c 0.39c 4.89c
1.00 4.99c 4,159 0.43c 4.84c 0.54c 4.73c
1.00 4.71c 20,177 0.68c 4.62c 0.79c 4.51c
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced May 16) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1993-FST shares (commenced April 6) 1.00 0.03 (0.03)
1993-FST Administration shares (com-
menced September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.46% $1,563,875 0.18% 5.32% 0.23% 5.27%
1.00 5.36 245,628 0.28 5.15 0.33 5.10
1.00 5.20 407,363 0.43 5.06 0.48 5.01
1.00 4.94 699,481 0.68 4.83 0.73 4.78
- --------------------------------------------------------------------------------
1.00 5.54 1,478,539 0.18 5.41 0.24 5.35
1.00 5.43 7,147 0.28 5.34 0.34 5.28
1.00 5.28 299,804 0.43 5.15 0.49 5.09
1.00 5.02 580,200 0.68 4.91 0.74 4.85
- --------------------------------------------------------------------------------
1.00 5.38 858,769 0.18 5.25 0.24 5.19
1.00 5.26c 112 0.28c 5.14c 0.34c 5.08c
1.00 5.12 145,108 0.43 5.01 0.49 4.95
1.00 4.86 223,554 0.68 4.74 0.74 4.68
- --------------------------------------------------------------------------------
1.00 6.00 743,884 0.18 5.81 0.24 5.75
1.00 5.74 82,386 0.43 5.54 0.49 5.48
1.00 5.40c 14,508 0.68c 5.08c 0.74c 5.02c
- --------------------------------------------------------------------------------
1.00 4.36c 258,350 0.15c 4.64c 0.25c 4.54c
1.00 4.10c 54,253 0.40c 4.67c 0.50c 4.57c
- --------------------------------------------------------------------------------
1.00 3.14c 44,697 0.08c 3.10c 0.59c 2.59c
1.00 2.87c 14,126 0.35c 2.85c 0.76c 2.44c
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
FEDERAL FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -----------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced February 28) 1.00 0.05 (0.05)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March
25) 1.00 0.04 (0.04)
- -----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.41% $2,346,254 0.18% 5.24% 0.24% 5.18%
1.00 5.31 26,724 0.28 5.20 0.34 5.14
1.00 5.15 690,084 0.43 5.02 0.49 4.96
1.00 4.89 321,124 0.68 4.78 0.74 4.72
- --------------------------------------------------------------------------------
1.00 5.51c 1,125,681 0.18c 5.39c 0.27c 5.30c
1.00 5.43c 194,375 0.28c 5.26c 0.37c 5.17c
1.00 5.27c 625,334 0.43c 5.15c 0.52c 5.06c
1.00 5.00c 228,447 0.68c 4.78c 0.77c 4.69c
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- --------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.03 $(0.03)
1998-FST Preferred shares 1.00 0.03 (0.03)
1998-FST Administration
shares 1.00 0.03 (0.03)
1998-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1997-FST shares 1.00 0.04 (0.04)
1997-FST Preferred shares 1.00 0.03 (0.03)
1997-FST Administration
shares 1.00 0.03 (0.03)
1997-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1996-FST shares 1.00 0.03 (0.03)
1996-FST Preferred shares
(commenced May 1) 1.00 0.02 (0.02)
1996-FST Administration
shares 1.00 0.03 (0.03)
1996-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1995-FST shares 1.00 0.04 (0.04)
1995-FST Administration
shares 1.00 0.04 (0.04)
1995-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced
July 19) 1.00 0.02 (0.02)
1994-FST Administration
shares (commenced August
1) 1.00 0.01 (0.01)
1994-FST Service shares
(commenced September 23) 1.00 0.01 (0.01)
- --------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.34% $1,456,002 0.18% 3.28% 0.23% 3.23%
1.00 3.24 20,882 0.28 3.17 0.33 3.12
1.00 3.08 146,800 0.43 3.04 0.48 2.99
1.00 2.83 50,990 0.68 2.77 0.73 2.72
- --------------------------------------------------------------------------------
1.00 3.54 939,407 0.18 3.50 0.24 3.44
1.00 3.43 35,152 0.28 3.39 0.34 3.33
1.00 3.28 103,049 0.43 3.27 0.49 3.21
1.00 3.02 42,578 0.68 3.01 0.74 2.95
- --------------------------------------------------------------------------------
1.00 3.39 440,838 0.18 3.35 0.23 3.30
1.00 3.30c 28,731 0.28c 3.26c 0.33c 3.21c
1.00 3.13 51,661 0.43 3.10 0.48 3.05
1.00 2.88 19,855 0.68 2.85 0.73 2.80
- --------------------------------------------------------------------------------
1.00 3.89 448,367 0.14 3.81 0.24 3.71
1.00 3.63 20,939 0.39 3.54 0.49 3.44
1.00 3.38 19,860 0.64 3.32 0.74 3.22
- --------------------------------------------------------------------------------
1.00 3.41c 183,570 0.07c 3.42c 0.31c 3.18c
1.00 3.19c 2,042 0.32c 3.25c 0.56c 3.01c
1.00 3.11c 2,267 0.57c 3.32c 0.81c 3.08c
- --------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Index
xx General Investment Management xx Shareholder Guide
Approach xx How to Buy Shares
xx Fund Investment Objectives and xx How to Sell Shares
Strategies xx Dividends
xx Prime Obligations Fund xx Appendix
xx Money Market Fund Additional Information on
xx Premium Money Market Fund Portfolio Risks,
xx Treasury Obligations Fund Securities and Techniques
xx Treasury Instruments Fund xx Appendix
xx Government Fund Financial Highlights
xx Federal Fund
xx Tax-Free Money Market Fund
xx Municipal Money Market Fund
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees and Expenses
xx Service Providers
xx Taxation
19
<PAGE>
Financial Square Funds
Prospectus (FST Service Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi annual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC
at 1-800-SEC-0330.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
The Fund's investment company registration number is 811-5349.
<PAGE>
Prospectus
FST PREFERRED SHARES
May , 1999
GOLDMAN SACHS FINANCIAL SQUARE FUNDS
.Prime Obligations Fund
.Money Market Fund
.Premium Money Market Fund
.Treasury Obligations Fund
.Treasury Instruments Fund
(INSERT ARTWORK) .Government Fund
.Federal Fund
.Tax-Free Money Market Fund
.Municipal MoneyMarket Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -----------------------------------------------
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH A FUND SEEKS TO PRESERVE THE
VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE,
IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN A
FUND.
- -----------------------------------------------
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Investment adviser to the
Funds. Goldman Sachs Asset Management is referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Money Market Investment Philosophy
The Money Market Funds are managed to seek maximum current income consistent
with the preservation of capital and daily liquidity. In managing the Funds,
the Investment Adviser follows a conservative, risk-managed investment proc-
ess that seeks to:
..Manage credit risk
..Manage interest rate risk
..Manage liquidity
The Investment Adviser actively manages the Goldman Sachs Money Market Funds
in designing and structuring the Funds' investment portfolios.
- --------------------------------------------------------------------------------
Investment Process
The Investment Adviser follows a consistent five-step investment process
across all of its money market portfolios.
1. Define investment objectives and risk parameters
The Investment Adviser works closely within Fund and Rule 2a-7 guidelines in
seeking to meet investment objectives for each Fund.
2. Establish benchmarks
Benchmarks are the IBC Financial Data Universal Averages. Depending upon the
eligible investments of each Fund, there is a corresponding IBC Index.
3. Establish a risk-managed framework
Understanding and managing risk is critical to the performance of money mar-
ket fund portfolios.
1-CC
<PAGE>
4. Actively manage the portfolios
General portfolio strategy meetings are held weekly.
5. Monitor Risk Exposure
Risk reports enable the Investment Adviser to monitor portfolios on a daily
basis and track all trading activity.
.. The Funds: Each Fund's securities are valued by the amortized cost method
as permitted under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "1940 Act"). Under Rule 2a-7, each Fund may invest only in
U.S. dollar-denominated securities that are determined to present minimal
credit risk and meet certain other criteria including, conditions relating
to maturity, diversification and credit quality. These operating policies
may be more restrictive than the fundamental policies set forth in the
Statement of Additional Information (the "Additional Statement").
. Taxable Funds: Prime Obligations, Money Market, Premium Money Market,
Treasury Obligations and Government Funds.
. Tax-Advantaged Funds: Treasury Instruments and Federal Funds.
. Tax-Exempt Funds: Tax-Free Money Market and Municipal Money Market
Funds.
.. The Investors: The Funds are designed for institutional investors seeking
a high rate of return, a stable net asset value ("NAV") and convenient
liquidation privileges. The Funds are particularly suitable for banks,
corporations and other financial institutions that seek investment of
short-term funds for their own accounts or for the accounts of their cus-
tomers. Shares of the Government Fund are intended to qualify as eligible
investments for federally chartered credit unions pursuant to Sections
107(7), 107(8) and 107(15) of the Federal Credit Union Act, Part 703 of
the National Credit Union Administration ("NCUA") Rules and Regulations
and NCUA Letter Number 155. The Fund intends to review changes in the
applicable laws, rules and regulations governing eligible investments for
federally chartered credit unions, and to take such action as may be nec-
essary so that the investments of the Fund qualify as eligible investments
under the Federal Credit Union Act and the regulations thereunder. Shares
of the Government Fund, however, may or may not qualify as eligible
investments for particular state-chartered credit unions. A state-chart-
ered credit union should consult qualified legal counsel to determine
whether the Government Fund is a permissible investment under the law
applicable to it.
2-CC
<PAGE>
GENERAL INVESTMENT MANAGEMENT APPROACH
.. NAV: Each Fund seeks to maintain a stable NAV of $1.00 per share.
.. Maximum Remaining Maturity of Portfolio Investments: 13 months (as deter-
mined pursuant to Rule 2a-7) at the time of purchase.
.. Dollar-Weighted Average Portfolio Maturity ("WAM"): Not more than 90 days
(as required by Rule 2a-7).
.. Investment Restrictions: Each Fund is subject to certain investment
restrictions that are described in detail under "Investment Restrictions" in
the Additional Statement. Fundamental investment restrictions and the
investment objective of a Fund cannot be changed without approval of a
majority of the outstanding shares of that Fund. The Treasury Obligations
Fund's policy of limiting its investments to U.S. Treasury obligations and
related repurchase agreements is also fundamental. All investment policies
not specifically designated as fundamental are non-fundamental and may be
changed without shareholder approval.
.. Diversification. Diversification can help a Fund reduce the risks of
investing. In accordance with current regulations of the Securities and
Exchange Commission (the "SEC"), each Fund may not invest more than 5% of the
value of its total assets at the time of purchase in the securities of any
single issuer. However, a Fund may invest up to 25% of the value of the total
assets in the securities of a single issuer for up to three business days.
These limitations do not apply to cash, certain repurchase agree-ments, U.S.
Government securities or securities of other investment compa-nies. In
addition, securities subject to certain unconditional guarantees and
securities that are not "First Tier Securities" as defined by the SEC are
subject to different diversification requirements as described in the
Additional Statement.
3-CC
<PAGE>
Fund Investment Objectives and Strategies
INVESTMENT OBJECTIVES
Taxable and Tax-Advantaged Funds:
The Prime Obligations, Money Market, Premium Money Market, Treasury Obliga-
tions, Treasury Instruments, Government, Federal, Tax-Free Money Market and
Municipal Money Market Funds seek to maximize current income to the extent
consistent with the preservation of capital and the maintenance of liquidity
by investing exclusively in high quality money market instruments.
In order to obtain a rating from a rating organization, the Premium Money
Market Fund will observe special investment restrictions.
The Treasury Instruments and Federal Funds pursue their investment objec-
tives by limiting their investments to certain U.S. Treasury obligations and
U.S. Government securities (each as defined in Appendix A), respectively,
the interest from which is generally exempt from state income taxation. You
should consult your tax adviser to determine whether distributions from the
Treasury Instruments and Federal Funds (and any other Fund that may hold
such obligations) derived from interest on such obligations are exempt from
state income taxation in your own state.
Tax-Exempt Funds:
The Tax-Free Money Market and Municipal Money Market Funds pursue their
investment objectives by limiting their investments to securities issued by
or on behalf of states, territories, and possessions of the United States
and their political subdivisions, agencies, authorities and instrumentali-
ties, and the District of Columbia, the interest from which, if any, is in
the opinion of bond counsel excluded from gross income for federal income
tax purposes, and with respect to the Tax-Free Money Market Fund, not an
item of tax preference under the federal alternative minimum tax. With
respect to the Municipal Money Market Fund, such interest may not necessar-
ily be exempt from the federal alternative minimum tax.
4-CC
<PAGE>
[This page intentionally left blank]
5-CC
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The following table summarizes the principal types of investment securities
and investment management techniques that each Fund may (but is not required
to) utilize. Numbers in this table show allowable usage only; for actual
usage, consult the Fund's annual/semiannual reports. For more information,
see Appendix A.
Investment Policies Matrix
<TABLE>
<CAPTION>
U.S. Treasury U.S. Government Bank Commercial
Fund Obligations Securities Obligations Paper
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Obligations ./4/ . . .
U.S. banks only
--------------------------------------------------------------------------------------------------
Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Premium Money Market ./4/ . . .
Over 25% of total assets U.S. and foreign
must be invested in U.S. (US$) commercial
and foreign (US$) banks/1/ paper
--------------------------------------------------------------------------------------------------
Treasury Obligations ./3/
--------------------------------------------------------------------------------------------------
Treasury Instruments ./3/
--------------------------------------------------------------------------------------------------
Government ./4/ .
--------------------------------------------------------------------------------------------------
Federal ./4/ .
--------------------------------------------------------------------------------------------------
Tax-Free Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
Municipal Money Market .
Tax-exempt only
--------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/1/If adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and charge-
offs and declines in total deposits) the Funds may, for temporary defensive
purposes, invest less than 25% of their total assets in bank obligations.
/2/To the extent required by Rule 2a-7, asset-backed and receivables-backed
securities will be rated by the requisite number of nationally recognized
statistical rating organizations ("NRSROs").
/3/U.S. Treasury obligations are securities issued by the U.S. Treasury.
/4/U.S. Treasury Obligations are securities issued or guaranteed by the U.S.
Treasury.
6-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Short-Term
Obligations of Asset-Backed & Foreign
Corporations and Repurchase Receivables-Backed Government
Other Entities Agreements Securities/2/ Obligations (US$)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
.. . .
U.S. entities only
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.. . . .
U.S. and foreign
(US$) entities
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
.
- ---------------------------------------------------------------------------
(Does not intend
to invest)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
7-CC
<PAGE>
<TABLE>
<CAPTION>
Taxable Tax-Exempt Custodial Unrated
Fund Municipals Municipals Receipts Securities/7/ Investment Companies
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligations ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Premium Money Market ./5/ . . .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Treasury Obligations
-----------------------------------------------------------------------------------------------------------------
Treasury Instruments
-----------------------------------------------------------------------------------------------------------------
Government .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Federal .
Up to 10% of total
assets in other
investment companies
-----------------------------------------------------------------------------------------------------------------
Tax-Free Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
Municipal Money Market . . . .
At least 80% of net assets Up to 10% of total
in tax-exempt municipal assets in other
obligations (except in investment companies
extraordinary circumstances)/6/
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: See Appendix A for a description of, and certain criteria applicable
to, each of these categories of investments.
/5/Will only make such investments when yields on such securities are
attractive compared to other taxable investments.
/6/Ordinarily expect that 100% of a Fund's portfolio securities will be
invested in municipal obligations, but the Funds may, for temporary
defensive purposes, hold cash or invest in short-term taxable securities.
/7/To the extent permitted by Rule 2a-7, securities without short-term
ratings may be purchased if they are deemed to be of comparable quality to
First Tier Securities, or to the extent that a Fund may purchase Second
Tier Securities, comparable in quality to Second Tier Securities. In
addition, a Fund holding a security supported by a guarantee or demand
feature may rely on the credit quality of the guarantee or demand feature
in determining the credit quality of the investment.
/8/If such policy should change, private activity bonds subject to AMT would
not exceed 20% of a Fund's net assets under normal market conditions.
8-CC
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
<TABLE>
<CAPTION>
Private Summary of
Activity Credit Taxation for
Bonds Quality/7/ Distributions/13/ Miscellaneous
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
.. First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
.. First Tier/10/ Taxable federal and state/13/ May invest in obligations
of the International
Bank for Reconstruction
and Development
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and
generally exempt from
state taxation
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and state/13/
- -------------------------------------------------------------------------------------------------------------
First Tier/10/ Taxable federal and Under extraordinary circumstances,
generally exempt from may hold cash, U.S. Government
state taxation Securities subject to state taxation
or cash equivalents
- -------------------------------------------------------------------------------------------------------------
(Does not First/8/ or Tax-exempt federal May (but does not currently intend to)
intend to Second Tier/11/ and taxable state/14/ invest up to 20% in securities subject to
invest)/6/,/7/ the federal alternative minimum tax ("AMT")
and may temporarily invest in the taxable
money market instruments described herein
- -------------------------------------------------------------------------------------------------------------
(May invest up First/8/ or Tax-exempt federal May (but does not currently intend to)
to 100% of its Second Tier/11/ and taxable state/14/ invest up to 100% in AMT securities
total assets in and may temporarily invest in the taxable
private activity money market instruments described herein
bonds)/7/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
/9/No more than 25% of the value of a Fund's total assets may be invested in
industrial development bonds or similar obligations where the non-
governmental entities supplying the revenues from which such bonds or
obligations are to be paid are in the same industry.
/10/First Tier Securities are (a) rated in the highest short-term rating
category by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings. U.S. Government Securities are considered First Tier
Securities.
/11/Second Tier Securities are (a) rated in the top two short-term rating
categories by at least two NRSROs, or if only one NRSRO has assigned a
rating, by that NRSRO; or (b) issued or guaranteed by, or otherwise allow
a Fund under certain conditions to demand payment from, an entity with
such ratings.
/12/See "Taxation" below for an explanation of the tax consequences
summarized in the table above.
/13/Taxable in many states except for distributions from U.S. Treasury
obligation interest income and certain U.S. Government securities interest
income.
/14/Taxable except for distributions from interest on obligations of an
investor's state of residence in certain states.
9-CC
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
Premium
Prime Money Money Treasury
Obligations Market Market Obligations
Fund Fund Fund Fund
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market . . . .
- ----------------------------------------------------------------
Interest Rate . . . .
- ----------------------------------------------------------------
Credit/Default . . . .
- ----------------------------------------------------------------
Management . . . .
- ----------------------------------------------------------------
Liquidity . . . .
- ----------------------------------------------------------------
Other . . . .
- ----------------------------------------------------------------
Government Securities -- -- -- --
- ----------------------------------------------------------------
Concentration -- . . --
- ----------------------------------------------------------------
Foreign -- . . --
- ----------------------------------------------------------------
Tax -- -- -- --
- ----------------------------------------------------------------
</TABLE>
10-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Tax-Free Municipal
Treasury Money Money
Instruments Government Federal Market Market
Fund Fund Fund Fund Fund
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
. . . . .
- ---------------------------------------------------------
-- . . -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
-- -- -- -- --
- ---------------------------------------------------------
-- -- -- . .
- ---------------------------------------------------------
</TABLE>
11-CC
<PAGE>
Risks that apply to all Funds:
..Money Market Risk--The risk that a Fund will not be able to maintain a NAV
per share of $1.00 at all times.
..Interest Rate Risk--The risk that during periods of rising interest rates,
a Fund's yield (and the market value of its securities) will tend to be
lower than prevailing market rates; in periods of falling interest rates, a
Fund's yield will tend to be higher.
..Credit/Default Risk--The risk that an issuer or guarantor of a security, or
a bank or other financial institution that has entered into a repurchase
agreement, may default on its payment obligations.
..Management Risk--The risk that a strategy used by the Investment Adviser
may fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will be unable to pay redemption pro-
ceeds within the time period stated in this Prospectus, because of either
unusual market conditions, an unusually high volume of redemption requests,
or other reasons.
..Other Risks--Each Fund is subject to other risks, such as the risk that its
operations, or the value of its portfolio securities, will be disrupted by
the "Year 2000 Problem."
Risk that applies to the Government and Federal Funds:
..Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risks that apply to the Money Market, Premium Money Market, Tax-Free Money
Market and Municipal Money Market Funds:
..Concentration Risk--The risk that if a Fund invests more than 25% of its
total assets in issuers within the same state, industry or economic sector,
an adverse economic, business or political development may affect the value
of the Fund's investments more than if its investments were not so concen-
trated.
..Foreign Risk--The risk that a foreign security (or, in the case of the Tax-
Free Money Market and Municipal Money Market Funds, a foreign letter of
credit or guarantee) could lose value as a result of political, financial
and economic events in foreign countries, less stringent foreign securities
regulations and accounting and disclosure standards, or other factors. The
Money Market and Premium Money Market Funds may not invest more than 25% of
their total assets in the securities of any one foreign government.
12-CC
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
Risk that applies to the Money Market and Premium Money Market Funds:
..Banking Industry Risk--The risk that if a Fund invests more than 25% of its
total assets in bank obligations, an adverse development in the banking
industry may affect the value of the Fund's investments more than if a
Fund's investments were not invested to such a degree in the banking indus-
try. Normally, the Money Market and Premium Money Market Funds intend to
invest more than 25% of their total assets in bank obligations. Banks may
be particularly susceptible to certain economic factors such as interest
rate changes, adverse developments in the real estate market, fiscal and
monetary policy and general economic cycles.
Risk that applies to the Tax-Free Money Market and Municipal Money Market
Funds:
..Tax Risk--The risk that future legislative or administrative changes or
court decisions may materially affect the ability of a Fund to pay federal
tax-exempt dividends.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
13-CC
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Pre-
ferred Shares from year to year; and (b) how the average annual returns of a
Fund's Preferred Shares compare to the returns of a composite of mutual
funds with similar investment objectives. The bar chart and table assume
reinvestment of dividends and distributions. A Fund's past performance is
not necessarily an indication of how the Fund will perform in the future.
Performance reflects expense limitations in effect. If expense limitations
were not in place, a Fund's performance would have been reduced. You may
obtain a Fund's current yield by calling 1-800-621-2550. No information has
been provided for the Municipal Money Market Fund because it has not yet
commenced operations.
2
<PAGE>
FUND PERFORMANCE
Prime Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q4 '97 1.38%
Worst Quarter:
Q4 '98 1.28%
[BAR CHART APPEARS HERE]
1997 5.50%
1998 5.45%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/1/96) 5.45% 5.42%
------------------------------------------------------------
</TABLE>
3
<PAGE>
Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q4 '97 1.38%
Worst Quarter:
Q4 '98 1.28%
[BAR CHART APPEARS HERE]
1997 5.53%
1998 5.45%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/1/96) 5.45% 5.44%
------------------------------------------------------------
</TABLE>
4
<PAGE>
FUND PERFORMANCE
Premium Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.36%
Worst Quarter:
Q4 '98 1.28%
[BAR CHART APPEARS HERE]
1998 5.45%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 8/1/97) 5.45% 5.50%
------------------------------------------------------------
</TABLE>
5
<PAGE>
Treasury Obligations Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q4 '97 1.36%
Worst Quarter:
Q4 '98 1.20%
[BAR CHART APPEARS HERE]
1997 5.40%
1998 5.29%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/1/96) 5.29% 5.32%
------------------------------------------------------------
</TABLE>
6
<PAGE>
FUND PERFORMANCE
Treasury Instruments Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '98 1.26%
Worst Quarter:
Q4 '98 1.11%
[BAR CHART APPEARS HERE]
1998 4.94%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/30/97) 4.94% 5.01%
-------------------------------------------------------------
</TABLE>
7
<PAGE>
Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q4 '97 1.36%
Worst Quarter:
Q4 '98 1.24%
[BAR CHART APPEARS HERE]
1997 5.43%
1998 5.36%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/1/96) 5.36% 5.36%
------------------------------------------------------------
</TABLE>
8
<PAGE>
FUND PERFORMANCE
Federal Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q3 '98 1.33%
Worst Quarter:
Q4 '98 1.24%
[BAR CHART APPEARS HERE]
1998 5.31%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
-------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/30/97) 5.31% 5.35%
-------------------------------------------------------------
</TABLE>
9
<PAGE>
Tax-Free Money Market Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter:
Q2 '97 0.89%
Worst Quarter:
Q4 '98 0.76%
[BAR CHART APPEARS HERE]
1997 3.43%
1998 3.24%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31,
1998 1 YEAR SINCE INCEPTION
------------------------------------------------------------
<S> <C> <C>
PREFERRED SHARES (INCEPTION 5/1/96) 3.24% 3.33%
------------------------------------------------------------
</TABLE>
10
<PAGE>
[This page intentionally left blank]
11
<PAGE>
Fund Fees and Expenses (Preferred Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Preferred Shares of a Fund.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Preferred Administration Fees 0.100% 0.100% 0.100%
Other Expenses3 0.035% 0.025% 0.085%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses/3/ 0.340% 0.330% 0.039%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
PREMIUM
PRIME MONEY MONEY
OBLIGATIONS MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Preferred Administration Fees/3/ 0.10% 0.10% 0.10%
Other Expenses/4/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.28% 0.28% 0.28%
------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
None None None
None None None
None None None
None None None
None None None
0.205% 0.205% 0.205%
0.100% 0.100% 0.100%
0.025% 0.085% 0.025%
- --------------------------------------------------------------------------------------------------
0.330% 0.390% 0.330%
- --------------------------------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TREASURY TREASURY
OBLIGATIONS INSTRUMENTS GOVERNMENT
FUND FUND FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Preferred Administration Fees/3/ 0.10% 0.10% 0.10%
Other Expenses/4/ 0.01% 0.01% 0.01%
--------------------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense limitations) 0.28% 0.28% 0.28%
--------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
FEDERAL MONEY MARKET MONEY MARKET
FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS):/1/
Management Fees/2/ 0.205% 0.205% 0.205%
Preferred Administration Fees 0.100% 0.100% 0.100%
Other Expenses3 0.035% 0.025% 0.285%
- -----------------------------------------------------------------------------
Total Fund Operating Expenses/3/ 0.340% 0.330% 0.590%
- -----------------------------------------------------------------------------
</TABLE>
See page 15 for all other footnotes
*As a result of the current waivers and expense limita-
tions, "Other Expenses" and "Total Fund Operating Expenses"
of the Funds which are actually incurred are as set forth
below. The expense waivers and limitations may be termi-
nated at any time at the option of the Investment Adviser.
If this occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
TAX-FREE MUNICIPAL
MONEY MONEY
FEDERAL MARKET MARKET
FUND FUND FUND
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.17% 0.17% 0.17%
Preferred Administration Fees/3/ 0.10% 0.10% 0.10%
Other Expenses/4/ 0.01% 0.01% 0.01%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.28% 0.28% 0.28%
------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
FUND FEES AND EXPENSES
/1/The Funds' annual operating expenses have been restated to reflect cur-
rent fees, except for the Municipal Money Market Fund which are based on
estimated amounts for the current fiscal year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the Funds equal to 0.035%. AS A RESULT OF FEE WAIVERS,
THE CURRENT MANAGEMENT FEES OF THE FUNDS ARE 0.17% OF THE FUNDS' AVERAGE
DAILY NET ASSETS. THE WAIVERS MAY BE TERMINATED AT ANY TIME AT THE OPTION OF
THE INVESTMENT ADVISER.
/3/Service Organizations may charge other fees directly to their customers
who are beneficial owners of Preferred Shares in connection with their cus-
tomers' accounts. Such fees may affect the return customers realize with
respect to their investments.
/4/The Investment Adviser has voluntarily agreed to reduce or limit "Other
Expenses" of each Fund (excluding management fees, preferred administration
fees, taxes, interest, brokerage fees and litigation, indemnification and
other extraordinary expenses) to 0.01% of each Fund's average daily net
assets.
15
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Preferred
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------
<S> <C> <C> <C> <C>
PRIME OBLIGATIONS $35 $109 $191 $431
- -------------------------------------------------------
MONEY MARKET $34 $106 $185 $388
- -------------------------------------------------------
PREMIUM MONEY MARKET $40 $125 $219 $463
- -------------------------------------------------------
TREASURY OBLIGATIONS $34 $106 $185 $388
- -------------------------------------------------------
TREASURY INSTRUMENTS $40 $125 $219 $463
- -------------------------------------------------------
GOVERNMENT $34 $106 $185 $388
- -------------------------------------------------------
FEDERAL $35 $109 $191 $401
- -------------------------------------------------------
TAX-FREE MONEY MARKET $34 $106 $185 $418
- -------------------------------------------------------
MUNICIPAL MONEY MARKET N/A N/A N/A N/A
- -------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who are
the beneficial owners of Preferred Shares in connection with their customers'
accounts. You should contact your Service Organization for information regard-
ing such charges. Such fees may affect the return their customers realize with
respect to their investments.
Certain Service Organizations that invest in Preferred Shares on behalf of
their customers may also receive other compensation in connection with the sale
and distribution of Preferred Shares or for services to their customers'
accounts and/or the Funds. For additional information regarding such compensa-
tion, see "Shareholder Guide" in the Prospectus and "Other Information" in the
Additional Statement.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
GSAM, One New York Plaza, New York, New York 10004, a separate operating
division of Goldman Sachs, acts as investment adviser to the Funds. Goldman
Sachs registered as an investment adviser in 1981. As of April , 1999,
GSAM, together with its affiliates, acted as investment adviser or distribu-
tor for assets in excess of $ billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser also performs the following serv-
ices for the Funds:
..Continually manages each Fund, including the purchase, retention and dispo-
sition of securities and other assets
..Administers each Fund's business affairs
..Performs various recordholder servicing functions (to the extent not pro-
vided by other organizations)
Pursuant to an SEC order, each Taxable and Tax-Advantaged Fund may enter
into principal transactions in certain taxable money market instruments,
including repurchase agreements, with Goldman Sachs.
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Fund Contractual Rate December 31, 1998
-------------------------------------------------------------------
<S> <C> <C>
Prime Obligations 0.205% 0.17%
-------------------------------------------------------------------
Money Market 0.205% 0.17%
-------------------------------------------------------------------
Premium Money Market 0.205% 0.17%
-------------------------------------------------------------------
Treasury Obligations 0.205% 0.17%
-------------------------------------------------------------------
Treasury Instruments 0.205% 0.17%
-------------------------------------------------------------------
Government 0.205% 0.17%
-------------------------------------------------------------------
Federal 0.205% 0.17%
-------------------------------------------------------------------
Tax-Free Money Market 0.205% 0.17%
-------------------------------------------------------------------
Municipal Money Market 0.205% N/A*
-------------------------------------------------------------------
</TABLE>
* As of December 31, 1998, the Municipal Money Market Fund had not commenced
operations.
1-DD
<PAGE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
The Investment Adviser has voluntarily agreed not to impose a portion of its
management fee and/or to reduce or otherwise limit the daily expenses of
each Fund (excluding fees payable under service and administration plans for
certain share classes, taxes, interest, brokerage and litigation, indemnifi-
cation and other extraordinary expenses). GSAM may discontinue or modify any
such reductions or limitations in the future at its discretion.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606, also serves as the Funds'
transfer agent (the "Transfer Agent") and as such performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather than the year "2000," which may lead to computer shutdowns or
errors (commonly known as the "Year 2000 Problem"). To the extent these sys-
tems conduct forward-looking calculations, these computer problems may occur
prior to January 1, 2000. Like other investment companies and financial and
business organizations, the Funds could be adversely affected in their abil-
ity to process securities trades, price securities, provide shareholder
account services and otherwise conduct normal business operations if the
computer systems used by the Investment Adviser or other Fund service prov-
iders do not adequately address this problem in a timely manner.
2-DD
<PAGE>
SERVICE PROVIDERS
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Funds' other service
providers that they are taking the steps necessary so that they do not
experience Year 2000 Problems, and the Investment Adviser will continue to
monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Funds at current levels.
In addition, Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Funds. The Investment Adviser
may obtain such Year 2000 information from various sources which the Invest-
ment Adviser believes to be reliable, including the issuers' public regula-
tory filings. However, the Investment Adviser is not in a position to verify
the accuracy or completeness of such information.
3-DD
<PAGE>
Taxation
Each Fund intends to qualify as a regulated investment company for Federal tax
purposes, and to distribute to shareholders substantially all of its net
investment income.
Except for the Tax-Exempt Funds, Fund dividends will generally be taxable to
you as ordinary income (unless your investment is in an IRA or other tax-
advantaged account) regardless of whether you reinvest in additional shares or
take them as cash. The Tax-Exempt Funds expect generally to distribute "exempt-
interest dividends," which will be tax-exempt income for federal income tax
purposes. The tax status and amounts of the dividends for each calendar year
will be detailed in your annual tax statement from the Fund.
Dividend and distributions from each Fund will generally be taxable to you in
the tax year in which they are paid, with one exception. Dividends and distri-
butions declared by a Fund in October, November or December and paid in January
are taxed as though they were paid by December 31.
Interest on indebtedness incurred by you to purchase or carry shares of the
Tax-Exempt Funds generally will not be deductible for federal income tax pur-
poses.
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Funds may be an item of tax preference for purposes of determining
your federal alternative minimum tax liability. Exempt-interest dividends will
also be considered along with other adjusted gross income in determining
whether any Social Security or railroad retirement payments received by you are
subject to federal income taxes.
In addition to federal income taxes, you may be subject to state, local or for-
eign taxes on payments received from any Fund (including the Tax-Exempt Funds)
or on the value of the shares held by you. More tax information is provided in
the Additional Statement. You should also consult your own tax adviser for
information regarding all tax consequences applicable to your investments in
the Funds.
4-DD
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Preferred
Shares.
HOW TO BUY SHARES
How Can I Purchase Preferred Shares Of The Funds?
Generally, Preferred Shares may be purchased only through institutions that
have agreed to provide account administration and maintenance services to
their customers who are the beneficial owners of Preferred Shares. These
institutions are called "Service Organizations." Customers of a Service
Organization will normally give their purchase instructions to the Service
Organization, and the Service Organization will, in turn, place purchase
orders with Goldman Sachs. Service Organizations will set times by which
purchase orders and payments must be received by them from their customers.
Generally, Preferred Shares may be purchased from the Funds on any business
day at their net asset value ("NAV") next determined after receipt of an
order by Goldman Sachs from a Service Organization. Shares begin earning
dividends after the Fund's receipt of the purchase amount in federal funds.
No sales load is charged.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations may
place a purchase order in writing or by telephone.
<TABLE>
--------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower -- 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------
By Telephone: 1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------
</TABLE>
Before or immediately after placing an initial purchase order, a Service
Organization should complete and send to Goldman Sachs the Account Applica-
tion. Subsequent purchase orders should be accompanied by information iden-
tifying the account and the Fund in which Preferred Shares are to be pur-
chased.
Service Organizations may send their payments as follows:
..Wire federal funds to The Northern Trust Company ("Northern"), as sub- cus-
todian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian); or
1-HH
<PAGE>
..Initiate an Automated Clearing House Network ("ACH") transfer to Goldman
Sachs Trust (the "Trust") c/o Northern, as sub-custodian for State Street;
or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds --
(Name of Fund and Class of Shares), 4900 Sears Tower -- 60th Floor, Chica-
go, IL. 60606-6372. The Trust will not accept a check drawn on a foreign
bank or a third-party check.
It is strongly recommended that payment be effected by wiring federal funds
to Northern.
It is expected that Federal Reserve drafts will ordinarily be converted to
federal funds on the day of receipt and that checks will be converted to
federal funds within two business days after receipt. ACH transfers are
expected to convert to federal funds on the business day following receipt
of the ACH transfer.
When Do Shares Begin Earning Dividends?
Dividends begin to accrue as follows:
<TABLE>
<CAPTION>
If an effective order and federal funds are received: Dividends begin:
------------------------------------------------------------------------------
<S> <C>
Taxable and Tax-Advantaged Funds
(except Government, Treasury Obligations and Premium Money
Market Funds):
. By 3:00 p.m. New York time Same business day
. After 3:00 p.m. New York time Next business day
------------------------------------------------------------------------------
Government, Treasury Obligations and Premium
Money Market Funds:
. By 5:00 p.m. New York time Same business day
. After 5:00 p.m. New York time Next business day
------------------------------------------------------------------------------
Municipal Money Market Fund:
. By 1:00 p.m. New York time Same business day
. After 1:00 p.m. New York time Next business day
------------------------------------------------------------------------------
Tax-Free Money Market Fund:
. By 2:00 p.m. New York time Same business day
. After 2:00 p.m. New York time Next business day
------------------------------------------------------------------------------
</TABLE>
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Preferred Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
2-HH
<PAGE>
SHAREHOLDER GUIDE
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a preferred administration plan adopted by the Trust's Board of
Trustees, Service Organizations are entitled to receive payments for their
services from the Trust of up to 0.10% (on an annualized basis) of the aver-
age daily net assets of the Preferred Shares of the Funds, which are attrib-
utable to or held in the name of the Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Service
Organizations depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses.
In addition to Preferred Shares, each Fund also offers other classes of
shares to investors. These other classes are subject to different fees and
expenses (which affect performance), and are entitled to different services
than Preferred Shares. Information regarding these other share classes may
be obtained from your sales representative or from Goldman Sachs by calling
the number on the back cover of this Prospectus.
What Is My Minimum Investment In The Funds?
<TABLE>
--------------------------------------------------------------
<S> <C>
Minimum initial investment $10 million (may be allocated
among the Funds)
--------------------------------------------------------------
Minimum account balance $10 million
--------------------------------------------------------------
Minimum subsequent investments None
--------------------------------------------------------------
</TABLE>
3-HH
<PAGE>
A Service Organization may impose a minimum amount for initial and subse-
quent investments in Preferred Shares and may establish other requirements
such as a minimum account balance. A Service Organization may redeem Pre-
ferred Shares held by non-complying accounts, and may impose a charge for
any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment and minimum account balance require-
ment.
..Reject any purchase order for any reason.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Preferred Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = -------------------------------------------
Number of Outstanding Shares of the Class
<TABLE>
<CAPTION>
Fund NAV Calculated
-------------------------------------------------------------------------
<S> <C>
Prime Obligations, Money Market, As of the close of regular trading of
Federal, the New York Stock Exchange
Tax-Free Money Market, Treasury (usually 4:00 p.m. New York time)
Instruments and Municipal Money on each business day
Market Funds
-------------------------------------------------------------------------
Premium Money Market, Treasury As of 5:00 p.m. New York time
Obligations and Government Funds on each business day
-------------------------------------------------------------------------
</TABLE>
..NAV per share of each class is calculated by State Street each business
day. Fund Shares will be priced on any day the New York Stock Exchange is
open, except for days on which Chicago, Boston or New York banks are closed
for local holidays.
..On any business day when the Bond Market Association ("BMA") recommends
that the securities markets close early, each Fund reserves the right to
close at or prior to the BMA recommended closing time. If a Fund does so,
it will cease granting same business day credit for purchase and redemption
orders received after the Fund's closing time and credit will be given to
the next business day.
..The Trust reserves the right to advance the time by which purchase and
redemption orders must be received for same business day credit as permit-
ted by the SEC.
4-HH
<PAGE>
SHAREHOLDER GUIDE
To help each Fund maintain its $1.00 constant share price, portfolio securi-
ties are valued at amortized cost in accordance with SEC regulations. Amor-
tized cost will normally approximate market value. There can be no assurance
that a Fund will be able at all times to maintain a NAV of $1.00 per share.
HOW TO SELL SHARES
How Can I Sell Preferred Shares Of The Funds?
Generally, Preferred Shares may be sold (redeemed) only through Service
Organizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem Preferred Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
--------------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------------------
By Telephone: 1-800-621-2550 (8:00 a.m. 4:00 p.m. New York time)
--------------------------------------------------------------------
</TABLE>
Certain Service Organizations are authorized to accept redemption requests
on behalf of the Funds as described under "What Do I Need To Know About
Service Organizations?" A redemption may also be made with respect to cer-
tain Funds by means of the check redemption privilege described in the Addi-
tional Statement.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and
5-HH
<PAGE>
signed by an authorized person designated on the Account Application. The
written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
When Will Redemption Proceeds Be Wired?
Redemption proceeds will normally be wired to the bank account designated on
a Service Organization's Account Application as follows:
<TABLE>
<CAPTION>
Redemption Request Received Redemption Proceeds Dividends
---------------------------------------------------------------------------------
<S> <C> <C>
Taxable and Tax-Advantaged Funds
(except Government, Treasury
Obligations and Premium Money
Market Funds):
. By 3:00 p.m. New York time Wired same business day Not earned on day
request is received
. After 3:00 p.m. New York time Wired next business day Earned on day request
is received
---------------------------------------------------------------------------------
Government, Treasury Obligations
and Premium Money Market Funds:
. By 5:00 p.m. New York time Wired same business day Not earned on day
request is received
. After 5:00 p.m. New York time Wired next business day Earned on day request
is received
---------------------------------------------------------------------------------
Municipal Money Market Fund:
. By 12:00 p.m. New York time Wired same business day Not earned on day
request is received
. After 12:00 p.m. New York time Wired next business day Earned on day request
is received
---------------------------------------------------------------------------------
Tax-Free Money Market Fund:
. By 1:00 p.m. New York time Wired same business day Not earned on day
request is received
. After 1:00 p.m. New York time Wired next business day Earned on day request
is received
---------------------------------------------------------------------------------
</TABLE>
..Although redemption proceeds will normally be wired as described above,
each Fund reserves the right to pay redemption proceeds up to three busi-
ness days following receipt of a properly executed wire transfer redemption
request. If you are selling shares you recently paid for by check, the Fund
will pay you when your check has cleared which may take up to 15 days. If
the Federal Reserve Bank is closed on the day that the redemption proceeds
would ordinar-
6-HH
<PAGE>
SHAREHOLDER GUIDE
ily be wired, wiring the redemption proceeds may be delayed one additional
business day.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organization.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption request:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Trust reserves the right to:
..Redeem the Preferred Shares of any Service Organization whose account bal-
ance falls below the minimum as a result of earlier redemptions. The Funds
will give 60 days' prior written notice to allow a Service Organization to
purchase sufficient additional shares of the Fund in order to avoid such
redemption.
..Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
7-HH
<PAGE>
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Preferred Shares of a Fund at NAV for
shares of the corresponding class of any other Goldman Sachs Fund. The
exchange privilege may be materially modified or withdrawn at any time upon
60 days' written notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: . Write a letter of instruction that includes:
. The recordholder name(s) and signature(s)
. The account number
. The Fund name and Class of Shares
. The dollar amount to be exchanged
. Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares,
4900 Sears Tower - 60th Floor,
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone
redemption privilege on your Account Application:
. 1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirement of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identical by regis-
tered account. Shares may be exchanged among accounts with different names,
addresses, and social security or other taxpayer identification numbers
only if the exchange instructions are in writing and are signed by an
authorized person designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
8-HH
<PAGE>
SHAREHOLDER GUIDE
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types Of Reports Will I Be Sent Regarding Investments In Preferred
Shares?
Service Organizations will receive annual reports containing audited finan-
cial statements and semiannual reports. Upon request, Service Organizations
will also be provided with a printed confirmation for each transaction. Any
dividends and distributions paid by the Funds are also reflected in regular
statements issued by Goldman Sachs to Service Organizations. Service Organi-
zations are responsible for providing these or other reports to their cus-
tomers who are the beneficial owners of Preferred Shares in accordance with
the rules that apply to their accounts with the Service Organizations.
9-HH
<PAGE>
Dividends
Dividends will be distributed to Service Organizations monthly. Service
Organizations may choose to have dividends paid in:
.. Cash
.. Additional shares of the same class of the same Fund
Service Organizations may indicate their election on the Account Applica-
tion. Any changes may be submitted in writing to Goldman Sachs at any time.
If Service Organizations do not indicate any choice, dividends and distribu-
tions will be reinvested automatically in the applicable Fund.
All or substantially all of each Fund's net investment income will be
declared as a dividend daily. Dividends will normally, but not always, be
declared as of the following times:
<TABLE>
<S> <C>
DIVIDEND DECLARATION TIME
FUND (NEW YORK TIME)
- ---------------------------------------------------
PRIME OBLIGATIONS 4:00 p.m.
- ---------------------------------------------------
MONEY MARKET 4:00 p.m.
- ---------------------------------------------------
PREMIUM MONEY MARKET 5:00 p.m.
- ---------------------------------------------------
TREASURY OBLIGATIONS 5:00 p.m.
- ---------------------------------------------------
TREASURY INSTRUMENTS 4:00 p.m.
- ---------------------------------------------------
GOVERNMENT 5:00 p.m.
- ---------------------------------------------------
FEDERAL 4:00 p.m.
- ---------------------------------------------------
TAX-FREE MONEY MARKET 4:00 p.m.
- ---------------------------------------------------
MUNICIPAL MONEY MARKET 4:00 p.m.
- ---------------------------------------------------
</TABLE>
Dividends will be reinvested as of the last calendar day of each month. Cash
distributions normally will be paid on or about the first business day of
each month. Net short-term capital gains, if any, will be distributed in
accordance with federal income tax requirements and may be reflected in a
Fund's daily distributions.
Each Fund may distribute at least annually other realized capital gains, if
any, after reduction by available capital losses. In order to avoid exces-
sive fluctuations in the amount of monthly capital gains distributions, a
portion of any net capital gains realized on the disposition of securities
during the months of November and
17
<PAGE>
December may be distributed during the subsequent calendar year. Although
realized gains and losses on the assets of a Fund are reflected in the NAV
of the Fund, they are not expected to be of an amount which would affect the
Fund's NAV of $1.00 per share.
The income declared as a dividend for the Treasury Obligations, Government
and Premium Money Market Funds is based on estimates of net investment
income for each Fund. Actual income may differ from estimates, and differ-
ences, if any, will be included in the calculation of subsequent dividends.
18
<PAGE>
Appendix A
Additional Information on Portfolio
Risks, Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associated
risks. Additional information is provided in the Additional Statement, which is
available upon request. Among other things, the Additional Statement describes
certain fundamental policies and investment restrictions that cannot be changed
without shareholder approval. You should note, however, that all policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, you should consider whether that Fund remains an appropriate invest-
ment in light of your then current financial position and needs.
U.S. Treasury Obligations and U.S. Government Securities and Related Custodial
Receipts. U.S. Treasury obligations are securities issued or guaranteed by the
U.S. Treasury. Payment of principal and interest on these obligations is backed
by the full faith and credit of the U.S. Government. U.S. Treasury obligations
include, among other things, the separately traded principal and interest
components of securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS").
U.S. Government securities are obligations issued or guaranteed by U.S. govern-
ment agencies, authorities, instrumentalities or sponsored enterprises. Unlike
U.S. Treasury obligations, U.S. Government securities can be supported by
either (a) the full faith and credit of the U.S. Government (such as the Gov-
ernment National Mortgage Association ("Ginnie Mae")), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association), (c) the discretionary authority of the U.S. government
to purchase certain obligations of the issuer (such as the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")), or (d) only the credit of the issuer.
U.S. Government securities are deemed to include (a) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. Government, its agencies, authorities or instrumentalities
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. Certain of these participations may be regarded as
illiquid. U.S. Government securities also include zero coupon bonds.
1-FF
<PAGE>
Some Funds invest in U.S. Treasury obligations and certain U.S. Government
securities the interest from which is generally exempt from state income
taxation. Securities generally eligible for this exemption include those
issued by the U.S. Treasury and certain agencies, authorities or instrumen-
talities of the U.S. Government, including the Federal Home Loan Banks, Fed-
eral Farm Credit Banks, Tennessee Valley Authority and Student Loan Market-
ing Association.
U.S. Government securities have historically involved little risk of loss of
principal if held to maturity. However, no assurance can be given that the
U.S. Government will provide financial support to U.S. Government agencies,
authorities, instrumentalities or sponsored enterprises if it is not obli-
gated to do so by law.
Certain Funds may also acquire U.S. Government securities in the form of
custodial receipts. Custodial receipts evidence ownership of future interest
payments, principal payments or both on notes or bonds issued by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities. For certain securities law purposes, custodial receipts are not
considered obligations of the U.S. Government.
Bank Obligations. Bank obligations include certificates of deposit,
commercial paper, unsecured bank promissory notes, bankers' acceptances,
time deposits and other debt obligations. Certain Funds may invest in U.S.
bank obligations when a bank has more than $1 billion in total assets at the
time of purchase or is a subsidiary of such a bank. In addition, certain
Funds may invest in U.S. dollar-denominated obligations issued or guaranteed
by foreign banks that have more than $1 billion in total assets at the time
of purchase, U.S. branches of such foreign banks (Yankee obligations),
foreign branches of such foreign banks and foreign branches of U.S. banks
having more than $1 billion in total assets at the time of purchase. Bank
obligations may be general obligations of the parent bank or may be limited
to the issuing branch by the terms of the specific obligation or by
government regulation.
If a Fund invests more than 25% of its total assets in bank obligations
(whether foreign or domestic), it may be especially affected by favorable
and adverse developments in or related to the banking industry. The activi-
ties of U.S. and most foreign banks are subject to comprehensive regulations
which, in the case of U.S. regulations, have undergone substantial changes
in the past decade. The enactment of new legislation or regulations, as well
as changes in interpretation and enforcement of current laws, may affect the
manner of operations and profitability of domestic and foreign banks. Sig-
nificant developments in the U.S. banking industry have included increased
competition from other types of financial institutions, increased acquisi-
tion activity and geographic expansion. Banks may be particu-
2-FF
<PAGE>
APPENDIX A
larly susceptible to certain economic factors, such as interest rate changes
and adverse developments in the real estate markets. Fiscal and monetary
policy and general economic cycles can affect the availability and cost of
funds, loan demand and asset quality and thereby impact the earnings and
financial conditions of banks.
Asset-Backed and Receivables-Backed Securities. Certain Funds may invest in
asset-backed and receivables-backed securities, whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed and receivables-backed securities are often subject to more
rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans.
During periods of declining interest rates, prepayment of loans underlying
asset-backed and receivables-backed securities can be expected to
accelerate. Accordingly, a Fund's ability to maintain positions in such
securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the
returns of principal at comparable yields is subject to generally prevailing
interest rates at that time. In addition, securities that are backed by
credit card, automobile and similar types of receivables generally do not
have the benefit of a security interest in collateral that is comparable in
quality to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support
payments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Foreign Government Obligations and Related Foreign Risks. Foreign government
obligations are U.S. dollar-denominated obligations (limited to commercial
paper and other notes) issued or guaranteed by a foreign government or other
entity located or organized in a foreign country that maintains a short-term
foreign currency rating in the highest short-term ratings category by the
requisite number of NRSROs.
Investments by a Fund in foreign securities, whether issued by a foreign
government, bank, corporation or other issuer, may present a greater degree
of risk than investments in securities of domestic issuers because of less
publicly-available financial and other information, less securities regula-
tion, potential imposition of foreign withholding and other taxes, war,
expropriation or other adverse governmental actions. Foreign banks and their
foreign branches are not regulated by U.S. banking authorities, and gener-
ally are not bound by the accounting, auditing and financial reporting stan-
dards applicable to U.S. banks.
3-FF
<PAGE>
Repurchase Agreements. Certain Funds may enter into repurchase agreements
with primary dealers in U.S. Government securities and banks affiliated with
primary dealers. Repurchase agreements involve the purchase of securities
subject to the seller's agreement to repurchase them at a mutually agreed
upon date and price. The repurchase price will exceed the original purchase
price, the difference being income to the Fund, and will be unrelated to the
interest rate on the purchased security.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund in connection with the repurchase agree-
ment are less than the repurchase price and Fund's costs associated with
delay and enforcement of the repurchase agreement. In addition, in the event
of bankruptcy of the seller, a Fund could suffer additional losses if a
court determines that the Fund's interest in the collateral is not enforce-
able.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to a Fund's
shareholders. In addition, certain Funds, together with other registered
investment companies having advisory agreements with the Investment Adviser
or any of its affiliates, may transfer uninvested cash balances into a sin-
gle joint account, the daily aggregate balance of which will be invested in
one or more repurchase agreements.
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. Municipal obligations may include fixed rate notes and similar
debt instruments; variable and floating rate demand instruments; tax-exempt
commercial paper; municipal bonds; and unrated notes, paper, bonds or other
instruments.
Municipal Notes and Bonds. Municipal notes include tax anticipation notes
("TANs"), revenue anticipation notes ("RANs"), bond anticipation notes
("BANs"), tax and revenue anticipation notes ("TRANs") and construction loan
notes. Municipal bonds include general obligation bonds and revenue bonds.
General obligation bonds are backed by the taxing power of the issuing
municipality and are considered the safest type of municipal obligation.
Revenue bonds are backed by the revenues of a project or facility such as
the tolls from a toll bridge. Revenue bonds also include lease rental reve-
nue bonds which are issued by a state or local authority for capital pro-
jects and are secured by annual lease payments from the state or locality
sufficient to cover debt service on the authority's obliga-
4-FF
<PAGE>
APPENDIX A
tions. Industrial development bonds ("private activity bonds") are a spe-
cific type of revenue bond backed by the credit and security of a private
user and, therefore, have more potential risk. Municipal bonds may be issued
in a variety of forms, including commercial paper, tender option bonds and
variable and floating rate securities.
Tender Option Bonds. A tender option bond is a municipal obligation (gener-
ally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than pre-
vailing short-term, tax-exempt rates. The bond is typically issued in con-
junction with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which the institution grants the
security holder the option, at periodic intervals, to tender its securities
to the institution. 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, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus, after pay-
ment of this fee, the security holder effectively holds a demand obligation
that bears interest at the prevailing short-term, tax-exempt rate. Certain
tender option bonds may be illiquid. An institution will normally not be
obligated to accept tendered bonds in the event of certain defaults or a
significant downgrading in the credit rating assigned to the issuer of the
bond. The tender option will be taken into account in determining the matu-
rity of the tender option bonds and a Fund's average portfolio maturity.
There is a risk that a Fund will not be considered the owner of a tender
option bond for federal income tax purposes, and thus will not be entitled
to treat such interest as exempt from federal income tax.
Revenue Anticipation Warrants. Revenue Anticipation Warrants ("RAWs") are
issued in anticipation of the issuer's receipt of revenues and present the
risk that such revenues will be insufficient to satisfy the issuer's payment
obligations. The entire amount of principal and interest on RAWs is due at
maturity. RAWs, including those with a maturity of more than 397 days, may
also be repackaged as instruments which include a demand feature that per-
mits the holder to sell the RAWs to a bank or other financial institution at
a purchase price equal to par plus accrued interest on each interest rate
reset date.
Industrial Development Bonds. Certain Funds may invest in industrial devel-
opment bonds (private activity bonds), the interest from which would be an
item of tax preference when distributed by a Fund as "exempt-interest divi-
dends" to shareholders under the federal alternative minimum tax.
Other Policies. Certain Funds may invest 25% or more of the value of their
respective total assets in municipal obligations which are related in such a
way that an
5-FF
<PAGE>
economic, business or political development or change affecting one munici-
pal obligation would also affect the other municipal obligation. For exam-
ple, such Funds may invest all of their respective assets in (a) municipal
obligations the interest of which is paid solely from revenues from similar
projects such as hospitals, electric utility systems, multi-family housing,
nursing homes, commercial facilities (including hotels), steel companies or
life care facilities, (b) municipal obligations whose issuers are in the
same state, or (c) industrial development obligations. Concentration of a
Fund's investments in these municipal obligations will subject the Fund, to
a greater extent than if such investment was not so concentrated, to the
risks of adverse economic, business or political developments affecting the
particular state, industry or other area of concentration.
Municipal obligations may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in municipal obliga-
tions. Letters of credit and other obligations of foreign banks and finan-
cial institutions may involve risks in addition to those of domestic obliga-
tions. See "Foreign Government Obligations and Related Foreign Risks" above.
In addition, the Funds may acquire securities in the form of custodial
receipts which evidence ownership of future interest payments, principal
payments or both on obligations of certain state and local governments and
authorities.
In order to enhance the liquidity, stability or quality of a municipal obli-
gation, a Fund may acquire the right to sell the obligation to another party
at a guaranteed price and date.
Miscellaneous Investments and Policies
Floating and Variable Rate Obligations. The Funds may purchase floating and
variable rate obligations. The value of these obligations is generally more
stable than that of a fixed rate obligation in response to changes in inter-
est rate levels. Subject to the conditions for using amortized cost valua-
tion under the Investment Company Act, a Fund may consider the maturity of a
variable or floating rate obligation to be shorter than its ultimate stated
maturity if the obligation is a U.S. Treasury obligation or U.S. Government
security, if the obligation has a remaining maturity of 397 calendar days or
less, or if the obligation has a demand feature that permits the Fund to
receive payment at any time or at specified intervals not exceeding 397 cal-
endar days. The issuers or financial intermediaries providing demand fea-
tures may support their ability to purchase the obligations by obtaining
credit with liquidity supports. These may include lines of credit, which are
condi-
6-FF
<PAGE>
APPENDIX A
tional commitments to lend and letters of credit, which will ordinarily be
irrevocable, both of which may be issued by domestic banks or foreign banks
which have a branch, agency or subsidiary in the United States. A Fund may
purchase variable or floating rate obligations from the issuers or may pur-
chase certificates of participation, a type of floating or variable rate
obligation, which are interests in a pool of debt obligations held by a bank
or other financial institution.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to a Fund at the time of entering into the transac-
tion. A forward commitment involves entering into a contract to purchase or
sell securities for a fixed price at a future date beyond the customary set-
tlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although a Fund would gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, a Fund may dis-
pose of when-issued securities or forward commitments before settlement
whenever the Investment Adviser deems it appropriate.
Other Investment Companies. A Fund may invest in securities of other invest-
ment companies subject to the limitations prescribed by the Investment Com-
pany Act. These limitations include a prohibition on any Fund acquiring more
than 3% of the voting shares of any other investment company, and a prohibi-
tion on investing more than 5% of a Fund's total assets in securities of any
one investment company or more than 10% of its total assets in securities of
all investment companies. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by such other invest-
ment companies. Such other investment companies will have investment objec-
tives, policies and restrictions substantially similar to those of the
acquiring Fund and will be subject to substantially the same risks.
Illiquid Securities. Each Fund may invest up to 10% of its net assets in
illiquid securities which cannot be disposed of in seven days in the ordi-
nary course of business at fair value. Illiquid securities include:
. Both domestic and foreign securities that are not readily marketable
. Certain municipal leases and participation interests
. Certain stripped mortgage-backed securities
7-FF
<PAGE>
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that a
restricted security is liquid because it is so-called "4(2) commercial
paper" or is otherwise eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Investing in restricted securities may decrease the liquidity of a Fund's
portfolio.
Borrowings. Each Fund may borrow up to 33 1/3% of its total assets from
banks for temporary or emergency purposes. A Fund may not make additional
investments if borrowings exceed 5% of its net assets. For more information,
see the Additional Statement.
Downgraded Securities. After its purchase, a portfolio security may be
assigned a lower rating or cease to be rated. If this occurs, a Fund may
continue to hold the security if the Investment Adviser believes it is in
the best interests of the Fund and its shareholders.
8-FF
<PAGE>
[This page intentionally left blank]
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge).
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred Shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Preferred Shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Years Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
2
<PAGE>
Appendix B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $5,831,773 0.18% 5.39% 0.24% 5.33%
1.00 5.45 132,558 0.28 5.26 0.34 5.20
1.00 5.29 331,196 0.43 5.14 0.49 5.08
1.00 5.03 336,205 0.68 4.89 0.74 4.83
- --------------------------------------------------------------------------------
1.00 5.60 3,867,739 0.18 5.46 0.23 5.41
1.00 5.50 152,767 0.28 5.38 0.33 5.33
1.00 5.34 241,607 0.43 5.22 0.48 5.17
1.00 5.08 176,133 0.68 4.97 0.73 4.92
- --------------------------------------------------------------------------------
1.00 5.41 3,901,797 0.18 5.29 0.23 5.24
1.00 5.28c 127,126 0.28c 5.19c 0.33c 5.14c
1.00 5.14 215,898 0.43 5.06 0.48 5.01
1.00 4.88 115,114 0.68 4.78 0.73 4.73
- --------------------------------------------------------------------------------
1.00 6.02 3,295,791 0.18 5.86 0.22 5.82
1.00 5.75 147,894 0.43 5.59 0.47 5.55
1.00 5.49 65,278 0.68 5.33 0.72 5.29
- --------------------------------------------------------------------------------
1.00 4.38c 2,774,849 0.18c 4.38c 0.24c 4.32c
1.00 4.12c 66,113 0.43c 4.18c 0.49c 4.12c
1.00 3.86c 41,372 0.68c 3.98c 0.74c 3.92c
- --------------------------------------------------------------------------------
1.00 3.18 1,831,413 0.17 3.11 0.25 3.03
1.00 2.92 35,250 0.42 2.86 0.50 2.78
1.00 2.66 14,001 0.67 2.61 0.75 2.53
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.06 (0.06)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST Shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced July 14) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced May 18) 1.00 0.03 (0.03)
1994-FST Administration shares (commenced
May 20) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
4
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $4,995,782 0.18% 5.40% 0.23% 5.35%
1.00 5.45 93,218 0.28 5.30 0.33 5.25
1.00 5.29 399,474 0.43 5.16 0.48 5.11
1.00 5.03 496,520 0.68 4.86 0.73 4.81
- ---------------------------------------------------------------------------------
1.00 5.63 4,346,519 0.18 5.50 0.23 5.45
1.00 5.53 20,258 0.28 5.44 0.33 5.39
1.00 5.37 221,256 0.43 5.26 0.48 5.21
1.00 5.11 316,304 0.68 4.99 0.73 4.94
- ---------------------------------------------------------------------------------
1.00 5.45 2,540,366 0.18 5.33 0.23 5.28
1.00 5.31c 17,510 0.28c 5.23c 0.33c 5.18c
1.00 5.19 165,766 0.43 5.04 0.48 4.99
1.00 4.93 234,376 0.68 4.84 0.73 4.79
- ---------------------------------------------------------------------------------
1.00 6.07 2,069,197 0.15 5.89 0.23 5.81
1.00 5.80 137,412 0.40 5.61 0.48 5.53
1.00 5.41c 4,219 0.65c 4.93c 0.73c 4.85c
- ---------------------------------------------------------------------------------
1.00 4.91c 862,971 0.11c 4.88c 0.25c 4.74c
1.00 4.65c 66,560 0.36c 4.82c 0.50c 4.68c
- ---------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PREMIUM MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced August 1) 1.00 0.02 (0.02)
1997-FST Preferred Shares (commenced August
1) 1.00 0.02 (0.02)
1997-FST Administration shares (commenced
August 1) 1.00 0.02 (0.02)
1997-FST Service shares (commenced August
1) 1.00 0.02 (0.02)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
6
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.55% $479,851 0.16% 5.38% 0.29% 5.25%
1.00 5.45 107,517 0.26 5.29 0.39 5.16
1.00 5.29 13,728 0.41 5.08 0.54 4.95
1.00 5.03 19,655 0.66 4.79 0.79 4.66
- -------------------------------------------------------------------------------
1.00 5.73c 218,192 0.08c 5.59c 0.43c 5.24c
1.00 5.62c 558 0.18c 5.50c 0.53c 5.15c
1.00 5.47c 1,457 0.33c 5.33c 0.68c 4.98c
1.00 5.20c 814 0.58c 5.17c 0.93c 4.82c
- -------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
TREASURY OBLIGATIONS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Year Ended January 31,
1994-FST shares 1.00 0.03 (0.03)
1994-FST Administration shares 1.00 0.03 (0.03)
1994-FST Service shares 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
8
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.40% $3,521,389 0.18% 5.22% 0.23% 5.17%
1.00 5.29 285,240 0.28 5.20 0.33 5.15
1.00 5.14 1,080,454 0.43 4.94 0.48 4.89
1.00 4.87 501,619 0.68 4.69 0.73 4.64
- ---------------------------------------------------------------------------------
1.00 5.50 2,217,943 0.18 5.36 0.23 5.31
1.00 5.40 245,355 0.28 5.32 0.33 5.27
1.00 5.24 738,865 0.43 5.12 0.48 5.07
1.00 4.98 312,991 0.68 4.87 0.73 4.82
- ---------------------------------------------------------------------------------
1.00 5.35 2,291,051 0.18 5.22 0.24 5.16
1.00 5.24c 46,637 0.28c 5.11c 0.34c 5.05c
1.00 5.09 536,895 0.43 4.97 0.49 4.91
1.00 4.83 220,560 0.68 4.72 0.74 4.66
- ---------------------------------------------------------------------------------
1.00 5.96 1,587,715 0.18 5.73 0.23 5.68
1.00 5.69 283,186 0.43 5.47 0.48 5.42
1.00 5.43 139,117 0.68 5.21 0.73 5.16
- ---------------------------------------------------------------------------------
1.00 4.23c 958,196 0.18c 4.13c 0.25c 4.06c
1.00 3.97c 82,124 0.43c 4.24c 0.50c 4.17c
1.00 3.71c 81,162 0.68c 3.82c 0.75c 3.75c
- ---------------------------------------------------------------------------------
1.00 3.11 812,420 0.17 3.01 0.24 2.94
1.00 2.85 24,485 0.42 2.76 0.49 2.69
1.00 2.60 35,656 0.67 2.51 0.74 2.44
- ---------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
TREASURY INSTRUMENTS FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced March 3) 1.00 0.04 (0.04)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March 5) 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
10
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net
assets at Ratio of net Ratio of net
Net asset end Ratio of net investment Ratio of investment
value at of period expenses to income to expenses to income to
end Total (in average net average net average net average net
of period returnb 000's) assets assets assets assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.05% $822,207 0.18% 4.74% 0.29% 4.63%
1.00 4.94 2 0.28 4.68 0.39 4.57
1.00 4.79 23,676 0.43 4.62 0.54 4.51
1.00 4.53 17,128 0.68 4.37 0.79 4.26
- -------------------------------------------------------------------------------
1.00 5.25c 496,419 0.18c 5.09c 0.29c 4.98c
1.00 5.13c 2 0.28c 5.00c 0.39c 4.89c
1.00 4.99c 4,159 0.43c 4.84c 0.54c 4.73c
1.00 4.71c 20,177 0.68c 4.62c 0.79c 4.51c
- -------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
GOVERNMENT FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1997-FST shares 1.00 0.05 (0.05)
1997-FST Preferred shares 1.00 0.05 (0.05)
1997-FST Administration shares 1.00 0.05 (0.05)
1997-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1996-FST shares 1.00 0.05 (0.05)
1996-FST Preferred shares (commenced May 1) 1.00 0.03 (0.03)
1996-FST Administration shares 1.00 0.05 (0.05)
1996-FST Service shares 1.00 0.05 (0.05)
- -------------------------------------------------------------------------------
1995-FST shares 1.00 0.06 (0.06)
1995-FST Administration shares 1.00 0.06 (0.06)
1995-FST Service shares (commenced May 16) 1.00 0.03 (0.03)
- -------------------------------------------------------------------------------
For the Period Ended December 31,d
1994-FST shares 1.00 0.04 (0.04)
1994-FST Administration shares 1.00 0.04 (0.04)
- -------------------------------------------------------------------------------
For the Period Ended January 31,
1993-FST shares (commenced April 6) 1.00 0.03 (0.03)
1993-FST Administration shares (com-
menced September 1) 1.00 0.01 (0.01)
- -------------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
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 Trust (formerly Goldman Sachs Money
Market Trust).
12
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.46% $1,563,875 0.18% 5.32% 0.23% 5.27%
1.00 5.36 245,628 0.28 5.15 0.33 5.10
1.00 5.20 407,363 0.43 5.06 0.48 5.01
1.00 4.94 699,481 0.68 4.83 0.73 4.78
- --------------------------------------------------------------------------------
1.00 5.54 1,478,539 0.18 5.41 0.24 5.35
1.00 5.43 7,147 0.28 5.34 0.34 5.28
1.00 5.28 299,804 0.43 5.15 0.49 5.09
1.00 5.02 580,200 0.68 4.91 0.74 4.85
- --------------------------------------------------------------------------------
1.00 5.38 858,769 0.18 5.25 0.24 5.19
1.00 5.26c 112 0.28c 5.14c 0.34c 5.08c
1.00 5.12 145,108 0.43 5.01 0.49 4.95
1.00 4.86 223,554 0.68 4.74 0.74 4.68
- --------------------------------------------------------------------------------
1.00 6.00 743,884 0.18 5.81 0.24 5.75
1.00 5.74 82,386 0.43 5.54 0.49 5.48
1.00 5.40c 14,508 0.68c 5.08c 0.74c 5.02c
- --------------------------------------------------------------------------------
1.00 4.36c 258,350 0.15c 4.64c 0.25c 4.54c
1.00 4.10c 54,253 0.40c 4.67c 0.50c 4.57c
- --------------------------------------------------------------------------------
1.00 3.14c 44,697 0.08c 3.10c 0.59c 2.59c
1.00 2.87c 14,126 0.35c 2.85c 0.76c 2.44c
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
FEDERAL FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.05 $(0.05)
1998-FST Preferred shares 1.00 0.05 (0.05)
1998-FST Administration shares 1.00 0.05 (0.05)
1998-FST Service shares 1.00 0.05 (0.05)
- -----------------------------------------------------------------------------
For the Period Ended December 31,
1997-FST shares (commenced February 28) 1.00 0.05 (0.05)
1997-FST Preferred shares (commenced May
30) 1.00 0.03 (0.03)
1997-FST Administration shares (commenced
April 1) 1.00 0.04 (0.04)
1997-FST Service shares (commenced March
25) 1.00 0.04 (0.04)
- -----------------------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
14
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 5.41% $2,346,254 0.18% 5.24% 0.24% 5.18%
1.00 5.31 26,724 0.28 5.20 0.34 5.14
1.00 5.15 690,084 0.43 5.02 0.49 4.96
1.00 4.89 321,124 0.68 4.78 0.74 4.72
- --------------------------------------------------------------------------------
1.00 5.51c 1,125,681 0.18c 5.39c 0.27c 5.30c
1.00 5.43c 194,375 0.28c 5.26c 0.37c 5.17c
1.00 5.27c 625,334 0.43c 5.15c 0.52c 5.06c
1.00 5.00c 228,447 0.68c 4.78c 0.77c 4.69c
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
TAX-FREE MONEY MARKET FUND
<TABLE>
<CAPTION>
Net asset
value at Net Distributions
beginning investment to
of period incomea shareholders
- --------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
1998-FST shares $1.00 $0.03 $(0.03)
1998-FST Preferred shares 1.00 0.03 (0.03)
1998-FST Administration
shares 1.00 0.03 (0.03)
1998-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1997-FST shares 1.00 0.04 (0.04)
1997-FST Preferred shares 1.00 0.03 (0.03)
1997-FST Administration
shares 1.00 0.03 (0.03)
1997-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1996-FST shares 1.00 0.03 (0.03)
1996-FST Preferred shares
(commenced May 1) 1.00 0.02 (0.02)
1996-FST Administration
shares 1.00 0.03 (0.03)
1996-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
1995-FST shares 1.00 0.04 (0.04)
1995-FST Administration
shares 1.00 0.04 (0.04)
1995-FST Service shares 1.00 0.03 (0.03)
- --------------------------------------------------------------
For the Period Ended December 31,
1994-FST shares (commenced
July 19) 1.00 0.02 (0.02)
1994-FST Administration
shares (commenced August
1) 1.00 0.01 (0.01)
1994-FST Service shares
(commenced September 23) 1.00 0.01 (0.01)
- --------------------------------------------------------------
</TABLE>
a Calculated based on the average shares outstanding methodology.
b 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.
c Annualized.
16
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Net Ratio of net Ratio of net
Net asset assets at Ratio of net investment Ratio of investment
value at end expenses to income to expenses to income to
end Total of period average net average net average net average net
of period returnb (in 000's) assets assets assets assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.00 3.34% $1,456,002 0.18% 3.28% 0.23% 3.23%
1.00 3.24 20,882 0.28 3.17 0.33 3.12
1.00 3.08 146,800 0.43 3.04 0.48 2.99
1.00 2.83 50,990 0.68 2.77 0.73 2.72
- --------------------------------------------------------------------------------
1.00 3.54 939,407 0.18 3.50 0.24 3.44
1.00 3.43 35,152 0.28 3.39 0.34 3.33
1.00 3.28 103,049 0.43 3.27 0.49 3.21
1.00 3.02 42,578 0.68 3.01 0.74 2.95
- --------------------------------------------------------------------------------
1.00 3.39 440,838 0.18 3.35 0.23 3.30
1.00 3.30c 28,731 0.28c 3.26c 0.33c 3.21c
1.00 3.13 51,661 0.43 3.10 0.48 3.05
1.00 2.88 19,855 0.68 2.85 0.73 2.80
- --------------------------------------------------------------------------------
1.00 3.89 448,367 0.14 3.81 0.24 3.71
1.00 3.63 20,939 0.39 3.54 0.49 3.44
1.00 3.38 19,860 0.64 3.32 0.74 3.22
- --------------------------------------------------------------------------------
1.00 3.41c 183,570 0.07c 3.42c 0.31c 3.18c
1.00 3.19c 2,042 0.32c 3.25c 0.56c 3.01c
1.00 3.11c 2,267 0.57c 3.32c 0.81c 3.08c
- --------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Index
<TABLE>
<C> <C> <S>
xx General Investment Management
Approach
xx Fund Investment Objectives and
Strategies
xx Prime Obligations Fund
xx Money Market Fund
xx Premium Money Market Fund
xx Treasury Obligations Fund
xx Treasury Instruments Fund
xx Government Fund
xx Federal Fund
xx Tax-free Money Market Fund
xx Municipal Money Market Fund
xx Principal Risks of the Funds
xx Fund Performance
xx Fund Fees And Expenses
xx Service Providers
xx Taxation
</TABLE>
<TABLE>
<C> <C> <S>
xx Shareholder Guide
xx How to Buy Shares
xx How to Sell Shares
xx Dividends
A-1 Appendix
Additional Information
on Portfolio Risks,
Securities and
Techniques
B-1 Appendix
Financial Highlights
</TABLE>
19
<PAGE>
Financial Square Funds
Prospectus (FST Preferred Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Funds' investments is available in the
Funds' annual and semiannual reports to shareholders.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Statement of Additional Information ("Additional Statement").
The Additional Statement is incorporated by reference into this Prospectus
(is legally considered part of this Prospectus).
The Funds' annual and semiannual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone--Call 1-800-621-2550
By mail--Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By [email protected]
On the Internet--Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC--http://www.sec.gov
Goldman Sachs--http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents by sending your request and a duplicating fee to the SEC's
Public Reference Section, Washington, D.C. 20549-6009. Information on the
operation of the public reference room may be obtained by calling the SEC
at 1-800-SEC-0330.
[LOGO]
The Funds' investment company registration number is 811-5349.
<PAGE>
Prospectus Class A, B
and C Shares
May 1, 1999
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
.Goldman Sachs
Conservative
Strategy
Portfolio
.Goldman Sachs
(INSERT ARTWORK) Balanced
Strategy
Portfolio
(formerly, the
Income Strategy
Portfolio)
.Goldman Sachs
Growth and
Income Strategy
Portfolio
.Goldman Sachs
Growth Strategy
Portfolio
.Goldman Sachs
Aggressive
Growth Strategy
Portfolio
THE TERMS "PORTFOLIOS" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
"PORTFOLIOS."
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
[GOLDMAN SACHS LOGO APPEARS HERE]
<PAGE>
General Investment
Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman, Sachs
& Co. ("Goldman Sachs"), serves as investment adviser (the "Investment Advis-
er") to five asset allocation portfolios: the Conservative Strategy Portfolio,
Balanced Strategy Portfolio (formerly, the Income Strategy Portfolio), Growth
and Income Strategy Portfolio, Growth Strategy Portfolio and Aggressive Growth
Strategy Portfolio (referred to as the "Portfolios" or the "Funds" interchange-
ably herein). The Portfolios are intended for investors who prefer to have
their asset allocation decisions made by professional money managers. Each
Portfolio seeks to achieve its objectives by investing in a combination of
underlying funds for which Goldman Sachs now or in the future acts as invest-
ment adviser or principal underwriter (the "Underlying Funds"). Some of these
Funds invest primarily in fixed-income or money market securities (the "Under-
lying Fixed-Income Funds"); other Funds invest primarily in equity securities
(the "Underlying Equity Funds"). You may choose to invest in one or more of the
Portfolios based on your personal investment goals, risk tolerance, and finan-
cial circumstances.
Goldman Sachs' Asset Allocation Investment Philosophy
The Investment Adviser's Quantitative Research Group uses disciplined quantita-
tive models to determine the relative attractiveness of the world's stock, bond
and currency markets. These models use financial and economic variables to cap-
ture fundamental relationships that it believes make sense. While the Invest-
ment Adviser's process is rigorous and quantitative, it also incorporates clear
economic reasoning behind each recommendation.
Each Portfolio starts with a "base-line" or strategic allocation among the var-
ious asset classes. The Investment Adviser then tactically deviates from the
strategic allocations based on forecasts provided by the models. The tactical
process seeks to add value by overweighing attractive markets and underweighing
unattractive markets. Greater deviations from the strategic allocation of a
given Portfolio result in higher risk that the tactical allocation will
underperform the strategic allocation. However, the Investment Adviser's risk
control process balances the amount any asset class can be overweighed in seek-
ing to achieve higher expected returns
The Asset Allocation Investment Philosophy involves investing a Portfolio's
assets in other Goldman Sachs Funds within specified equity and fixed-income
percentage ranges.
- --------------------------------------------------------------------------------
1-Z
<PAGE>
against the amount of risk imposed by that deviation from the strategic
allocation. The Investment Adviser employs Goldman Sachs' proprietary Black-
Litterman asset allocation technique in an effort to optimally balance these
two goals. This technique combines the Quantitative Research Group's market
forecast with economic equilibrium in seeking to construct risk-controlled
portfolios.
2-Z
<PAGE>
Portfolio Investment Objectives and Strategies
Goldman Sachs Conservative Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks current income, consistent with the preservation of cap-
ital and secondarily also considers the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 80% of the Portfolio's total assets
will be allocated among Underlying Fixed-Income Funds, with a focus on
short-term investments including money market funds. Allocation to Under-
lying Equity Funds is intended to add diversification and enhance returns,
but will also add some volatility. The Investment Adviser expects that the
Portfolio will invest a relatively significant percentage of its assets in
the Global Income Fund, Financial Square Prime Obligations Fund and CORE
Large Cap Value Fund. It is expected that the Portfolio will invest more
than 25% of its assets in the Short Duration Government Fund. The Portfolio
may not invest in International Underlying Equity Funds.
3-Z
<PAGE>
Goldman Sachs Balanced Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks current income and long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 60% of the Portfolio's total assets
will be allocated among Underlying Fixed-Income Funds. Allocation to Under-
lying Equity Funds is intended to add diversification and enhance returns,
but will also add some volatility. The Investment Adviser expects that the
Portfolio will invest a relatively significant percentage of its equity
allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE
International Equity Funds and will invest a relatively significant percent-
age of its assets in the Global Income Fund. It is expected that the Portfo-
lio will invest more than 25% of its assets in the Short Duration Government
Fund.
4-Z
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Growth and Income Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 60% of the Portfolio's total assets
will be allocated among Underlying Equity Funds, which are intended to pro-
vide the capital appreciation component. Allocation to Underlying Fixed-
Income Funds is intended to provide the income component. The Investment
Adviser expects that the Portfolio will invest a relatively significant per-
centage of its equity allocation in the CORE Large Cap Growth, CORE Large
Cap Value and CORE International Equity Funds and will invest a relatively
significant percentage of its assets in the CORE Fixed Income and Global
Income Funds.
5-Z
<PAGE>
Goldman Sachs Growth Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation and secondarily current
income.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 80% of the Portfolio's total assets
will be allocated among Underlying Equity Funds, with a blend of domestic
large cap, small cap and international exposure to seek capital apprecia-
tion. Allocation to Underlying Fixed-Income Funds is intended to provide
diversification. The Investment Adviser expects that the Portfolio will
invest a relatively significant percentage of its equity allocation in the
CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity
Funds.
6-Z
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Aggressive Growth Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, substantially all of the Portfolio's total assets
will be allocated among Underlying Equity Funds, with a greater focus on
small cap and international investments. The Investment Adviser expects that
the Portfolio will invest a relatively significant percentage of its assets
in the CORE Large Cap Growth, CORE Large Cap Value and CORE International
Equity Funds.
7-Z
<PAGE>
Principal Investment Strategies
Each Portfolio seeks to achieve its investment objective by investing within
specified equity and fixed-income ranges among Underlying Funds. The table
below illustrates the current Underlying Equity/Fixed-Income Fund allocation
targets and ranges for each Portfolio:
Equity/Fixed-Income Range (Percentage of Each Portfolio's Total Assets)
<TABLE>
<CAPTION>
Portfolio Target Range
- -------------------------------------------
<S> <C> <C>
Conservative Strategy
Equity 20% 0%-25%
Fixed-Income 80% 75%-100%
- -------------------------------------------
Balanced Strategy
Equity 40% 20%-60%
Fixed-Income 60% 40%-80%
- -------------------------------------------
Growth and Income Strategy
Equity 60% 40%-80%
Fixed-Income 40% 20%-60%
- -------------------------------------------
Growth Strategy
Equity 80% 60%-100%
Fixed-Income 20% 0%-40%
- -------------------------------------------
Aggressive Growth Strategy
Equity 100% 75%-100%
Fixed-Income 0% 0%-25%
- -------------------------------------------
</TABLE>
The Investment Adviser will invest in particular Underlying Funds based on var-
ious criteria. Among other things, the Investment Adviser will analyze the
Underlying Funds' respective investment objectives, policies and investment
strategies in order to determine which Underlying Funds, in combination with
other Underlying Funds, are appropriate in light of a Portfolio's investment
objective.
Each Portfolio's turnover rate is expected not to exceed 50% annually. A Port-
folio may purchase or sell securities to: (a) accommodate purchases and sales
of its shares; (b) change the percentages of its assets invested in each of the
Underlying Funds in response to economic or market conditions; and (c) maintain
or modify the allocation of its assets among the Underlying Funds within the
percentage ranges described above.
8-Z
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
While each Portfolio can invest in any or all of the Underlying Funds, it is
expected that each Portfolio will normally invest in only some of the Under-
lying Funds at any particular time. Each Portfolio's investment in any of
the Underlying Funds may, and in some cases is expected to, exceed 25% of
such Portfolio's total assets.
THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE
EQUITY/FIXED INCOME TARGETS AND RANGES AND THE INVESTMENTS IN EACH UNDER-
LYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER APPROVAL.
9-Z
<PAGE>
Principal Risks of the Portfolios
Loss of money is a risk of investing in each Portfolio. An investment in a
Portfolio is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other governmental agency. While
the Portfolios offer a greater level of diversification than many other types
of mutual funds, a single Portfolio may not provide a complete investment pro-
gram for an investor. The following summarizes the types of risks from which
loss may result:
^Investing in the Underlying Funds
The investments of each Portfolio are concentrated in the Underlying Funds, and
each Portfolio's investment performance is directly related to the investment
performance of the Underlying Funds held by it. The ability of each Portfolio
to meet its investment objectives is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those
Underlying Funds by the Investment Adviser. The value of the Underlying Funds'
investments, and the net asset values ("NAV") of the shares of both the Portfo-
lios and the Underlying Funds, will fluctuate in response to various market and
economic factors related to the equity and fixed-income markets, as well as the
financial condition and prospects of issuers in which the Underlying Funds
invest. There can be no assurance that the investment objective of any Portfo-
lio or any Underlying Fund will be achieved.
^Investments of the Underlying Funds
Because the Portfolios invest in the Underlying Funds, the Portfolios' share-
holders will be affected by the investment policies of the Underlying Funds in
direct proportion to the amount of assets the Portfolios allocate to those
Funds. Each Portfolio may invest in Underlying Funds that in turn invest in
small capitalization companies and foreign issuers and thus are subject to
additional risks, including changes in foreign currency exchange rates and
political risk. Foreign investments may include securities of issuers located
in emerging countries in Asia, Latin America, Eastern Europe and Africa. Each
Portfolio may also invest in Underlying Funds that in turn invest in non-
investment grade fixed-income securities ("junk bonds"), which are considered
speculative by traditional standards. In addition, the Underlying Funds may
purchase derivative securities; enter into forward currency transactions; lend
their portfolio securities; enter into futures contracts and options transac-
tions; purchase zero coupon bonds and payment-in-kind bonds; purchase securi-
ties issued by real estate investment trusts ("REITs") and other issuers in the
real estate industry; purchase restricted and
10-Z
<PAGE>
PRINCIPAL RISKS OF THE PORTFOLIOS
illiquid securities; purchase securities on a when-issued or delayed deliv-
ery basis; enter into repurchase agreements; borrow money; and engage in
various other investment practices. The risks presented by these investment
practices are discussed in Appendix A to this Prospectus and the Additional
Statement.
^Affiliated Persons
In managing the Portfolios, the Investment Adviser will have the authority
to select and substitute Underlying Funds. The Investment Adviser is subject
to conflicts of interest in allocating Portfolio assets among the various
Underlying Funds both because the fees payable to it and/or its affiliates
by some Underlying Funds are higher than the fees payable by other Under-
lying Funds and because the Investment Adviser and its affiliates are also
responsible for managing the Underlying Funds. The Trustees and officers of
the Goldman Sachs Trust (the "Trust") may also have conflicting interests in
fulfilling their fiduciary duties to both the Portfolios and the Underlying
Funds.
^Expenses
You may invest in the Underlying Funds directly. By investing in the Under-
lying Funds indirectly through a Portfolio, you will incur not only a pro-
portionate share of the expenses of the Underlying Funds held by the Portfo-
lio (including operating costs and investment management fees), but also
expenses of the Portfolio.
^Temporary Investments
Although the Portfolios normally seek to remain substantially invested in
the Underlying Funds, each Portfolio may invest a portion of its assets in
high-quality, short-term debt obligations (including commercial paper, cer-
tificates of deposit, bankers' acceptances, repurchase agreements, debt
obligations backed by the full faith and credit of the U.S. government and
demand and time deposits of domestic and foreign banks and savings and loan
associations) to maintain liquidity, to meet shareholder redemptions and for
other short-term cash needs. Also, there may be times when, in the opinion
of the Investment Adviser, abnormal market or economic conditions warrant
that, for temporary defensive purposes, a Portfolio may invest without limi-
tation in short-term obligations.
^Other Risks
Each Portfolio is subject to other risks, such as (1) the risk that the
operations of a Portfolio and the Underlying Funds in which it invests, or
the value of their securities, will be disrupted by the "Year 2000 Problem;"
(2) the risk that a Portfolio will not be able to pay redemption proceeds
within the period stated in its prospectus because of unusual market condi-
tions, high volume of redemption requests or other reasons (Liquidity Risk)
or (3) the risk that a strategy used by the investment adviser may fail to
produce the intended results (Management Risk).
11-Z
<PAGE>
Description of the Underlying Funds
DESCRIPTION OF THE UNDERLYING FUNDS
The following is a concise description of the investment objectives and
practices for each of the Underlying Funds that are available for investment
by the Portfolios as of the date of this Prospectus. A Portfolio may also
invest in other Underlying Funds not listed below that may become available
for investment in the future at the discretion of the Investment Adviser
without shareholder approval. Additional information regarding the invest-
ment practices of the Underlying Funds is provided in Appendix A to this
Prospectus and the Additional Statement. No offer is made in this Prospectus
of any of the Underlying Funds.
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
Growth and Long-term growth At least 65% of total assets in equity securities that the investment adviser considers to
Income of capital and have favorable prospects for capital appreciation and/or dividend paying ability.
growth of
income.
-------------------------------------------------------------------------------------------------------------------------------
CORE Large Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Value of capital and foreign issuers traded in the United States. The Fund's investments are selected using both
dividend income. a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index.
-------------------------------------------------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Equity of capital and foreign issuers traded in the United States. The Fund's investments are selected using both
dividend income. a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index.
-------------------------------------------------------------------------------------------------------------------------------
CORE Large Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Growth of capital. foreign issuers traded in the United States. The Fund's investments are selected using both
Dividend a variety of quantitative techniques and fundamental research in seeking to maximize the
income is a Fund's expected return, while maintaining risk, style, capitalization and industry
secondary characteristics similar to the Russell 1000 Growth Index.
consideration.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12-Z
<PAGE>
DESCRIPTION OF THE UNDERLYING FUNDS
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
CORE Small Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Equity of capital. foreign issuers traded in the United States. The Fund's investments are selected using both
a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index.
-------------------------------------------------------------------------------------------------------------------------------
Capital Growth Long-term At least 90% of total assets in a diversified portfolio of equity securities. Long-term
capital capital appreciation potential is considered in selecting investments.
growth.
-------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Long-term At least 65% of total assets in equity securities of companies with public stock market
capital capitalizations within the range of the market capitalization of companies constituting the
appreciation. Russell Midcap Index at the time of the investment (currently between $400 million and $16
billion).
-------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Long-term At least 65% of total assets in equity securities of companies with public stock market
capital capitalizations of $1 billion or less at the time of investment.
growth.
-------------------------------------------------------------------------------------------------------------------------------
Real Estate Total return Substantially all, and at least 80%, of total assets in a diversified portfolio of equity
Securities comprised securities of issuers that are primarily engaged in or related to the real estate industry.
of long-term The Fund expects that a substantial portion of its total assets will be invested in REITS.
growth of
capital and
dividend income.
-------------------------------------------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity securities of companies organized outside the United
International of capital. States or whose securities are principally traded outside the United States. The Fund's
Equity investments are selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the unhedged Morgan Stanley Capital
International (MSCI) Europe, Australia and Far East Index (the "EAFE Index"). The Fund may
employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13-Z
<PAGE>
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
International Long-term Substantially all, and at least 65%, of total assets in equity securities of companies
Equity capital organized outside the United States or whose securities are principally traded outside the
appreciation. United States. The Fund may employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
European Equity Long-term Substantially all, and at least 65%, of total assets in equity securities of European
capital companies. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
Japanese Equity Long-term Substantially all, and at least 65%, of total assets in equity securities of Japanese
capital companies. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
International Long-term Substantially all, and at least 65%, of total assets in equity securities of companies with
Small Cap capital public stock market capitalizations of $1 billion or less at the time of investment that
appreciation. are organized outside the United States or whose securities are principally traded outside
the United States. The Fund may employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
Emerging Long-term Substantially all, and at least 65%, of total assets in equity securities of emerging
Markets Equity capital country issuers. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
Asia Growth Long-term Substantially all, and at least 65%, of total assets in equity securities of companies in
capital China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South
appreciation. Korea, Sri Lanka, Taiwan and Thailand. The Fund may employ certain currency management
techniques.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14-Z
<PAGE>
DESCRIPTION OF THE UNDERLYING FUNDS
<TABLE>
<CAPTION>
Approximate
Investment Duration or Interest Rate
Fund Objectives Maturity Sensitivity
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Square Prime Maximize Maximum Maturity of 3-month
Obligations current income Individual treasury bill
to the extent Investments = 13
consistent months at time of
with the purchase. Maximum
maintenance of Dollar-Weighted
liquidity. Average Portfolio
Maturity = 90 days
-----------------------------------------------------------------------------
Adjustable Rate Government A high level Target Duration = 9-month U.S.
of current 6-month to 1-year Treasury bill
income, U.S. Treasury
consistent Securities Maximum
with low Duration*= 2 years
volatility of
principal.
-----------------------------------------------------------------------------
Short Duration Government A high level Target Duration = 2 2-year U.S.
of current year U.S. Treasury Treasury note
income and Security plus or
secondarily, minus .5 years
in seeking Maximum Duration*=
current 3 years
income, may
also consider
the potential
for capital
appreciation.
-----------------------------------------------------------------------------
Government Income A high level Target Duration = 5-year U.S.
of current Lehman Brothers Treasury note
income, Mutual Fund
consistent Government/Mortgage
with safety of Index plus or minus
principal. 1 year Maximum
Duration*= 6 years
-----------------------------------------------------------------------------
Core Fixed Income Total return Target Duration = 5-year U.S.
consisting of Lehman Brothers Treasury note
capital Aggregate Bond
appreciation Index plus or minus
and income 1 year Maximum
that exceeds Duration*= 6 years
the total
return of the
Lehman
Brothers
Aggregate Bond
Index.
-----------------------------------------------------------------------------
Global Income A high total Target Duration = 6-year
return, J.P. Morgan Global government
emphasizing Government Bond bond
current Index (hedged) plus
income, and, or minus 2.5 years
to a lesser Maximum Duration*=
extent, 7.5 years
providing
opportunities
for capital
appreciation.
-----------------------------------------------------------------------------
High Yield A high level Target Duration = 6-year bond
of current Lehman Brothers
income and High Yield Bond
capital Index plus or minus
appreciation. 2.5 years Maximum
Duration* = 7.5
years
-----------------------------------------------------------------------------
</TABLE>
* Under normal interest rate conditions.
15-Z
<PAGE>
<TABLE>
<CAPTION>
Credit
Investment Sector Quality Other Investments
----------------------------------------------------------------------------------------
<S> <C> <C>
Money market High Quality N/A
instruments (short-term
including securities ratings of
issued or guaranteed A-1, P-1 or
by the U.S. comparable
government, its quality).
agencies,
instrumentalities or
sponsored
enterprises ("U.S.
Government
Securities"); U.S.
bank obligations,
commercial paper and
other short-term
obligations of U.S.
corporations,
governmental and
other entities;
asset-backed and
receivables-backed
securities; and
related repurchase
agreements.
----------------------------------------------------------------------------------------
At least 65% of U.S. Fixed-rate mortgage
total assets in U.S. Government pass-through
Government Securities securities and
Securities that are repurchase
adjustable rate agreements
mortgage pass- collateralized by
through securities U.S. Government
and other mortgage Securities.
securities with
periodic interest
rate resets.
----------------------------------------------------------------------------------------
At least 65% of U.S. Mortgage pass-
total assets in U.S. Government through securities
Government Securities and other
Securities and securities
repurchase representing an
agreements interest in or
collateralized by collateralized by
such securities. mortgage loans.
----------------------------------------------------------------------------------------
At least 65% of U.S. Non-government
assets in U.S. Government mortgage pass-
Government Securities through securities,
Securities, and non-U.S. asset-backed
including mortgage- Government securities and
backed U.S. Securities = corporate fixed-
Government AAA/Aaa income securities.
Securities and
repurchase
agreements
collateralized by
such securities.
----------------------------------------------------------------------------------------
At least 65% of Minimum = Foreign fixed-
assets in fixed- BBB/Baa income, municipal
income securities, Minimum for and convertible
including U.S. non-dollar securities, foreign
Government securities = currencies and
Securities, AA/Aa repurchase
corporate, mortgage- agreements
backed and asset- collateralized by
backed securities. U.S. Government
Securities.
----------------------------------------------------------------------------------------
Securities of U.S. Minimum = Mortgage and asset-
and foreign BBB/Baa At backed securities,
governments and least 50% = foreign currencies
corporations. AAA/Aaa and repurchase
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government
securities.
----------------------------------------------------------------------------------------
Except for temporary At least 65% Mortgage-backed and
defensive purposes, = BB/Ba or asset-backed
at least 65% of below securities, U.S.
assets in fixed- Government
income securities Securities,
rated below investment grade
investment grade, corporate fixed-
including U.S. and income securities,
non-U.S. dollar structured
corporate debt, securities, foreign
foreign government currencies and
securities, repurchase
convertible agreements
securities and collateralized by
preferred stock. U.S. Government
Securities.
----------------------------------------------------------------------------------------
</TABLE>
16-Z
<PAGE>
Principal Risks of the Underlying Funds
The following summarizes important risks that apply to the Underlying Funds and
may result in a loss of your investment in a Portfolio. There can be no assur-
ance that an Underlying Fund will achieve its investment objective.
Risks That Apply To All Underlying Funds:
^Market Risk--The risk that the value of the securities in which an Under-
lying Fund invests may go up or down in response to the prospects of indi-
vidual companies and/or general economic conditions. Price changes may be
temporary or last for extended periods.
^Derivatives Risk--The risk that loss may result from an Underlying Fund's
investments in options, futures, swaps, structured securities and other
derivative instruments, which may be leveraged.
^Management Risk--The risk that a strategy used by an investment adviser to
the Underlying Funds may fail to produce the intended results.
^Liquidity Risk--The risk that an Underlying Fund will not be able to pay
redemption proceeds within the time period stated in this Prospectus,
because of unusual market conditions, an unusually high volume of redemp-
tion requests, or other reasons. Funds that invest in small capitalization
stocks, REITs and emerging country issuers will be especially subject to
the risk that during certain periods the liquidity of particular issuers or
industries, or all securities within these investment categories, will
shrink or disappear suddenly and without warning as a result of adverse
economic, market or political events, or adverse investor perceptions,
whether or not accurate.
^Other Risks--Each Underlying Fund is subject to other risks, such as the
risk that its operations, or the value of its portfolio securities, will be
disrupted by the "Year 2000 Problem."
Risks That Apply Primarily To The Underlying Fixed-Income Funds:
^Interest Rate Risk--The risk that when interest rates increase, fixed-
income securities held by an Underlying Fund will decline in value. Long-
term fixed-income securities will normally have more price volatility
because of this risk than short-term securities.
^Credit/Default Risk--The risk that an issuer of fixed-income securities
held by an Underlying Fund (which may have low credit ratings) may default
on its obligation to pay interest and repay principal.
^Call Risk--The risk that an issuer will exercise its right to pay principal
on an obligation held by an Underlying Fund (such as a mortgage-backed secu-
17-Z
<PAGE>
rity) earlier than expected. This may happen when there is a decline in
interest rates. Under these circumstances, an Underlying Fund may be unable
to recoup all of its initial investment and will also suffer from having to
reinvest in lower yielding securities.
^Extension Risk--The risk that an issuer will exercise its right to pay
principal on an obligation held by an Underlying Fund (such as a mortgage-
backed security) later than expected. This may happen when there is a rise
in interest rates. Under these circumstances, the value of an obligation
will decrease, and an Underlying Fund will also suffer from the inability
to invest in higher yielding securities.
^Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risk That Applies Primarily To The Underlying Equity Funds:
^Stock Risk--The risk that stock prices have historically risen and fallen
in periodic cycles. As of the date of this Prospectus, U.S. stock markets
and certain foreign stock markets were trading at or close to record high
levels. There is no guarantee that such levels will continue.
Risks That Are Particularly Important For Specific Underlying Funds:
^Concentration Risk--The European Equity Fund invests primarily in equity
securities of European companies. The Japanese Equity Fund invests primar-
ily in equity securities of Japanese companies. The Global Income Fund may
invest more than 25% of its total assets in the securities of corporate and
governmental issuers located in each of Canada, Germany, Japan, and the
United Kingdom as well as in the securities of U.S. issuers. Concentration
of the investments of these or other Underlying Funds in issuers located in
a particular country or region will subject the Underlying Fund, to a
greater extent than if investments were not so concentrated, to the risks
of adverse securities markets, exchange rates and social, political, regu-
latory or economic events which may occur in that country or region.
^Foreign Risks--Underlying Funds that invest in foreign securities will be
subject to risks with respect to their foreign investments that are not
typically associated with domestic issuers. These risks result from less
government regulation, less public information and less economic, political
and social stability. These risks may involve the imposition of exchange
controls, confiscation and other government restrictions. The Underlying
Funds will also be subject to the risk of negative foreign currency rate
fluctuations. Foreign risks will normally be greatest when an Underlying
Fund invests in issuers located in emerging countries.
18-Z
<PAGE>
PRINCIPAL RISKS OF THE UNDERLYING FUNDS
^Emerging Markets Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capi-
talizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting require-
ments as the securities markets of more developed countries. Further,
investment in equity securities of issuers located in Russia and certain
other emerging countries involves risk of loss resulting from problems in
share registration and custody and substantial economic and political dis-
ruptions. These risks are not normally associated with investments in more
developed countries.
^"Junk Bond" Risk--The High Yield Fund will invest in non-investment grade
fixed-income securities (commonly known as "junk bonds") that are consid-
ered predominantly speculative by traditional investment standards. Non-
investment grade fixed-income securities and unrated securities of compara-
ble credit quality are subject to the increased risk of an issuer's
inability to meet principal and interest payment obligations. These securi-
ties may be subject to greater price volatility due to such factors as spe-
cific corporate developments, interest rate sensitivity, negative percep-
tions of the junk bond markets generally and less secondary market
liquidity.
^Small Cap Stock and REIT Risks--The securities of small capitalization com-
panies and REITs involve greater risks than those associated with larger,
more established companies, and the securities may be subject to more
abrupt or erratic price movements. Securities of such issuers may lack suf-
ficient market liquidity to enable an Underlying Fund to effect sales at an
advantageous time or without a substantial drop in price.
More information about the portfolio securities and investment techniques of
the Underlying Funds, and their associated risks, is provided in Appendix A.
You should consider the investment risks discussed in this section and in
Appendix A. Both are important to your investment choice.
19-Z
<PAGE>
Portfolio Performance
HOW THE PORTFOLIOS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Portfolio by showing: (a) changes in the performance of a
Portfolio's Class A Shares from year to year; and (b) how the average annual
returns of a Portfolio's Class A, B and C Shares compare to those of a
broad-based securities market index. The bar chart and table assume rein-
vestment of dividends and distributions. A Portfolio's past performance is
not necessarily an indication of how the Portfolio will perform in the
future. The average annual total return calculation reflects a maximum ini-
tial sales charge of 5.5% for Class A Shares, the assumed contingent
deferred sales charge ("CDSC") for Class B Shares (5% maximum declining to
0% after six years), and the assumed CDSC for Class C Shares (1% if redeemed
within 12 months of purchase). The bar charts do not reflect the sales loads
applicable to Class A Shares. If the sales loads were reflected, returns
would be less. Performance reflects expense limitations in effect. If
expense limitations were not in place, a Portfolio's performance would have
been reduced. The Conservative Strategy Portfolio did not commence opera-
tions until February 8, 1999. Since the Portfolio has less than one calendar
year's performance, no performance information is provided in this section.
2
<PAGE>
PORTFOLIO PERFORMANCE
Balanced Strategy Portfolio
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter:
Q '98 %
(INSERT GRAPH)
Worst Quarter:
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Class A (Inception 1/2/98)
Including Sales Charges % %
S&P 500 Index* % %
Two-Year U.S. Treasury Security** % %
Lehman Brothers High Yield Bond Index*** % %
-----------------------------------------------------------------
Class B (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Two-Year U.S. Treasury Security** % %
Lehman Brothers High Yield Bond Index*** % %
-----------------------------------------------------------------
Class C (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Two-Year U.S. Treasury Security** % %
Lehman Brothers High Yield Bond Index*** % %
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
*** The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not reflect any fees or expenses.
3
<PAGE>
Growth and Income Strategy Portfolio
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter:
Q '98 %
(INSERT GRAPH)
Worst Quarter:
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
---------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 1/2/98)
Including Sales Charges % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Lehman Brothers Aggregate Bond Index*** % %
Lehman Brothers High Yield Bond Index+ % %
---------------------------------------------------------------------
Class B (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Lehman Brothers Aggregate Bond Index*** % %
Lehman Brothers High Yield Bond Index+ % %
---------------------------------------------------------------------
Class C (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Lehman Brothers Aggregate Bond Index*** % %
Lehman Brothers High Yield Bond Index+ % %
---------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Corporate Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of
securities in twenty developed markets. The Index does not reflect any fees
or expenses.
***The Lehman Brothers Aggregate Bond Index represents a diversified portfolio
of fixed-income securities, including U.S. Treasuries, investment-grade
corporate bonds, and mortgage-backed and asset-backed securities. The Index
figures do not reflect any fees or expenses.
+ The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of Ba1,
a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not reflect any fees or expenses.
4
<PAGE>
PORTFOLIO PERFORMANCE
Growth Strategy Portfolio
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter:
Q '98 %
(INSERT GRAPH)
Worst Quarter:
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 1/2/98)
Including Sales Charges % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
Class B (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
Class C (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
</TABLE>
*The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of
securities in twenty developed markets. The Index does not reflect any fees
or expenses.
***The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
+ The unmanaged Morgan Stanley Capital International Emerging Markets Free
(EMF) Index is a market capitalization-weighted composite of securities in
over thirty emerging market countries. "Free" indicates an index that
excludes shares in otherwise free markets that are not purchasable by
foreigners. The Index figures do not reflect any fees or expenses.
5
<PAGE>
Aggressive Growth Strategy Portfolio
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter:
Q '98 %
(INSERT GRAPH)
Worst Quarter:
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 1/2/98)
Including Sales Charges % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
Class B (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
Class C (Inception 1/2/98)
Including CDSC % %
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of
securities in twenty developed markets. The Index does not reflect any fees
or expenses.
*** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
+ The unmanaged Morgan Stanley Capital International Emerging Markets Free
(EMF) Index is a market capitalization-weighted composite of securities in
over thirty emerging market countries. "Free" indicates an index that
excludes shares in otherwise free markets that are not purchasable by
foreigners. The Index figures do not reflect any fees or expenses.
6
<PAGE>
(This page intentionally left blank)
<PAGE>
Portfolio Fees and Expenses
(Class A, B and C Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Class A, Class B, or Class C Shares of a Portfolio.
<TABLE>
<CAPTION>
Conservative Strategy
Portfolio
---------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets):/6/
Management Fees (for asset allocation)/7/ 0.35% 0.35% 0.35%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.44% 0.44% 0.44%
Underlying Fund Expenses/6/ 0.55% 0.55% 0.55%
- -------------------------------------------------------------------------------
Total Other Expenses 0.99% 0.99% 0.99%
- -------------------------------------------------------------------------------
Total Portfolio Operating Expenses* 1.59% 2.34% 2.34%
- -------------------------------------------------------------------------------
</TABLE>
See page 13 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Conservative Strategy
Portfolio
-----------------------
Class A Class B Class C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/6/
Management Fees (for asset allocation)/7/ 0.15% 0.15% 0.15%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.19% 0.19% 0.19%
Underlying Fund Expenses/6/ 0.55% 0.55% 0.55%
--------------------------------------------------------------------------------
Total Other Expenses 0.74% 0.74% 0.74%
--------------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 1.14% 1.89% 1.89%
--------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
PORTFOLIO FEES AND EXPENSES
<TABLE>
<CAPTION>
Balanced Strategy
Portfolio
---------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets):/6/
Management Fees (for asset allocation)/7/ 0.35% 0.35% 0.35%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.62% 0.62% 0.62%
Underlying Fund Expenses/6/ 0.69% 0.69% 0.69%
- -------------------------------------------------------------------------------
Total Other Expenses 1.31% 1.31% 1.31%
- -------------------------------------------------------------------------------
Total Portfolio Operating Expenses* 1.91% 2.66% 2.66%
- -------------------------------------------------------------------------------
</TABLE>
See page 13 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Balanced Strategy
Portfolio
-----------------------
Class A Class B Class C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/6/
Management Fees (for asset allocation)/7/ 0.15% 0.15% 0.15%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.19% 0.19% 0.19%
Underlying Fund Expenses/6/ 0.69% 0.69% 0.69%
--------------------------------------------------------------------------------
Total Other Expenses 0.88% 0.88% 0.88%
--------------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 1.28% 2.03% 2.03%
--------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Portfolio Fees and Expenses continued
<TABLE>
<CAPTION>
Growth and Income
Strategy Portfolio
---------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets):/6/
Management Fees (for asset allocation)/7/ 0.35% 0.35% 0.35%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.35% 0.35% 0.35%
Underlying Fund Expenses/6/ 0.79% 0.79% 0.79%
- -------------------------------------------------------------------------------
Total Other Expenses 1.14% 1.14% 1.14%
- -------------------------------------------------------------------------------
Total Portfolio Operating Expenses* 1.74% 2.49% 2.49%
- -------------------------------------------------------------------------------
</TABLE>
See page 13 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Growth and
Income Strategy
Portfolio
-----------------------
Class A Class B Class C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/6/
Management Fees (for asset allocation)/7/ 0.15% 0.15% 0.15%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.19% 0.19% 0.19%
Underlying Fund Expenses/6/ 0.79% 0.79% 0.79%
--------------------------------------------------------------------------------
Total Other Expenses 0.98% 0.98% 0.98%
--------------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 1.38% 2.13% 2.13%
--------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
PORTFOLIO FEES AND EXPENSES
<TABLE>
<CAPTION>
Growth Strategy
Portfolio
---------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 5.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets):/6/
Management Fees (for asset allocation)/7/ 0.35% 0.35% 0.35%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.38% 0.38% 0.38%
Underlying Fund Expenses/6/ 0.84% 0.84% 0.84%
- -------------------------------------------------------------------------------
Total Other Expenses 1.22% 1.22% 1.22%
- -------------------------------------------------------------------------------
Total Portfolio Operating Expenses* 1.82% 2.57% 2.57%
- -------------------------------------------------------------------------------
</TABLE>
See page 13 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Growth Strategy
Portfolio
-----------------------
Class A Class B Class C
---------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets):/6/
Management Fees (for asset allocation)/7/ 0.15% 0.15% 0.15%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.19% 0.19% 0.19%
Underlying Fund Expenses/6/ 0.84% 0.84% 0.84%
---------------------------------------------------------------------------
Total Other Expenses 1.03% 1.03% 1.03%
---------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 1.43% 2.18% 2.18%
---------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Aggressive Growth
Strategy Portfolio
-----------------------------
<S> <C> <C> <C>
Class A Class B Class C
- ----------------------------------------------------------------------------
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases 5.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio
assets):/6/
Management Fees (for asset allocation)/7/ 0.35% 0.35% 0.35%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.56% 0.56% 0.56%
Underlying Fund Expenses/6/ 0.90% 0.90% 0.90%
- ----------------------------------------------------------------------------
Total Other Expenses 1.46% 1.46% 1.46%
- ----------------------------------------------------------------------------
Total Portfolio Operating Expenses* 2.06% 2.24% 2.24%
- ----------------------------------------------------------------------------
</TABLE>
See page 13 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Aggressive Growth
Strategy Portfolio
-----------------------
Class A Class B Class C
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/6/
Management Fees (for asset allocation)/7/ 0.15% 0.15% 0.15%
Distribution and Service Fees 0.25% 1.00% 1.00%
Other Expenses/8/ 0.19% 0.19% 0.19%
Underlying Fund Expenses/6/ 0.90% 0.90% 0.90%
--------------------------------------------------------------------------------
Total Other Expenses 1.09% 1.09% 1.09%
--------------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 1.49% 2.24% 2.24%
--------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
PORTFOLIO FEES AND EXPENSES
/1/The maximum sales charge is a percentage of the offering price. A contingent
deferred sales charge ("CDSC") of 1% is imposed on certain redemptions (within
18 months of purchase) of Class A Shares sold without an initial sales charge
as part of an investment of $1 million or more.
/2/The maximum CDSC is a percentage of the lesser of the net asset value
("NAV") at the time of redemption or the NAV when the shares were originally
purchased.
/3/A CDSC is imposed upon Class B Shares redeemed within six years of purchase
at a rate of 5% in the first year, declining to 1% in the sixth year, and elim-
inated thereafter.
/4/A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of pur-
chase.
/5/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or shares of the Goldman Sachs Institu-
tional Liquid Assets Portfolios (the "ILA Portfolios") and free automatic
exchanges pursuant to the Automatic Exchange Program, six free exchanges are
permitted in each 12 month period. A fee of $12.50 may be charged for each sub-
sequent exchange during such period.
/6/The Portfolios' annual operating expenses have been restated to reflect cur-
rent fees, except for the Conservative Strategy Portfolio, whose expenses are
estimated for the current fiscal year. "Underlying Fund Expenses" for each
Portfolio are based upon the strategic allocation of each Portfolio's invest-
ment in the Underlying Funds and upon the actual total operating expenses of
the Underlying Funds. Actual Underlying Fund Expenses incurred by each Portfo-
lio may vary with changes in the allocation of each Portfolio's assets among
the Underlying Funds and with other events that directly affect the expenses of
the Underlying Funds.
/7/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Portfolios equal to 0.20%. As a result of fee waivers,
current management fees of the Portfolios are 0.15% of each Portfolio's average
daily net assets. The waiver may be terminated at any time at the option of the
Investment Adviser.
/8/"Other Expenses" include transfer agency fees equal to 0.19% of the average
daily net assets of each Portfolio's Class A, B and C Shares, plus all other
ordinary expenses not detailed above. The Investment Adviser has voluntarily
agreed to reduce or limit "Other Expenses" (excluding management fees, distri-
bution and service fees, transfer agency fees, taxes, interest and brokerage
fees and litigation, indemnification and other extraordinary expenses) to 0.00%
of each Portfolio's average daily net assets.
13
<PAGE>
PORTFOLIO FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Portfolio (without the waivers and expense limitations) with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
Class A, B or C Shares of a Portfolio for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that a Portfolio's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Conservative Strategy
Class A Shares $703 $1,024 $1,368 $2,335
Class B Shares
- Assuming complete
redemption at end of
period $737 $1,030 $1,450 $2,489
- Assuming no redemption $237 $ 730 $1,250 $2,489
Class C Shares
- Assuming complete
redemption at end of
period $337 $ 730 $1,250 $2,676
- Assuming no redemption $237 $ 730 $1,250 $2,676
- ---------------------------------------------------------
Balanced Strategy
Class A Shares $667 $ 916 $1,183 1,946
Class B Shares
- Assuming complete
redemption at end of
period $700 $ 918 $1,262 $2,102
- Assuming no redemption $200 $ 618 $1,062 $2,102
Class C Shares
- Assuming complete
redemption at end of
period $300 $ 618 $1,062 $2,296
- Assuming no redemption $200 $ 618 $1,062 $2,296
- ---------------------------------------------------------
Growth and Income
Strategy
Class A Shares $642 $ 836 $1,047 $1,652
Class B Shares
- Assuming complete
redemption at end of
period $673 $ 836 $1,123 $1,810
- Assuming no redemption $173 $ 536 $ 923 $1,810
Class C Shares
- Assuming complete
redemption at end of
period $273 $ 536 $ 923 $2,009
- Assuming no redemption $173 $ 536 $ 923 $2,009
- ---------------------------------------------------------
</TABLE>
14
<PAGE>
PORTFOLIO FEES AND EXPENSES
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Strategy
Class A Shares $644 $845 $1,062 $1,685
Class B Shares
- Assuming complete
redemption at end of
period $676 $845 $1,139 $1,842
- Assuming no redemption $176 $545 $ 939 $1,842
Class C Shares
- Assuming complete
redemption at end of
period $276 $545 $ 939 $2,041
- Assuming no redemption $176 $545 $ 939 $2,041
- ---------------------------------------------------------
Aggressive Growth
Strategy
Class A Shares $662 $898 $1,153 $1,881
Class B Shares
- Assuming complete
redemption at end of
period $694 $900 $1,232 $2,038
- Assuming no redemption $194 $600 $1,032 $2,038
Class C Shares
- Assuming complete
redemption at end of
period $294 $600 $1,032 $2,233
- Assuming no redemption $194 $600 $1,032 $2,233
- ---------------------------------------------------------
</TABLE>
The hypothetical example assumes that a CDSC will not apply to redemptions of
Class A Shares within the first 18 months. Class B Shares convert to Class A
Shares eight years after purchase; therefore, Class A expenses are used in the
hypothetical example after year eight.
Certain institutions that sell Class A, Class B and Class C Shares on behalf of
their customers may receive other compensation in connection with the sale and
distribution of Class A, Class B and Class C Shares or for services to their
accounts and/or the Portfolios. For additional information regarding such com-
pensation, see "Shareholder Guide" in the Prospectus and "Other Information" in
the Additional Statement.
15
<PAGE>
PORTFOLIO FEES AND EXPENSES
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
Under the Plans, Goldman Sachs is also entitled to receive a separate fee
equal on an annual basis to 0.25% of each Fund's average daily net assets
attributed to Class A Shares, Class B or Class C Shares. This fee is for
personal and account maintenance services, and may be used to make payments
to Goldman Sachs, Authorized Dealers and their officers, sales representa-
tives and employees for responding to inquiries of, and furnishing assis-
tance to, shareholders regarding ownership of their shares or their accounts
or similar services not otherwise provided on behalf of the Funds. If the
fees received by Goldman Sachs pursuant to the Plans exceed its expenses,
Goldman Sachs may realize a profit from this arrangement.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.25% service fee as an ongoing commission to Authorized Dealers after
the shares have been held for one year.
16
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Portfolio
----------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Conservative Strategy
One New York Plaza Balanced Strategy
New York, New York 10004 Growth and Income Strategy
Growth Strategy
Aggressive Growth Strategy
----------------------------------------------------------------------------
Except as noted below, GSAM also serves as investment adviser to each Under-
lying Fund.
<CAPTION>
Investment Adviser Underlying Fund
----------------------------------------------------------------------------
<S> <C>
Goldman Sachs Funds Management, L.P. ("GSFM") CORE U.S. Equity
One New York Plaza Capital Growth
New York, New York 10004 CORE Large Cap Value
Adjustable Rate Government
Short Duration Government
----------------------------------------------------------------------------
Goldman Sachs Asset Management International Equity
International ("GSAMI") Japanese Equity
133 Peterborough Court European Equity
London EC4A 2BB International Small Cap
England Emerging Markets Equity
Asia Growth
Global Income
----------------------------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. GSAMI, a member of the Investment Management Regulatory Organization
Limited since 1990 and a registered investment adviser since 1991, is an
affiliate of Goldman Sachs. As of December 31, 1998, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $195 billion.
Under an Asset Allocation Management Agreement ("Management Agreement") with
each Portfolio, the Investment Adviser, subject to the general supervision
of the Trustees, provides day-to-day advice as to each Portfolio's
1-AA
<PAGE>
investment transactions, including determinations concerning changes to (a)
the Underlying Funds in which the Portfolios may invest and (b) the percent-
age range of assets of any Portfolio that may be invested in the Underlying
Equity Funds and the Underlying Fixed-Income Funds as separate groups.
Goldman Sachs has agreed to permit the Portfolios to use the name "Goldman
Sachs" or a derivative thereof as part of each Portfolio's name for as long
as a Portfolio's Management Agreement is in effect.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and cler-
ical services to the Funds
..Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information and other
reports filed with the Securities and Exchange Commission (the "SEC") and
other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Portfolio Contractual Rate December 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
Conservative Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Balanced Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Growth and Income Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Growth Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Aggressive Growth Strategy 0.35% 0.15%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
2-AA
<PAGE>
SERVICE PROVIDERS
In addition, each Portfolio, as a shareholder in the Underlying Funds, will
indirectly bear a proportionate share of any investment management fees and
other expenses paid by the Underlying Funds. The following chart shows the cur-
rent total operating expense ratios (management fee plus other operating
expenses) of Institutional Shares of each Underlying Fund in which the Portfo-
lios may invest. In addition, the following chart shows the contractual invest-
ment management fees payable to the Investment Adviser by the Underlying Funds
(in each case as an annualized percentage of a Fund's average net assets).
Absent voluntary fee waivers and/or expense reimbursements, which may be dis-
continued at any time, the total operating expense ratios of certain Underlying
Funds would be higher.
<TABLE>
<CAPTION>
Total
Contractual Operating
Management Expense
Underlying Funds Fee Ratio
- ---------------------------------------------------------------------------
<S> <C> <C>
Financial Square Prime Obligations Money Market Fund 0.205% 0.18%
- ---------------------------------------------------------------------------
Short Duration Government Fund 0.50% 0.54%
- ---------------------------------------------------------------------------
Adjustable Rate Government Fund 0.40% 0.49%
- ---------------------------------------------------------------------------
Core Fixed Income Fund 0.40% 0.54%
- ---------------------------------------------------------------------------
Government Income Fund 0.90% 0.58%
- ---------------------------------------------------------------------------
Global Income Fund 0.70% 0.69%
- ---------------------------------------------------------------------------
High Yield Fund 0.80% 0.76%
- ---------------------------------------------------------------------------
Growth and Income Fund 0.70% 0.79%
- ---------------------------------------------------------------------------
CORE U.S. Equity Fund 0.75% 0.74%
- ---------------------------------------------------------------------------
CORE Large Cap Growth Fund 0.75% 0.64%
- ---------------------------------------------------------------------------
CORE Large Cap Value Fund 0.60% 0.64%
- ---------------------------------------------------------------------------
CORE Small Cap Equity Fund 0.85% 0.93%
- ---------------------------------------------------------------------------
Capital Growth Fund 1.00% 1.04%
- ---------------------------------------------------------------------------
CORE International Equity Fund 0.85% 1.01%
- ---------------------------------------------------------------------------
Mid Cap Value Fund 0.75% 0.89%
- ---------------------------------------------------------------------------
Small Cap Value Fund 1.00% 1.10%
- ---------------------------------------------------------------------------
International Equity Fund 1.00% 1.14%
- ---------------------------------------------------------------------------
Japanese Equity Fund 1.00% 1.05%
- ---------------------------------------------------------------------------
European Equity Fund 1.00% 1.39%
- ---------------------------------------------------------------------------
International Small Cap Fund 1.20% 1.40%
- ---------------------------------------------------------------------------
Emerging Markets Equity Fund 1.20% 1.39%
- ---------------------------------------------------------------------------
Asia Growth Fund 1.00% 1.20%
- ---------------------------------------------------------------------------
Real Estate Securities Fund 1.00% 1.04%
- ---------------------------------------------------------------------------
</TABLE>
3-AA
<PAGE>
PORTFOLIO MANAGERS
Quantitative Research Team
..The 20-person Quantitative Research Team includes six Ph.Ds and one CFA,
with extensive academic and practitioner experience
..Disciplined, quantitative models are used to determine the relative attrac-
tiveness of the world's stock, bond and currency markets
..Theory and economic intuition guide the investment process
<TABLE>
<CAPTION>
Years Primarily
Name and Title Responsible Five Year Employment History
- --------------------------------------------------------------------------------
<C> <C> <S>
Mark M. Carhart, Since Mr. Carhart joined the Investment
Ph.D., CFA Vice 1998 Adviser as a member of the Quantitative
Chairman, Co-Head Research and Risk Management Team in
Quantitative Research 1997. From August 1995 to September
and Senior Portfolio 1997, he was Assistant Professor of
Manager Finance at the Marshall School of
Business at USC and a Senior Fellow of
the Wharton Financial Institutions
Center. From 1993 to 1995, he was a
lecturer and graduate student at the
University of Chicago Graduate School of
Business.
- --------------------------------------------------------------------------------
Raymond J. Iwanowski Since Mr. Iwanowski joined the Investment
Vice President, Co- 1998 Adviser as an associate and portfolio
Head Quantitative manager in 1997. From 1993 to 1997, he
Research and Senior was a Vice President and head of the
Portfolio Manager Fixed Derivatives Client Research group
at Salomon Brothers.
- --------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since Mr. Chriss joined the Investment Adviser
Vice President and 1998 in 1998. From 1996 to 1998, he worked in
Portfolio Manager the equity division of Morgan Stanley
Dean Witter. From 1994 to 1996, he was a
post-doctoral fellow in the Mathematics
Department of Harvard University.
- --------------------------------------------------------------------------------
Giorgio DeSantis, Since Mr. DeSantis joined the Investment
Ph.D. Vice President 1998 Adviser in 1998. From 1992 to 1998, he
and Portfolio Manager was Assistant Professor of Finance and
Business Economics at the Marshall
School of Business at USC.
- --------------------------------------------------------------------------------
William J. Fallon, Since Mr. Fallon joined the Investment Adviser
Ph.D. Vice President 1998 in 1998. From 1996 to 1998, he worked in
and Portfolio Manager the Firmwide Risk Group of Goldman
Sachs. From 1991 to 1996, he attended
Columbia University, where he earned a
Ph.D. in Finance.
- --------------------------------------------------------------------------------
Guang-Liang He, PhD. Since Mr. He joined the Investment Adviser in
Vice President and 1998 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman Sachs. From 1992
to 1997, he worked at Quantitative
Financial Strategies, Inc.
- --------------------------------------------------------------------------------
</TABLE>
4-AA
<PAGE>
SERVICE PROVIDERS
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois, 60606, also serves as Funds'
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Underlying Funds or Portfolios. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its
own amount.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to an Underlying Fund or limit an Underlying Fund's investment activities.
Goldman Sachs and its affiliates engage in proprietary trading and advise
accounts and funds which have investment objectives similar to those of the
Underlying Funds and/or which engage in and compete for transactions in the
same types of securities, currencies and instruments as the Underlying
Funds. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strate-
gies, or the activities or strategies used for other accounts managed by
them, for the benefit of the management of the Underlying Funds. The results
of an Underlying Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that an Under-
lying Fund could sustain losses during periods in which Goldman Sachs and
its affiliates and other accounts achieve significant profits on their trad-
ing for proprietary or other accounts. In addition, the Underlying Funds
may, from time to time, enter into transactions in which other clients of
Goldman Sachs have an adverse interest. An Underlying Fund's activities may
be limited because of regulatory restrictions applicable to Goldman Sachs
and its affiliates, and/or their internal policies designed to comply with
such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather
5-AA
<PAGE>
than the year "2000," leading to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct for-
ward-looking calculations, these computer problems may occur prior to Janu-
ary 1, 2000. Like other investment companies and financial and business
organizations, the Portfolios and the Underlying Funds could be adversely
affected in their ability to process securities trades, price securities,
provide shareholder account services and otherwise conduct normal business
operations if the Investment Adviser or other service providers do not ade-
quately address this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Portfolios' other
service providers that they are taking the steps necessary so that they do
not experience Year 2000 Problems, and the Investment Adviser will continue
to monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Portfolios at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Portfolios. The Investment
Adviser may obtain such Year 2000 information from various sources which the
Investment Adviser believes to be reliable, including the issuers' public
regulatory filings. However, the Investment Adviser is not in a position to
verify the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Portfolios' other service providers will be
sufficient to avoid any adverse effect on the Portfolios due to the Year
2000 Problem.
6-AA
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions from
net realized capital gains. You may choose to have dividends and distributions
paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for exchanges in certain ILA Portfolios. See
the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from net capital gains
are declared and paid as follows:
<TABLE>
<CAPTION>
Investment Capital Gains
Portfolio Income Dividends Distributions
- ----------------------------------------------------------
<S> <C> <C>
Conservative Strategy Monthly Annually
- ----------------------------------------------------------
Balanced Strategy Monthly Annually
- ----------------------------------------------------------
Growth and Income Strategy Quarterly Annually
- ----------------------------------------------------------
Aggressive Growth Strategy Quarterly Annually
- ----------------------------------------------------------
Growth Strategy Annually Annually
- ----------------------------------------------------------
</TABLE>
From time to time a portion of a Portfolio's dividends may constitute a return
of capital.
At the time of an investor's purchase of shares of a Portfolio, a portion of
the net asset value ("NAV") per share may be represented by undistributed
income or realized or unrealized appreciation of the Portfolio's portfolio
securities. Therefore, subsequent distributions on such shares from such income
or realized appreciation may be taxable to the investor even if the NAV of the
shares is, as a result of the distributions, reduced below the cost of such
shares and the distributions (or portions thereof) represent a return of a por-
tion of the purchase price.
7-AA
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' shares.
HOW TO BUY SHARES
How Can I Purchase Class A, Class B And Class C Shares Of The Funds?
You may purchase shares of the Funds through:
..Goldman Sachs:
..Authorized Dealers; or
..Directly from Goldman Sachs Trust (the "Trust")
In order to make an initial investment in a Fund, you must furnish to the
Fund, Goldman Sachs or your Authorized Dealer the information in the Account
Application attached to this Prospectus.
To Open an Account:
..Complete the enclosed Account Application
..Mail your payment and Account Application to:
Your Authorized Dealer
- Purchases by check or Federal Reserve draft should be made payable to
your Authorized Dealer
- Your Authorized Dealer is responsible for forwarding payment promptly
(within three business days) to the Fund
or
Goldman Sachs Funds c/o National Financial Data Services, Inc. ("NFDS"),
P.O. Box 419711, Kansas City, MO 64141-6711
- Purchases by check or Federal Reserve draft should be made payable to
Goldman Sachs Funds - (Name of Fund and Class of Shares)
- NFDS will not accept a check drawn on a foreign bank, a third-party
check, cash, money orders, travelers cheques or credit card checks
- Federal funds wire, Automated Clearing House Network ("ACH") transfer or
bank wires should be sent to State Street Bank and Trust Company ("State
Street") (each Fund's custodian). Please call the Funds at 1-800-526-
7384 to get detailed instructions on how to wire your money.
1-C
<PAGE>
What Is My Minimum Investment In The Funds?
<TABLE>
<CAPTION>
Initial Additional
------------------------------------------------------------------------------
<S> <C> <C>
Regular Accounts $1,000 $50
------------------------------------------------------------------------------
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) $250 $50
------------------------------------------------------------------------------
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts $250 $50
------------------------------------------------------------------------------
403(b) Plan Accounts $200 $50
------------------------------------------------------------------------------
SIMPLE IRAs and Education IRAs $50 $50
------------------------------------------------------------------------------
Automatic Investment Plan Accounts $50 $50
------------------------------------------------------------------------------
</TABLE>
What Alternative Sales Arrangements Are Available?
The Funds offer three classes of shares through this Prospectus.
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Maximum Amount You Can Buy In The Aggregate Across Funds Class A No limit
-----------------------------------------------------
Class B $250,000
-----------------------------------------------------
Class C $1,000,000
</TABLE>
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Initial Sales Charge Class A Applies to purchases of less
than $1 million--varies by
size of investment with a
maximum of 5.5%
-----------------------------------
Class B None
-----------------------------------
Class C None
-----------------------------------------------------------
CDSC Class A 1.00% on certain investments
of $1 million or more if you
sell within 18 months
-----------------------------------
Class B 6 year declining CDSC with a
maximum of 5%
-----------------------------------
Class C 1% if shares are redeemed
within 12 months of purchase
-----------------------------------------------------------
Conversion Feature Class A None
-----------------------------------
Class B Class B Shares convert to
Class A Shares after 8 years
-----------------------------------
Class C None
-----------------------------------------------------------
</TABLE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Refuse to open an account if you fail to (i) provide a social security num-
ber or other taxpayer identification number; or (ii) certify that such num-
ber is correct (if required to do so under applicable law).
..Reject or restrict any purchase or exchange order by a particular purchaser
(or group of related purchasers). This may occur, for example, when a pat-
tern of
2-C
<PAGE>
SHAREHOLDER GUIDE
frequent purchases, sales or exchanges of shares of a Fund is evident, or
if purchases, sales or exchanges are, or a subsequent abrupt redemption
might be, of a size that would disrupt management of a Fund.
..Modify or waive the minimum investment amounts.
..Modify the manner in which shares are offered.
..Modify the sales charge rates applicable to future purchases of shares.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange shares is deter-
mined by a Fund's NAV and share class. Each class calculates its NAV as fol-
lows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Trustees.
.NAV per share of each share class is calculated by the Fund's custodian
each business day as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. New York time). Fund shares will not
be priced on any day the New York Stock Exchange is closed.
.When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form, plus any applicable sales charge.
.When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form, less any applicable CDSC.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of
3-C
<PAGE>
the nature and materiality of the event, its effect on Fund operations and
other relevant factors.
COMMON QUESTIONS REGARDING THE PURCHASE OF CLASS A SHARES
What Is The Offering Price Of Class A Shares?
The offering price of Class A Shares of each Fund is the next determined NAV
per share plus an initial sales charge paid to Goldman Sachs at the time of
purchase of shares. The sales charge varies depending upon the amount you
purchase. In some cases, described below, the initial sales charge may be
eliminated altogether, and the offering price will be the NAV per share. The
current sales charges and commissions paid to Authorized Dealers are as fol-
lows:
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 up to (but less than)
$100,000 4.75 4.99 4.00
$100,000 up to (but less than)
$250,000 3.75 3.90 3.00
$250,000 up to (but less than)
$500,000 2.75 2.83 2.25
$500,000 up to (but less than)
$1 million 2.00 2.04 1.75
$1 million or more 0.00** 0.00** ***
---------------------------------------------------------------------------------
</TABLE>
* Dealer's reallowance may be changed periodically. During special promo-
tions, the entire sales charge may be reallowed to Authorized Dealers.
Authorized Dealers to whom substantially the entire sales charge is
reallowed may be deemed to be "underwriters" under the Securities Act of
1933.
** No sales charge is payable at the time of purchase of Class A Shares of
$1 million or more, but a CDSC of 1% may be imposed in the event of cer-
tain redemptions within 18 months of purchase.
*** The Distributor pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of
shares of the Funds equal to 1.00% of the amount under $3 million, 0.50%
of the next $2 million, and 0.25% thereafter. The Distributor may also
pay, with respect to all or a portion of the amount purchased, a commis-
sion in accordance with the foregoing schedule to Authorized Dealers who
initiate or are responsible for purchases of $500,000 or more by certain
pension and profit sharing plans, pension funds and other company-spon-
sored benefit plans investing in the Funds which satisfy the criteria
set forth below in "When Are Class A Shares Not Subject to a Sales Load"
or $1 million or more by certain "wrap" accounts. Purchases by such
plans will be made at NAV with no initial sales charge, but if all of
the shares held are redeemed within 18 months after the end of the cal-
endar month in which such purchase was made, a CDSC of 1% may be imposed
upon the plan sponsor or the third party administrator. In addition,
Authorized Dealers will remit to the Distributor such payments received
in connection with "wrap" accounts in the event that shares are redeemed
within 18 months after the end of the calendar month in which the pur-
chase was made.
4-C
<PAGE>
SHAREHOLDER GUIDE
What Else Do I Need To Know About Class A Shares' CDSC?
Purchases of $1 million or more of Class A Shares will be made at NAV with
no initial sales charge. However, if you redeem shares within 18 months
after the end of the calendar month in which the purchase was made, exclud-
ing any period of time in which the shares were exchanged into and remained
invested in an equivalent class of an ILA Portfolio, a CDSC of 1% may be
imposed. The CDSC may not be imposed if, your Authorized Dealer enters into
an agreement with the Distributor to return all or an applicable prorated
portion of its commission to the Distributor. The CDSC is waived on redemp-
tions in certain circumstances. See "In What Situations May the CDSC on
Class A, B or C Shares Be Waived Or Reduced?" below.
When Are Class A Shares Not Subject To A Sales Load?
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to the following individuals and entities:
..Goldman Sachs, its affiliates or their respective officers, partners,
directors or employees (including retired employees and former partners),
any partnership of which Goldman Sachs is a general partner, any Trustee or
officer of the Trust and designated family members of any of these individ-
uals;
..Qualified retirement plans of Goldman Sachs;
..Trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor;
..Any employee or registered representative of any Authorized Dealer or their
respective spouses, children and parents;
..Banks, trust companies or other types of depository institutions investing
for their own account or investing for discretionary or non-discretionary
accounts;
..Any state, county or city, or any instrumentality, department, authority or
agency thereof, which is prohibited by applicable investment laws from pay-
ing a sales charge or commission in connection with the purchase of shares
of a Fund;
..Pension and profit sharing plans, pension funds and other company-sponsored
benefit plans that:
.Buy shares worth $500,000 or more; or
.Have 100 or more eligible employees at the time of purchase; or
.Certify that they expect to have annual plan purchases of $200,000 or
more; or
.Are provided administrative services by certain third-party administra-
tors that have entered into a special service arrangement with Goldman
Sachs relating to such plans;
.."Wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided they have entered into an
agreement with
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<PAGE>
GSAM specifying aggregate minimums and certain operating policies and
standards;
..Registered investment advisers investing for accounts for which they
receive asset-based fees;
..Accounts over which GSAM or its advisory affiliates have investment discre-
tion; or
..Shareholders receiving distributions from a qualified retirement plan
invested in the Goldman Sachs Funds and reinvesting such proceeds in a
Goldman Sachs IRA.
You must certify eligibility for any of the above exemptions on your Account
Application and notify the Fund if you no longer are eligible for the exemp-
tion. The Fund will grant you an exemption subject to confirmation of your
entitlement. You may be charged a fee if you effect your transactions
through a broker or agent.
How Can The Sales Charge On Class A Shares Be Reduced?
..Right of Accumulation: When buying Class A Shares in Goldman Sachs Funds,
your current aggregate investment determines the initial sales load you
pay. You may qualify for reduced sales charges when the current market
value of holdings (shares at current offering price), plus new purchases,
reaches $50,000 or more. Class A Shares of any of the Goldman Sachs Funds
may be combined under the Right of Accumulation. To qualify for a reduced
sales load, you or your Authorized Dealer must notify the Fund's Transfer
Agent at the time of investment that a quantity discount is applicable. Use
of this service is subject to a check of appropriate records. The Addi-
tional Statement has more information about the Right of Accumulation.
..Statement of Intention: You may obtain a reduced sales charge by means of a
written Statement of Intention which expresses your non-binding commitment
to invest in the aggregate $50,000 or more within a period of 13 months in
Class A Shares of one or more Goldman Sachs Fund. Any investments you make
during the period will receive the discounted sales load based on the full
amount of your investment commitment. If the investment commitment of the
Statement of Intention is not met prior to the expiration of the 13 month
period, the entire amount will be subject to the higher applicable sales
charge. The Additional Statement has more information about the Statement
of Intention.
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SHAREHOLDER GUIDE
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
What Is The Offering Price Of Class B Shares?
You may purchase Class B Shares of the Funds at the next determined NAV
without an initial sales charge. However, Class B Shares redeemed within six
years of purchase will be subject to a CDSC at the rates shown in the table
below based on how long you held your shares.
The CDSC schedule is as follows:
<TABLE>
<CAPTION>
CDSC as a
Percentage of
Dollar Amount
Year Since Purchase Subject to CDSC
----------------------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter None
----------------------------------------
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing dis-
tribution-related services to the Funds in connection with the sale of Class
B Shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4% of the amount invested is paid to Authorized Dealers.
What Should I Know About The Automatic Conversion Of Class B Shares?
Class B Shares of a Fund will automatically convert into Class A Shares of
the same Fund at the end of the calendar quarter that is eight years after
the purchase date.
If you acquire Class B Shares of a Fund by exchange from Class B Shares of
another Goldman Sachs Fund, your Class B Shares will convert into Class A
Shares of such Fund based on the date of the initial purchase and the CDSC
schedule of that purchase.
If you acquire Class B Shares through reinvestment of distributions, your
Class B Shares will convert into Class A Shares based on the date of the
initial purchase of the shares on which the distribution was paid.
The conversion of Class B Shares to Class A Shares will not occur at any
time the Funds are advised that such conversions may constitute taxable
events for federal tax purposes, which the Funds believe is unlikely. If
conversions do not occur as a
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result of possible taxability, Class B Shares would continue to be subject
to higher expenses than Class A Shares for an indeterminate period.
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
What Is The Offering Price Of Class C Shares?
You may purchase Class C Shares of the Funds at the next determined NAV
without paying an initial sales charge. However, if you redeem Class C
Shares within 12 months of purchase, a CDSC of 1% will be deducted from the
redemption proceeds.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers.
An amount equal to 1% of the amount invested is paid by the Distributor to
Authorized Dealers.
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B
AND C SHARES
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
..The CDSC is based on the lesser of the NAV of the shares at the time of
redemption or the original offering price (which is the original NAV).
.No CDSC is charged on shares acquired from reinvested dividends or capi-
tal gains distributions.
.No CDSC is charged on the per share appreciation of your account over the
initial purchase price.
.When counting the number of months since a purchase of Class B or Class C
Shares was made, all payments made during a month will be combined and
considered to have been made on the first day of that month.
..To keep your CDSC as low as possible, each time you place a request to sell
shares, the Funds will first sell any shares in your account that do not
carry a CDSC and then the shares in your account that have been held the
longest.
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or
Reduced?
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to:
..Retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans (each a "Retirement Plan");
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SHAREHOLDER GUIDE
..The death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a participant or benefi-
ciary in a Retirement Plan;
..Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
..Satisfying the minimum distribution requirements of the Code;
..Establishing "substantially equal periodic payments" as described under
Section 72(t)(2) of the Code;
..The separation from service by a participant or beneficiary in a Retirement
Plan;
..The death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event;
..Excess contributions distributed from a Retirement Plan;
..Distributions from a qualified Retirement Plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; or
..Redemption proceeds which are to be reinvested in accounts or non-regis-
tered products over which GSAM or its advisory affiliates have investment
discretion.
In addition, Class A, B and C Shares subject to a systematic withdrawal plan
may be redeemed without a CDSC. The Funds reserve the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B
and C Shares and 10% of the value of your Class A Shares.
How Do I Decide Whether To Buy Class A, B Or C Shares?
The decision as to which Class to purchase depends on the amount you invest,
the intended length of the investment and your personal situation.
..Class A Shares. If you are making an investment of $50,000 or more that
qualifies for a reduced sales charge, you should consider purchasing Class
A Shares.
..Class B Shares. If you plan to hold your investment for at least six years
and would prefer not to pay an initial sales charge, you might consider
purchasing Class B Shares. By not paying a front-end sales charge, your
entire investment in Class B Shares is available to work for you from the
time you make your initial investment. However, the distribution and serv-
ice fee paid by Class B Shares will cause your Class B Shares (until con-
version to Class A Shares) to have a higher expense ratios, and thus, lower
performance and lower dividend payments (to the extent dividends are paid)
than Class A Shares.
A maximum purchase limitation of $250,000 in the aggregate normally
applies to Class B Shares.
..Class C Shares. If you are unsure of the length of your investment or plan
to hold your investment for less than six years and would prefer not to pay
an
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initial sales charge, you may prefer Class C Shares. By not paying a front-
end sales charge, your entire investment in Class C Shares is available to
work for you from the time you make your initial investment. However, the
distribution and service fee paid by Class C Shares will cause your Class C
Shares to have a higher expense ratio, and thus lower performance and lower
dividend payments (to the extent dividends are paid), than Class A Shares
(or Class B Shares after conversion to Class A Shares).
Although Class C Shares are subject to a CDSC for only 12 months, Class C
Shares do not have the conversion feature applicable to Class B Shares and
your investment will therefore pay higher distribution fees indefinitely.
A maximum purchase limitation of $1,000,000 in the aggregate normally
applies to purchases of Class C Shares.
Note: Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C Shares.
In addition to Class A, Class B and Class C Shares, each Fund also offers
other classes of shares to investors. These other share classes are subject
to different fees and expenses (which affect performance), have different
minimum investment requirements and are entitled to different services.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
HOW TO SELL SHARES
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Each Fund will redeem its shares upon request on
any business day at the NAV next determined after receipt of such request in
proper form, subject to any applicable CDSC. You may request that redemption
proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
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SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Instructions For Redemptions:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (see details below)
.Mail your request to:
Goldman Sachs Funds
4900 Sears Tower-60th Floor
Chicago, Illinois 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
.You may redeem up to $50,000 of your shares
within any 7 calendar day period
.Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the
$50,000 limit
-----------------------------------------------------------------------
</TABLE>
When Do I Need A Signature Guarantee To Redeem Shares?
A signature guarantee is required if:
..You are requesting in writing to redeem shares in an amount over $50,000;
..You would like the redemption proceeds sent to an address that is not your
address of record; or
..You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
Additional documentation may be required for executors, trustees or corpora-
tions or when deemed appropriate by the Transfer Agent.
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person iden-
tifying himself or herself as the owner of an account or the owner's regis-
tered representative where
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<PAGE>
the owner has not declined in writing to use this service. Thus, you risk
possible losses if a telephone redemption is not authorized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable proce-
dures specified by the Trust to confirm that such instructions are genuine.
If reasonable procedures are not employed, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
..All telephone requests are recorded.
..Proceeds of telephone redemption requests will be sent only to your address
of record or authorized bank account designated in the Account Application
(unless you provide written instructions and a signature guarantee, indi-
cating another address or account) and exchanges of shares normally will be
made only to an identically registered account.
..Telephone redemptions will not be accepted during the 30-day period follow-
ing any change in your address of record.
..The telephone redemption option does not apply to shares held in a "street
name" account. "Street name" accounts are accounts maintained and serviced
by your Authorized Dealer. If your account is held in "street name," you
should contact your registered representative of record, who may make tele-
phone redemptions on your behalf.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If you are selling shares you recently paid for by
check, the Fund will pay you when your check has cleared, which may take up
to 15 days. If the Federal Reserve Bank is closed on the day that the
redemption proceeds would ordinarily be wired, wiring the redemption pro-
ceeds may be delayed one additional business day.
..A transaction fee of $7.50 may be charged for payments of redemption pro-
ceeds by wire. Your bank may also charge wiring fees. You should contact
your bank directly to learn whether it charges such fees.
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<PAGE>
SHAREHOLDER GUIDE
..To change the bank designated on your Account Application, you must send
written instructions (with your signature guaranteed) to the Transfer
Agent.
..Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
By Check: You may elect to receive your redemption proceeds by check.
Redemption proceeds paid by check will normally be mailed to the address of
record within three business days of a properly executed redemption request,
unless you are selling shares you recently paid for by check. In that case,
the Fund will pay you when your check has cleared, which may take up to 15
days.
What Else Do I Need To Know About Redemptions?
Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
..Redeem your shares if your account balance is less than $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Fund will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interests of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs
Fund?
You may redeem shares of a Fund and reinvest a portion or all of the redemp-
tion proceeds (plus any additional amounts needed to round off purchases to
the nearest full share) at NAV. To be eligible for this privilege, you must
hold the shares you want to redeem for at least 30 days and you must rein-
vest the share proceeds within 90 days after you redeem. You may reinvest as
follows:
.Class A or B Shares--Class A Shares of the same Fund or any other Goldman
Sachs Fund
.Class C Shares--Class C Shares of the same Fund or any other Goldman
Sachs Fund
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<PAGE>
..You should obtain and read the applicable prospectuses before investing in
any other Funds.
..If you pay a CDSC upon redemption of Class A or Class C Shares and then
reinvest in Class A or Class C Shares as described above, your account will
be credited with the amount of the CDSC you paid. The reinvested shares
will, however, continue to be subject to a CDSC. The holding period of the
shares acquired through reinvestment will include the holding period of the
redeemed shares for purposes of computing the CDSC payable upon a subse-
quent redemption. For Class B Shares, you may reinvest the redemption pro-
ceeds in Class A Shares at NAV but the amount of the CDSC paid upon redemp-
tion of the Class B Shares will not be credited to your account.
..The reinvestment privilege may be exercised at any time in connection with
transactions in which the proceeds are reinvested at NAV in a tax-sheltered
retirement plan. In other cases, the reinvestment privilege may be exer-
cised once per year upon receipt of a written redemption request.
..You may be subject to tax as a result of a redemption. You should consult
your tax adviser concerning the tax consequences of a redemption and rein-
vestment.
Can I Exchange My Investment From One Fund To Another?
You may exchange shares of a Fund at NAV without the imposition of an ini-
tial sales charge or CDSC at the time of exchange for shares of the same
class or an equivalent class of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days'
written notice to you.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to exchange
.Obtain a signature guarantee
.Mail the request to:
Goldman Sachs Funds c/o NFDS
P.O. Box 419711
Kansas City, MO 64141-6711
or for overnight delivery -
Goldman Sachs Funds c/o NFDS
330 West 9th St.
Poindexter Bldg., 1st Floor
Kansas City, MO 64105
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
.Call 1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
</TABLE>
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<PAGE>
SHAREHOLDER GUIDE
You should keep in mind the following factors when making or considering an
exchange:
.You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.Six free exchanges are allowed in each 12 month period.
.A $12.50 fee may be charged for each subsequent exchange.
.There is no charge for exchanges made pursuant to the Automatic Exchange
Program.
.The exchanged shares may later be exchanged for shares of the same class
(or an equivalent class) of the original Fund at the next determined NAV
without the imposition of an initial sales charge or CDSC if the amount
in the Fund resulting from such exchanges is less than the largest amount
on which you have previously paid the applicable sales charge.
.When you exchange shares subject to a CDSC, no CDSC will be charged at
that time. The exchanged shares will be subject to the CDSC of the shares
originally held. For purposes of determining the amount of the applicable
CDSC, the length of time you have owned the shares will be measured from
the date you acquired the original shares subject to a CDSC and will not
be affected by a subsequent exchange.
.Eligible investors may exchange certain classes of shares for another
class of shares of the same Fund. For further information, call Goldman
Sachs Funds at 1-800-526-7384.
.All exchanges which represent an initial investment in a Fund must sat-
isfy the minimum initial investment requirements of that Fund.
.Exchanges are available only in states where exchanges may be legally
made.
.It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
.Goldman Sachs and NFDS may use reasonable procedures described under
"What Do I Need to Know About Telephone Redemption Requests?" in an
effort to prevent unauthorized or fraudulent telephone exchange requests.
.Telephone exchanges normally will be made only to an identically regis-
tered account. Shares may be exchanged among accounts with different
names, addresses and social security or other taxpayer identification
numbers only if the exchange instructions are in writing and accompanied
by a signature guarantee.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
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<PAGE>
SHAREHOLDER SERVICES
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
You may be able to make systematic cash investments through your bank via
ACH transfer or your checking account via bank draft each month. Forms for
this option are available from Goldman Sachs, your Authorized Dealer or you
may check the appropriate box on the Account Application.
Can My Dividends And Distributions From A Fund Be Invested In Other Funds?
You may elect to cross-reinvest dividends and capital gain distributions
paid by a Fund in shares of the same class or an equivalent class of any
other Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge or CDSC will be imposed.
..You may elect cross-reinvestment into an identically registered account or
an account registered in a different name or with a different address,
social security number or taxpayer identification number provided that the
account has been properly established, appropriate signatures obtained and
the minimum initial investment has been satisfied.
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
You may elect to exchange automatically a specified dollar amount of shares
of a Fund for shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge is imposed.
..Shares subject to a CDSC acquired under this program may be subject to a
CDSC at the time of redemption from the Fund into which the exchange is
made depending upon the date and value of your original purchase.
..Automatic exchanges are made monthly on the 15th day of each month or the
first business day thereafter.
..Minimum dollar amount: $50 per month.
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
Cross-reinvestments and automatic exchanges are subject to the following
conditions:
..You must hold $5,000 or more in the Fund which is paying the dividend or
from which the exchange is being made.
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<PAGE>
SHAREHOLDER GUIDE
..You must invest an amount in the Fund into which cross-reinvestments or
automatic exchanges are being made that is equal to that Fund's minimum
initial investment or continue to cross-reinvest or to make automatic
exchanges until such minimum initial investment is met.
..You should obtain and read the prospectus of the Fund into which dividends
are invested or automatic exchanges are made.
Can I Have Automatic Withdrawals Made On A Regular Basis?
You may draw on your account systematically via check or ACH transfer in any
amount of $50 or more.
..It is normally undesirable to maintain a systematic withdrawal plan at the
same time that you are purchasing additional Class A, Class B or Class C
Shares because of the sales charge imposed on your purchases of Class A
Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares.
..You must have a minimum balance of $5,000 in a Fund.
..Checks are mailed on or about the 25th day of each month.
..Each systematic withdrawal is a redemption and therefore a taxable transac-
tion.
..The CDSC applicable to Class A, Class B or Class C Shares redeemed under
the systematic withdrawal plan may be waived.
What Types of Reports Will I Be Sent Regarding My Investment?
You will receive an annual report containing audited financial statements
and a semiannual report. To eliminate unnecessary duplication, only one copy
of such reports will be sent to shareholders with the same mailing address.
If you would like a duplicate copy to be mailed to you, please contact
Goldman Sachs Funds at 1-800-526-7384. You will also be provided with a
printed confirmation for each transaction in your account and an individual
quarterly account statement. A year-to-date statement for your account will
be provided upon request made to Goldman Sachs. If your account is held in
"street name" you may receive your statement and confirmations on a differ-
ent schedule. The Funds do not generally provide sub-accounting services.
What Should I Know When I Purchase Shares Through An Authorized Dealer?
Authorized Dealers and other financial intermediaries may provide varying
arrangements for their clients to purchase and redeem Fund shares. They may
charge additional fees not described in this Prospectus to their customers
for such services.
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distribu-
tions relating to your account will be performed by the Authorized Dealer,
and not by the Fund and its Transfer Agent. Since the Funds will have no
record of your
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<PAGE>
transactions, you should contact the Authorized Dealer to purchase, redeem
or exchange shares, to make changes in or give instructions concerning the
account or to obtain information about your account. The transfer of shares
in a "street name" account to an account with another dealer or to an
account directly with the Fund involves special procedures and will require
you to obtain historical purchase information about the shares in the
account from the Authorized Dealer.
Authorized Dealers and other financial intermediaries may be authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust, to
designate other intermediaries to accept such orders. In these cases:
..A Fund will be deemed to have received an order that is in proper form when
the order is accepted by an Authorized Dealer or intermediary on a business
day, and the order will be priced at the Fund's NAV per share (adjusted for
any applicable sales charge) next determined after such acceptance.
..Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Funds within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary to learn whether
they are authorized to accept orders for the Trust.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Autho-
rized Dealers depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses. Additional
compensation based on sales may, but is currently not expected to, exceed
0.50% (annualized) of the amount invested.
DISTRIBUTION SERVICES AND FEES
What Are The Different Distribution And Service Fees Paid By Class A, B and
C Shares?
The Trust has adopted distribution and service plans (each a "Plan") under
which Class A, Class B and Class C Shares bear distribution and service fees
paid to Authorized Dealers and Goldman Sachs. If the fees received by
Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may
realize a profit from
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<PAGE>
SHAREHOLDER GUIDE
this arrangement. Goldman Sachs pays the distribution and service fees on a
quarterly basis.
Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund
for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributed to
Class A, Class B and Class C Shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types of
such charges.
The distribution fees are subject to the requirements of Rule 12b-1 under
the 1940 Act, and may be used (among other things) for:
..Compensation paid to and expenses incurred by Authorized Dealers, Goldman
Sachs and their respective officers, employees and sales representatives;
..Commissions paid to Authorized Dealers;
..Allocable overhead;
..Telephone and travel expenses;
..Interest and other costs associated with the financing of such compensation
and expenses;
..Printing of prospectuses for prospective shareholders;
..Preparation and distribution of sales literature or advertising of any
type; and
..All other expenses incurred in connection with activities primarily
intended to result in the sale of Class A, Class B and Class C Shares.
In connection with the sale of Class C Shares, Goldman Sachs begins paying
the 0.75% distribution fee as an ongoing commission to Authorized Dealers
after the shares have been held for one year.
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<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Portfolio distributions are taxable to you as ordinary income (unless your
investment is in an IRA or other tax-advantaged account) to the extent they
are attributable to the Portfolio's net investment income, certain net real-
ized foreign exchange gains and net short-term capital gains. They are tax-
able as long-term capital gains to the extent they are attributable to the
Portfolio's excess of net long-term capital gains (including long-term capi-
tal gain distributions received from Underlying Fund investments) over net
short-term capital losses. The tax status of any distribution is the same
regardless of how long you have been in the Portfolio and whether you rein-
vest in additional shares or take the distribution as cash. Certain distri-
butions paid by a Portfolio in January of a given year may be taxable to
shareholders as if received the prior December 31. The tax status and
amounts of the dividends and distributions for each calendar year will be
detailed in your annual tax statement from the Portfolio.
The REIT investments of the underlying Real Estate Securities Fund often do
not provide complete tax information to the Fund until after the calendar
year-end. Consequently, because of the delay, it may be necessary for the
Fund to request permission to extend the deadline for issuance of Forms
1099-DIV beyond January 31.
At any time, a portion of a Portfolio's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Under-
lying Fund's portfolio securities. Therefore, subsequent distributions on a
Portfolio's shares may be taxable to you, even if the NAV of your shares is,
as a result, reduced below the cost of those shares and the distributions
represent a return of your purchase price.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from Underlying Fund
investments may be eligible, in the hands of the corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding
period requirements and debt financing limitations.
There are certain tax requirements that all Portfolios must follow in order
to avoid federal taxation. In its efforts to adhere to these requirements,
the Funds may have to limit their investment activity in some types of
instruments.
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TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Portfolio shares may generate a tax liability (un-
less your investment is in an IRA or other tax-advantaged account). Depend-
ing upon the purchase or sale price of the shares you sell or exchange, you
may have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Portfolio, based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods that you hold shares.) Any
loss recognized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from a Portfolio or on the value of the
shares held by you. More tax information is provided in the Additional
Statement. You should also consult your own tax adviser for information
regarding all tax consequences applicable to your investments in the Portfo-
lios.
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Appendix A
Additional Information on the Underlying Funds
This Appendix provides further information on certain types of securities
and techniques that may be used by the Underlying Funds, including their
associated risks. Additional information is provided in the Additional
Statement, which is available upon request, and in the prospectuses of the
Underlying Funds.
The Underlying Equity Funds invest primarily in common stocks and other
equity securities, including preferred stocks, interests in real estate
investment trusts, convertible debt obligations, convertible preferred
stocks, equity interests in trusts, partnerships, joint ventures, limited
liability companies and similar enterprises, warrants and stock purchase
rights ("equity securities"). The Underlying Fixed-Income Funds invest pri-
marily in fixed-income securities, including senior and subordinated corpo-
rate debt obligations (such as bonds, debentures, notes and commercial
paper), convertible and non-convertible corporate debt obligations, loan
participations and preferred stock.
The Short Duration Government and Adjustable Rate Government Funds invest in
U.S. Government Securities and related repurchase agreements, and neither of
these Funds, the Government Income Fund nor the Financial Square Prime Obli-
gations Fund makes foreign investments. The investments of the Financial
Square Prime Obligations Fund are limited by SEC regulations applicable to
money market funds as described in its prospectus, and do not include many
of the types of investments discussed below that are permitted for the other
Underlying Funds. With these exceptions, and the further exceptions noted
below, the following description applies generally to the Underlying Funds.
A. Description of the Underlying Funds
Underlying Equity Funds
The investment advisers of the Underlying Equity Funds may, in choosing
securities, utilize first-hand fundamental research, including visiting com-
pany facilities to assess operations and to meet decision-makers. The
investment advisers may also use macro analysis of numerous economic and
valuation variables to anticipate changes in company earnings and the over-
all investment climate. The investment advisers are able to draw on the
research and market expertise of the Goldman Sachs Global Investment
Research Department and other affiliates, as well as information provided by
other securities dealers. Equity securities held by an Underlying Equity
Fund will generally be sold when an investment adviser
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believes that the market price fully reflects or exceeds the securities'
fundamental valuation or when other more attractive investments are identi-
fied.
Domestic Value Style Funds. The Growth and Income, Mid Cap Value and Small
Cap Value Funds are managed using a value oriented approach. The Funds'
investment adviser evaluates securities using fundamental analysis and
intends to purchase equity securities that are, in its view, underpriced
relative to a combination of such companies' long-term earnings prospects,
growth rate, free cash flow and/or dividend-paying ability.
Consideration will be given to the business quality of the issuer. Factors
positively affecting the investment adviser's view of that quality include
the competitiveness and degree of regulation in the markets in which the
company operates, the existence of a management team with a record of suc-
cess, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on cap-
ital invested in the business. These Underlying Funds may also purchase
securities of companies that have experienced difficulties and that, in the
opinion of the investment adviser, are available at attractive prices.
Domestic Growth Style Fund. The Capital Growth Fund is managed using a
growth oriented approach. Equity securities for this Fund are selected based
on their prospects for above average growth. The Fund's investment adviser
will select securities of growth companies trading, in the investment advis-
er's opinion, at a reasonable price relative to other industries, competi-
tors and historical price/ earnings multiples. The Fund will generally
invest in companies whose earnings are believed to be in a relatively strong
growth trend or, to a lesser extent, in companies in which significant fur-
ther growth is not anticipated but whose market value per share is thought
to be undervalued.
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity and CORE International Equity Funds
(the "CORE Equity Funds") are managed using both quantitative and fundamen-
tal techniques. CORE is an acronym for "Computer-Optimized, Research-
Enhanced," which reflects the Funds' investment process. This investment
process and the proprietary multifactor model used to implement it are dis-
cussed below.
Quantitative Investment Process. The Funds' investment advisers begin with a
broad universe of U.S. equity securities for the CORE U.S. Equity, CORE
Large Cap Growth, CORE Large Cap Value and CORE Small Cap Equity Funds (the
"CORE U.S. Equity Funds"), and a broad universe of foreign equity securities
for the CORE International Equity Fund. The investment advisers use proprie-
tary multifactor models (each a "Multifactor Model") to forecast the returns
of differ-
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APPENDIX A
ent markets, currencies and individual securities. In the case of an U.S.
equity security followed by the Goldman Sachs Global Investment Research
Department (the "Research Department"), a rating is assigned based upon the
Research Department's evaluation. In the discretion of the investment advis-
er, ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign
equity security, an investment adviser may rely on research from both the
Research Department and other industry sources.
In building a diversified portfolio for each CORE Equity Fund, an investment
adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio consists primarily of securities rated highest by
the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Quantitative Multifactor Models. The Multifactor Models are rigorous comput-
erized rating systems for forecasting the returns of different equity mar-
kets, currencies, and individual equity securities according to fundamental
investment characteristics. The CORE U.S. Equity Funds use one Multifactor
Model to forecast the returns of securities held in each Fund's portfolio.
The CORE International Equity Fund uses multiple Multifactor Models to fore-
cast returns. Currently, the CORE International Equity Fund uses one model
to forecast equity market returns, one model to forecast currency returns
and 22 separate models to forecast individual equity security returns in 22
different countries. Despite this variety, all Multifactor Models incorpo-
rate common variables covering measures of value, growth, momentum and risk
(e.g., book/price ratio, earnings/price ratio, price momentum, price vola-
tility, consensus growth forecasts, earnings estimate revisions, earnings
stability, and, in the case of models for the CORE International Equity
Fund, currency momentum and country political risk ratings). All of the fac-
tors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Equity Funds are derived using a statistical formulation that con-
siders each factor's historical performance in different market environ-
ments. As such, the U.S. Multifactor Model is designed to evaluate each
security using only the factors that are statistically related to returns in
the anticipated market environment. Because they include many disparate fac-
tors, the Funds' investment advisers believe that all the Multifactor Models
are broader in scope and provide a more thorough evaluation than most con-
ventional, quantitative models. Securities
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and markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive com-
bination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a quali-
tative (i.e., research enhanced) method of selecting securities, each CORE
Equity Fund seeks to capitalize on the strengths of each discipline.
Actively Managed International Funds. The International Equity, Japanese
Equity, European Equity, International Small Cap, Emerging Markets Equity
and Asia Growth Funds are managed using an active international approach.
This approach utilizes a consistent process of stock selection undertaken by
portfolio management teams located within each of the major investment
regions, including Europe, Japan, Asia and the United States. In selecting
securities, the investment adviser uses a long-term, bottom-up strategy
based on first-hand fundamental research that is designed to give broad
exposure to the available opportunities while seeking to add return primar-
ily through stock selection. Equity securities for these Funds are evaluated
based on three key factors--the business, the management and the valuation.
The investment adviser ordinarily seeks securities that have, in its opin-
ion, superior earnings growth potential, sustainable franchise value with
management attuned to creating shareholder value and relatively discounted
valuations. In addition, the investment adviser uses a multi-factor risk
model which seeks to assure that deviations from the benchmark are justifi-
able.
Real Estate Securities Fund. The investment strategy of the Real Estate
Securities Fund is based on the premise that property market fundamentals
are the primary determinant of growth underlying the success of companies in
the real estate industry. The Fund's research and investment process is
designed to identify those companies with strong property fundamentals and
strong management teams. This process is includes real estate market
research and securities analysis. The Fund's investment adviser will take
into account fundamental trends in underlying property markets as determined
by proprietary models, research of local real estate markets, earnings, cash
flow growth and stability, the relationship between asset values and market
prices of the securities and dividend payment history. The investment
adviser will attempt to purchase securities so that its underlying portfolio
will be diversified geographically and by property type.
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APPENDIX A
Underlying Fixed-Income Funds
As stated above, each Underlying Fixed-Income Fund has policies relating to
its duration (or maturity in the case of the Financial Square Prime Obliga-
tions Fund). A Fund's duration approximates its price sensitivity to changes
in interest rates. Maturity measures the time until final payment is due; it
takes no account of the pattern of a security's cash flows over time. In
computing portfolio duration, an Underlying Fixed-Income Fund will estimate
the duration of obligations that are subject to prepayment or redemption by
the issuer taking into account the influence of interest rates on prepay-
ments and coupon flows. This method of computing duration is known as
"option-adjusted" duration. A Fund will not be limited as to its maximum
weighted average portfolio maturity or the maximum stated maturity with
respect to individual securities unless otherwise noted.
Except for the Financial Square Prime Obligations Fund (which is subject to
more restrictive SEC regulations applicable to money market funds), an
Underlying Fixed-Income Fund will deem a security to have met its minimum
credit rating requirement if the security receives the minimum required
long-term rating (or the equivalent short-term credit rating) at the time of
purchase from at least one rating organization (including, but not limited
to, Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service,
Inc. ("Moody's")) even though it has been rated below the minimum rating by
one or more other rating organizations, or, if unrated by a rating organiza-
tion, is determined by the Fund's investment adviser to be of comparable
quality. If a security satisfies a Fund's minimum rating criteria at the
time of purchase and is subsequently downgraded below such rating, the Fund
will not be required to dispose of such security. If a downgrade occurs, the
Fund's investment adviser will consider what action, including the sale of
such security, is in the best interest of the Fund and its shareholders.
The Underlying Fixed-Income Funds may (but are not required to) employ cer-
tain active management techniques to manage their duration and term struc-
ture, to seek to hedge exposure to foreign currencies and to seek to enhance
returns. These techniques include (with respect to one or more of the
Funds), but are not limited to, the use of financial futures contracts,
option contracts (including options on futures), forward foreign currency
exchange contracts, currency options and futures, currency, mortgage, credit
and interest rate swaps and interest rate floors, caps and collars. Currency
and interest rate management techniques involve risks different from those
associated with investing solely in U.S. dollar-denominated fixed-income
securities of U.S. issuers. Certain of the Funds may invest in custodial
receipts, municipal securities and convertible securities. The Funds may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repur-
chase agreements, reverse repurchase agreements and other investment prac-
tices.
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<PAGE>
B. General Risks of the Underlying Funds
The Underlying Equity Funds will be subject to the risks associated with
common stocks and other equity securities. In general, stock values fluctu-
ate in response to the activities of individual companies and in response to
general market and economic conditions. Accordingly, the value of the stocks
that a Fund holds may decline over short or extended periods. The stock mar-
kets tend to be cyclical, with periods when stock prices generally rise and
periods when prices generally decline.
The Underlying Fixed-Income Funds will be subject to the risks associated
with fixed-income securities. These risks include interest rate risk, credit
risk and call/extension risk, In general, interest rate risk involves the
risk that when interest rates decline, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that the issuer
could default on its obligations and a Fund will not recover its investment.
Call risk and extension risk are normally present in adjustable rate mort-
gage loans ("ARMs"), mortgage-backed securities and asset-backed securities.
For example, homeowners have the option to prepay their mortgages. There-
fore, the duration of a security backed by home mortgages can either shorten
(call risk) or lengthen (extension risk). In general, if interest rates on
new mortgage loans fall sufficiently below the interest rates on existing
outstanding mortgage loans, the rate of prepayment would be expected to
increase. Conversely, if mortgage loan interest rates rise above the inter-
est rates on existing outstanding mortgage loans, the rate of prepayment
would be expected to decrease. In either case, a change in the prepayment
rate can result in losses to investors.
The Financial Square Prime Obligations Fund attempts to maintain a stable
NAV of $1.00 per share and values its assets using the amortized cost method
in accordance with SEC regulations. There is no assurance, however, that the
Financial Square Prime Obligations Fund will be successful in maintaining
its per share value at $1.00 on a continuous basis. The per share NAVs of
the other Underlying Funds are expected to fluctuate on a daily basis.
The turnover rates of the Underlying Funds have ranged from 41% to 315% dur-
ing their most recent fiscal years. There can be no assurance that the turn-
over rates of the Underlying Funds will remain within this range during sub-
sequent fiscal years. Higher turnover rates may result in higher brokerage
costs and expenses for the Underlying Funds. In addition, higher turn-
over rates may result in higher taxable realized gains for shareholders.
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<PAGE>
APPENDIX A
C. Other Risks of the Underlying Funds
Risks of Investing in Small Capitalization Companies and REITs. Investments
in small capitalization companies and REITs involve greater risk and portfo-
lio price volatility than investments in larger capitalization stocks. Among
the reasons for the greater price volatility of these investments are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such securities. Small capitalization companies
and REITs may be thinly traded and may have to be sold at a discount from
current market prices or in small lots over an extended period of time. In
addition, these securities are subject to the risk that during certain peri-
ods the liquidity of particular issuers or industries, or all securities in
these investment categories, will shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions, whether or not accurate. Because of the lack of suffi-
cient market liquidity, an Underlying Fund may incur losses because it will
be required to effect sales at a disadvantageous time and only then at a
substantial drop in price. Small capitalization companies and REITs also
often have limited product lines, markets or financial resources; may depend
on or use a few key personnel for management; and may be susceptible to
losses and risks of bankruptcy. Transaction costs for these investments are
often higher than those for larger capitalization companies. Investments in
small capitalization companies and REITs may be more difficult to price pre-
cisely than other types of securities because of their characteristics and
lower trading volumes.
Risks of Derivative Investments. An Underlying Fund's transactions, if any,
in options, futures, options on futures, swaps, interest rate caps, floors
and collars, structured securities, inverse floating-rate securities,
stripped mortgage-backed securities and currency transactions involve addi-
tional risk of loss. Loss can result from a lack of correlation between
changes in the value of derivative instruments and the portfolio assets (if
any) being hedged, the potential illiquidity of the markets for derivative
instruments, or the risks arising from margin requirements and related lev-
erage factors associated with such transactions. The use of these management
techniques also involves the risk of loss if the investment adviser is
incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. The Underlying Funds may also invest in derivative
investments for non-hedging purposes (that is, to seek to increase total
return), which is considered as a speculative practice and presents even
greater risk of loss.
Derivative mortgage-backed securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact
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<PAGE>
the cash flow and the market value of these securities. In general, the risk
of faster than anticipated prepayments adversely affects IOs, super floaters
and premium priced mortgage-backed securities. The risk of slower than
anticipated prepayments generally adversely affects POs, floating-rate secu-
rities subject to interest rate caps, support tranches and discount priced
mortgage-backed securities. In addition, particular derivative securities
may be leveraged such that their exposure (i.e., price sensitivity) to
interest rate and/or prepayment risk is magnified.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. Dual index or yield curve floaters are subject to lower prices in the
event of an unfavorable change in the spread between two designated interest
rates.
Risks of Foreign Investments. Certain of the Underlying Funds may invest in
foreign securities in accordance with their investment objectives and poli-
cies. Foreign investments involve special risks that are not typically asso-
ciated with U.S. dollar denominated or quoted securities of U.S. issuers.
Foreign investments may be affected by changes in currency rates, changes in
foreign or U.S. laws or restrictions applicable to such investments and
changes in exchange control regulations (e.g., currency blockage). A decline
in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denomi-
nated relative to the U.S. dollar would reduce the value of the portfolio
security.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
in the European Union ("EU"), such as the United Kingdom and Denmark, into
the euro and the admission of other non-EU countries such as Poland, Latvia
and Lithuania as members of the EU may have an impact on the euro. These or
other factors, including political and economic risks, could cause market
disruptions, and could adversely affect the value of securities held by the
Underlying Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States.
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APPENDIX A
In addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep
pace with the volume of securities transactions, thus making it difficult to
conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less gov-
ernment regulation of foreign markets, companies and securities dealers than
in the United States. Foreign securities markets may have substantially less
volume than U.S. securities markets and securities of many foreign issuers
are less liquid and more volatile than securities of comparable domestic
issuers. Furthermore, with respect to certain foreign countries, there is a
possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding or other taxes on dividend or interest payments
(or, in some cases, capital gains), limitations on the removal of funds or
other assets of the Underlying Funds, and political or social instability or
diplomatic developments which could affect investments in those countries.
Concentration of a Fund's assets in one of a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations involves risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwill-
ing to repay principal or interest when due in accordance with the terms of
such debt, and an Underlying Fund may have limited recourse to compel pay-
ment in the event of a default. Periods of economic uncertainty may result
in volatility of market prices of sovereign debt, and in turn the Underlying
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Underlying Funds may also invest in European
Depository Receipts ("EDRs") or other similar instruments representing secu-
rities of foreign issuers. ADRs represent the right to receive securities of
foreign issuers deposited
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<PAGE>
in a domestic bank or a correspondent bank. Prices of ADRs are quoted in
U.S. dollars, and ADRs are traded in the United States. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are
not necessarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Underlying Funds may invest in securi-
ties of issuers located in emerging countries. The risks of foreign invest-
ment are heightened when the issuer is located in an emerging country. The
International Equity, European Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in emerging countries. Up to 35% of the total assets
of the Emerging Markets Equity Fund may be invested in securities of issuers
in any one emerging country. The Growth and Income, Small Cap Value, Mid Cap
Value, High Yield and CORE International Equity Funds may each invest up to
25%, and the Core Fixed Income, Global Income and Capital Growth Funds may
each invest up to 10%, of their respective total assets in securities of
issuers in emerging countries.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant invest-
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APPENDIX A
ment losses. Investing in emerging countries involves greater risk of loss
due to expropriation, nationalization, confiscation of assets and property
or the imposition of restrictions on foreign investments and on repatriation
of capital invested.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
An Underlying Fund's investment in emerging countries may also be subject to
withholding or other taxes, which may be significant and may reduce the
return from an investment in such country to the Underlying Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve an Under-
lying Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for an Underlying Fund to value its portfolio securi-
ties and could cause the Underlying Fund to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses
due to the failure of a counterparty to pay for securities the Underlying
Fund has delivered or the Underlying Fund's inability to complete its con-
tractual obligations. The creditworthiness of the local securities firms
used by the Underlying Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries, thus subjecting
the Underlying Fund to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make an Underlying Fund's investments in such countries less liq-
uid and more volatile than investments in countries with more developed
securities markets (such as the United States, Japan and most Western Euro-
pean countries). An Underlying Fund's investments in emerging countries are
subject to the risk that the liquidity of a particular investment, or
investments generally, in such countries will shrink or disappear suddenly
and without warning as a result of adverse economic, market or political
conditions, or adverse investor perceptions, whether or not accurate.
Because of the lack of sufficient market liquidity, an Underlying Fund may
incur losses because it will be required to effect sales at a disadvanta-
geous time
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<PAGE>
and only then at a substantial drop in price. Investments in emerging coun-
tries may be more difficult to price precisely because of their characteris-
tics and lower trading volumes.
An Underlying Fund's use of foreign currency management techniques in emerg-
ing countries may be limited. Due to the limited market for these instru-
ments in emerging countries, the Investment Adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging countries, if any, will be covered by such instruments.
Risks of Illiquid Securities. The Underlying Funds may invest up to 15% (10%
in the case of the Financial Square Prime Obligations Fund) of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
^Both domestic and foreign securities that are not readily marketable
^Certain municipal leases and participation interests
^Certain stripped mortgage-backed securities
^Repurchase agreements and time deposits with a notice or demand period of
more than seven days
^Certain over-the-counter options
^Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that
the restricted security is eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 ("144A Securities") and, therefore, is
liquid
Investing in 144A Securities may decrease the liquidity of an Underlying
Fund's portfolio to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities. The pur-
chase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
Risks of Non-Diversification and Concentration. The Global Income Fund is
registered as a "non-diversified" Fund under the 1940 Act and is, therefore,
more susceptible to adverse developments affecting any single issuer. In
addition, the Global Income Fund, and certain other Underlying Funds, may
invest more than 25% of their total assets in the securities of corporate
and governmental issuers located in a particular foreign country or region.
Concentration of a Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in that country or region.
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<PAGE>
APPENDIX A
Temporary Investment Risks. Each Underlying Fund (other than the CORE Funds)
may invest up to 100% of its total assets, and each CORE Fund may invest up
to 35% of its total assets, in short-term debt securities. When an Under-
lying Fund's assets are invested in such instruments, the Underlying Fund
may not be achieving its investment objective.
D. Investment Securities and Techniques
U.S. Government Securities. The Underlying Funds may invest in U.S. Govern-
ment Securities. Generally, these securities include U.S. Treasury obliga-
tions and obligations issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises. U.S. Government Securities also
include Treasury receipts and U.S. Government Securities that have been
stripped by the U.S. Government, where the interest and principal components
of the securities are traded independently. Interests in U.S. Government
Securities may be purchased in the form of custodial receipts.
Mortgage-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may invest in so-called "Mortgage-Backed Securities." These
securities represent direct or indirect participations in, or are collater-
alized by and payable from, mortgage loans secured by real property.
Mortgage-Backed Securities can be backed by either fixed rate mortgage loans
or adjustable rate mortgage loans, and may be issued by either a governmen-
tal or non-governmental entity. Privately issued Mortgage-Backed Securities
are normally structured with one or more types of "credit enhancement." How-
ever, these Mortgage-Backed Securities typically do not have the same credit
standing as U.S. government guaranteed Mortgage-Backed Securities.
Mortgage-Backed Securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs"), real estate mortgage invest-
ment conduit ("REMIC") pass-through or participation certificates and
stripped mortgage-backed securities ("SMBS"). CMOs provide an investor with
a specified interest in the cash flow from a pool of underlying mortgages or
of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In
most cases, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. A REMIC is a CMO that qualifies for special
tax treatment and invests in certain mortgages principally secured by inter-
ests in real property and other permitted investments. SMBS are derivative
multiple class Mortgage-Backed Securities. The market value of SMBS consist-
ing entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage
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<PAGE>
loans are generally higher than prevailing market yields on other Mortgage-
Backed Securities because their cash flow patterns are more volatile and
there is a greater risk that the initial investment will not be fully
recouped.
Asset-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may also invest in asset-backed securities. Certain Funds'
Asset-Backed securities are limited to securities that are issued or guaran-
teed by U.S. government agencies, instrumentalities or sponsored enter-
prises. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Accordingly, an Underlying Fund's ability to
maintain positions in such securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject
to generally prevailing interest rates at that time. Asset-backed securities
present credit risks that are not presented by Mortgage-Backed Securities.
This is because asset-backed securities generally do not have the benefit of
a security interest in collateral that is comparable in quality to mortgage
assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities. In the event of a default, an Underlying Fund may suffer a loss
if it cannot sell collateral quickly and receive the amount it is owed.
Municipal Securities. Certain Underlying Funds may make limited investments
in instruments issued by state and local governmental issuers. These securi-
ties may include private activity bonds, municipal leases, certificates of
participation and "auction rate" securities.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. The Underlying Funds may invest in corporate debt obligations, trust
preferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures and other obligations of corporations to
pay interest and repay principal, and include securities issued by banks and
other financial institutions. A trust preferred or capital security is a
long dated bond (for example, 30 years) with preferred features. The pre-
ferred features are that payment of interest can be deferred for a specified
period without initiating a default event. The securities are generally
senior in claim to standard preferred stock but junior to other bondholders.
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<PAGE>
APPENDIX A
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than nonconvertible securities of similar quali-
ty. Convertible securities in which an Underlying Fund invests are subject
to the same rating criteria as its other investments in fixed-income securi-
ties. Convertible securities have both equity and fixed-income risk charac-
teristics. Like all fixed-income securities, the value of convertible secu-
rities is susceptible to the risk of market losses attributable to changes
in interest rates. Generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price of the con-
vertible security, the convertible security tends to reflect the market
price of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security, like a fixed-income securi-
ty, tends to trade increasingly on a yield basis, and thus may not decline
in price to the same extent as the underlying common stock.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Each Underlying Fund may invest in zero coupon, deferred interest, pay-in-
kind and capital appreciation bonds. These securities are issued at a dis-
count from their face value because interest payments are typically post-
poned until maturity. Pay-in-kind securities are securities that have
interest payable by the delivery of additional securities.The market prices
of these securities generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality.
Rating Criteria. The rating requirements for each of the Underlying Fixed-
Income Funds are stated above. Except as noted below, the Underlying Equity
Funds (other than the five CORE Equity Funds, which only invest in debt
instruments that are cash equivalents) may invest in debt securities rated
at least investment grade at the time of investment. Investment grade debt
securities are securities rated BBB or higher by Standard & Poor's or Baa or
higher by Moody's. The Growth and Income, Capital Growth, Small Cap Value,
International Equity, Japanese Equity, European Equity, International Small
Cap, Emerging Markets Equity, Asia Growth and Real Estate Securities Funds
may invest up to 10%, 10%, 35%, 35%, 35%, 35%, 35%, 35%, 35% and 20%,
respectively, of their total assets in debt securities which are rated in
the lowest rating categories by Standard & Poor's or Moody's (i.e., BB or
lower by Standard & Poor's or Ba or lower by Moody's), including securities
rated D by Moody's or Standard & Poor's. The Mid Cap Value Fund may invest
up to 10% of its total assets in below investment grade debt securities
rated B or higher by Standard & Poor's or Moody's. Fixed-
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<PAGE>
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," are considered predominately spec-
ulative and may be questionable as to principal and interest payments as
described above.
Structured Securities and Inverse Floaters. The Underlying Funds may invest
in structured securities. Structured securities are securities whose value
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multi-
ple of changes in the value of the Reference. Consequently, structured secu-
rities may present a greater degree of market risk than other types of
fixed-income securities, and may be more volatile, less liquid and more dif-
ficult to price accurately than less complex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The
higher the degree of leverage of an inverse floater, the greater the vola-
tility of its market value.
Foreign Currency Transactions. The Underlying Funds may, to the extent con-
sistent with its investment policies, purchase or sell foreign currencies on
a cash basis or through forward contracts. A forward contract involves an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. A Fund may engage in foreign currency
transactions for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, certain
Underlying Funds may also enter into such transactions to seek to increase
total return, which is considered a speculative practice. Some Funds may
also engage in cross-hedging by using forward contracts in a currency dif-
ferent from that in which the hedged security is denominated or quoted if
the investment adviser determines that there is a pattern of correlation
between the two currencies. The Underlying Funds may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of its investment adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date.
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<PAGE>
APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, an Underlying Fund's value to fluc-
tuate. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or the failure
to intervene, or by currency controls or political developments in the
United States or abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive an Underlying Fund of
unrealized profits, or the benefits of a currency hedge, or could force the
Underlying Fund to cover its purchase or sale commitments, if any, at the
current market price.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Underlying Fund
(other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Large Cap
Value Funds) may write (sell) covered call and put options and purchase put
and call options on any securities in which it may invest or on any securi-
ties index comprised of securities in which it may invest. An Underlying
Fund, may also, to the extent it invests in foreign securities, purchase and
sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of an investment adviser to manage future price fluctua-
tions and the degree of correlation between the options and securities (or
currency) markets. If an investment adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in an Underlying Fund's investment portfolio, the Underlying
Fund may incur losses that it would not otherwise incur. The use of options
can also increase an Underlying Fund's transaction costs. Options written or
purchased by the Underlying Funds may be traded on either U.S. or foreign
exchanges or over-the-counter. Foreign and over-the-counter options will
present greater possibility of loss because of their greater liquidity and
credit risks.
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<PAGE>
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Underlying Funds may engage in
futures transactions on both U.S. and foreign exchanges.
The Underlying Funds may purchase and sell futures contracts, and purchase
and write call and put options on futures contracts, in order to seek to
increase total return or to hedge against changes in interest rates, securi-
ties prices or currency exchange rates, or to otherwise manage their term
structures and durations in accordance with their investment objectives and
policies. The Underlying Funds may also enter into closing purchase and sale
transactions with respect to such contracts and options. An Underlying Fund
will engage in futures and related options transactions for bona fide hedg-
ing purposes as defined in regulations of the Commodity Futures Trading Com-
mission or to seek to increase total return to the extent permitted by such
regulations. The Underlying Funds may not purchase or sell futures contracts
or purchase or sell related options to seek to increase total return, except
for closing purchase or sale transactions, if immediately thereafter the sum
of the amount of initial margin deposits and premiums paid on an Underlying
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of an Underlying Fund's net assets. Futures contracts and related
options present the following risks:
^While an Underlying Fund may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices or cur-
rency exchange rates may result in a poorer overall performance than if the
Fund had not entered into any futures contracts or options transactions.
^Because perfect correlation between a futures position and portfolio position
that is intended to be protected is impossible to achieve, the desired pro-
tection may not be obtained and an Underlying Fund may be exposed to addi-
tional risk of loss.
^The loss incurred by an Underlying Fund in entering into futures contracts
and in writing call options on futures is potentially unlimited and may
exceed the amount of the premium received.
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<PAGE>
Appendix A
^Futures markets are highly volatile and the use of futures may increase the
volatility of an Underlying Fund's NAV.
^As a result of the low margin deposits normally required in futures trading,
a relatively small price movement in a futures contract may result in sub-
stantial losses to an Underlying Fund.
^Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
^Foreign exchanges may not provide the same protection as U.S. exchanges.
Preferred Stock, Warrants and Rights. The Underlying Funds may invest in
preferred stock, warrants and rights. Preferred stocks are securities that
represent an ownership interest providing the holder with claims on the
issuer's earnings and assets before common stock owners but after bond own-
ers. Unlike debt securities, the obligations of an issuer of preferred
stock, including dividend and other payment obligations, may not typically
be accelerated by the holders of such preferred stock on the occurrence of
an event of default or other non-compliance by the issuer of the preferred
stock. Warrants and other rights are options to buy a stated number of
shares of common stock at a specified price at any time during the life of
the warrant. The holders of warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
Real Estate Investment Trusts ("REITs"). The Real Estate Securities Fund
expects to invest a substantial portion of its total assets in REITs, which
are pooled investment vehicles that invest primarily in either real estate
or real estate related loans. In addition, other Underlying Equity Funds may
invest in REITs from time to time. The value of a REIT is affected by
changes in the value of the properties owned by the REIT or securing mort-
gage loans held by the REIT. REITs are dependent upon the ability of the
REITs' managers, and are subject to heavy cash flow dependency, default by
borrowers and the qualification of the REITs under applicable regulatory
requirements for favorable federal income tax treatment. REITs are also sub-
ject to risks generally associated with investments in real estate including
possible declines in the value of real estate, general and local economic
conditions, environmental problems and changes in interest rates. To the
extent that assets underlying a REIT are concentrated geographically, by
property type or in certain other respects, these risks may be heightened.
Each Underlying Fund will indirectly bear its proportionate share of any
expenses, including management fees, paid by a REIT in which it invests.
Standard and Poor's Depository Receipts. Each Underlying Equity Fund may,
consistent with its investment policies, purchase Standard & Poor's Deposi-
tory
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<PAGE>
Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded securities that
represent ownership in the SPDR Trust, a trust which has been established to
accumulate and hold a portfolio of common stocks that is intended to track
the price performance and dividend yield of the S&P 500. The SPDR Trust is
sponsored by a subsidiary of the American Stock Exchange. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its assets
in securities included in the MSCI indices for specified countries. WEBS are
listed on the American Stock Exchange (the "AMEX"), and were initially
offered to the public in 1996. The market prices of WEBS are expected to
fluctuate in accordance with both changes in the net asset values of their
underlying indices and supply and demand of WEBS on the AMEX. To date, WEBS
have traded at relatively modest discounts and premiums to their net asset
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the AMEX necessary to maintain the list-
ing of WEBS will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting WEBS should occur in the
future, the liquidity and value of an Underlying Fund's shares could also be
substantially and adversely affected, and the Underlying Fund's ability to
provide investment results approximating the performance of securities in
the EAFE Index could be impaired. If such disruptions were to occur, an
Underlying Fund could be required to reconsider the use of WEBS as part of
its investment strategy.
Other Investment Companies. An Underlying Fund may invest in securities of
other investment companies subject to the limitations prescribed by the
Investment Company Act. These limitations include a prohibition on any Fund
acquiring more than 3% of the voting shares of any other investment company,
and a prohibition on investing more than 5% of an Underlying Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. An Underlying Fund
will indirectly bear its proportionate share of any management fees and
other expenses paid by such other investment companies. Such other invest-
ment companies will have investment objectives, policies and restrictions
substantially similar to those of the acquiring Fund and will be subject to
substantially the same risks.
Equity Swaps. Each Underlying Equity Fund may invest up to 10% of its total
assets in equity swaps. Equity swaps allow the parties to a swap agreement
to
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<PAGE>
APPENDIX A
exchange the dividend income or other components of return on an equity
investment (e.g., a group of equity securities or an index) for a component
of return on another non-equity or equity investment.
An equity swap may be used by an Underlying Fund to invest in a market with-
out owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very vola-
tile. To the extent that an investment adviser does not accurately analyze
and predict the potential relative fluctuation of the components swapped
with another party, an Underlying Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, an Underlying
Fund may suffer a loss if the counterparty defaults.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to an Underlying Fund at the time of entering into the
transaction. A forward commitment involves the entering into a contract to
purchase or sell securities for a fixed price at a future date beyond the
customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although an Underlying Fund
will generally purchase securities on a when-issued or forward commitment
basis with the intention of acquiring securities for its portfolio, an
Underlying Fund may dispose of when-issued securities or forward commitments
before settlement whenever its investment adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Underlying Fund may enter into repurchase
agreements with dealers in U.S. Government Securities and member banks of
the Federal Reserve System which furnish collateral at least equal in value
or market price to the amount of their repurchase obligation. Some Under-
lying Funds may also enter into repurchase agreements involving certain for-
eign government securities. If the other party or "seller" defaults, an
Underlying Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Under-
lying Fund in connection with the repurchase agreements are less than the
repurchase price and the cost of the Underlying Fund associated with delay
and enforcement of the repurchase agreement. In addition, in the event of
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<PAGE>
bankruptcy of the seller, an Underlying Fund could suffer additional losses
if a court determines that the Underlying Fund's interest in the collateral
is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to an
Underlying Fund's shareholders. In addition, certain Underlying Funds,
together with other registered investment companies having advisory agree-
ments with the Investment 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.
Lending of Portfolio Securities. Securities lending involves the lending of
securities owned by an Underlying Fund to financial institutions such as
certain broker-dealers. The borrowers are required to secure their loans
continuously with cash, cash equivalents, U.S. Government Securities or let-
ters of credit in an amount at least equal to the market value of the secu-
rities loaned. Cash collateral may be invested in cash equivalents. If an
investment adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
an Underlying Fund (including the loan collateral).
An Underlying Fund may lend its securities to increase its income. An Under-
lying Fund may, however, experience delay in the recovery of its securities
or possible loss if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Underlying Fund.
Short Sales Against-the-Box. Certain Underlying Funds may make short sales
against-the-box. A short sale against-the-box means that at all times when a
short position is open the Underlying Fund will own an equal amount of secu-
rities sold short, or securities convertible into or exchangeable for, with-
out the payment of any further consideration, an equal amount of the securi-
ties of the same issuer as the securities sold short.
Mortgage Dollar Rolls. The Underlying Fixed-Income Funds (except the High
Yield Fund) and the Real Estate Securities Fund may enter into "mortgage
dollar rolls." A mortgage dollar roll involves the sale by an Underlying
Fund of securities for delivery in the current month, simultaneously con-
tracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified
future date. During the roll period, the Underlying Fund loses the right to
receive principal and interest paid on the securities sold. However, the
Underlying Fund benefits to the extent of any difference between (a) the
price received for the securities sold and (b) the lower forward price for
the future purchase and/or fee income plus the interest earned on the
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<PAGE>
APPENDIX A
cash proceeds of the securities sold. Unless the benefits of a mortgage dol-
lar roll exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the roll, the use of this technique will diminish the performance of
the Underlying Fund.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
Borrowings and Reverse Repurchase Agreements. The Underlying Funds can bor-
row money from banks and enter into reverse repurchase agreements with banks
and other financial institutions in amounts not exceeding one-third of its
total assets. Reverse repurchase agreements involve the sale of securities
held by an Underlying Fund subject to the Underlying Fund's agreement to
repurchase them at a mutually agreed upon date and price (including inter-
est). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the investment adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by an
Underlying Fund decline in value while these transactions are outstanding,
the NAV of the Underlying Fund's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addi-
tion, reverse repurchase agreements involve the risk that any interest
income earned by an Underlying Fund (from the investment of the proceeds)
will be less than the interest expense of the transaction, that the market
value of the securities sold by an Underlying Fund will decline below the
price the Underlying Fund is obligated to pay to repurchase the securities,
and that the securities may not be returned to the Underlying Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. To the extent consistent with their
investment policies, the Underlying Funds may enter into interest rate
swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps,
floors and collars. Interest rate swaps involve the exchange by an Under-
lying Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest
25-NN
<PAGE>
rate swaps in that they represent commitments to pay and receive interest.
The notional principal amount, however, is tied to a reference pool or pools
of mortgages. Credit swaps involve the receipt of floating or fixed rate
payments in exchange for assuming potential credit losses of an underlying
security. Credit swaps give one party to a transaction the right to dispose
of or acquire an asset (or group of assets), or the right to receive or make
a payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates.
An Underlying Fund may enter into swap transactions for hedging purposes or
to seek to increase total return. The use of interest rate, mortgage, credit
and currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the investment adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of an Underlying Fund would be less favorable than it would have been
if these investment techniques were not used.
Miscellaneous Techniques
In addition to the techniques and investments described above, certain
Underlying Funds may engage in the following techniques and investments: (i)
yield curve options (Underlying Fixed-Income Funds and Real Estate Securi-
ties Fund only); (ii) loan participations (High Yield Fund only); and (iii)
unseasoned companies.
26-NN
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Port-
folio's financial performance for the past five years (or less if the Port-
folio has been in operation for less than five years). Certain information
reflects financial results for a single Portfolio share. The total returns
in the table represent the rate that an investor would have earned or lost
on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP,
whose report, along with a Portfolio's financial statements, is included in
the Portfolio's annual report (available upon request without charge). Dur-
ing the period shown, the Trust did not offer the Goldman Sachs Conservative
Strategy Portfolio. Accordingly, there are no financial highlights for this
Portfolio.
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Income from
investment operations(e)
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Goldman Sachs Balanced Strategy
Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.25 $0.38
1998 - Class B Shares 10.00 0.19 0.38
1998 - Class C Shares 10.00 0.19 0.39
1998 - Institutional Shares 10.00 0.30 0.39
1998 - Service Shares 10.00 0.25 0.37
- -------------------------------------------------------------------------
Goldman Sachs Growth and Income
Strategy Portfolio for the Period
Ended December 31,(b)
1998 - Class A Shares $10.00 $0.18 $0.47
1998 - Class B Shares 10.00 0.12 0.46
1998 - Class C Shares 10.00 0.12 0.46
1998 - Institutional Shares 10.00 0.20 0.49
1998 - Service Shares 10.00 0.16 0.48
- -------------------------------------------------------------------------
Goldman Sachs Growth Strategy
Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.10 $0.36
1998 - Class B Shares 10.00 0.05 0.35
1998 - Class C Shares 10.00 0.05 0.35
1998 - Institutional Shares 10.00 0.12 0.37
1998 - Service Shares 10.00 0.09 0.35
- -------------------------------------------------------------------------
Goldman Sachs Aggressive Growth
Strategy Portfolio for the Period
Ended December 31,(b)
1998 - Class A Shares $10.00 $0.05 $0.20
1998 - Class B Shares 10.00 0.01 0.18
1998 - Class C Shares 10.00 0.01 0.19
1998 - Institutional Shares 10.00 0.07 0.20
1998 - Service Shares 10.00 0.04 0.21
- -------------------------------------------------------------------------
</TABLE>
1-BB
<PAGE>
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gain value of period return(a)(d) (in 000s) net assets(c)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.25) $(0.03) $(0.04) $0.31 $10.31 6.38% $ 40,237 0.60%
(0.19) (0.03) (0.04) 0.31 10.31 5.75 33,763 1.30
(0.19) (0.03) (0.04) 0.32 10.32 5.83 24,195 1.30
(0.30) (0.03) (0.04) 0.32 10.32 6.99 205 0.24
(0.25) (0.02) (0.04) 0.31 10.31 6.30 456 0.74
- -----------------------------------------------------------------------------------------------------
$(0.18) $(0.04) $(0.05) $0.38 $10.38 6.55% $181,441 0.60%
(0.12) (0.05) (0.05) 0.36 10.36 5.82 138,914 1.30
(0.12) (0.05) (0.05) 0.36 10.36 5.80 100,711 1.30
(0.20) (0.05) (0.05) 0.39 10.39 6.96 9,030 0.23
(0.16) (0.06) (0.05) 0.37 10.37 6.43 1,354 0.73
- -----------------------------------------------------------------------------------------------------
$(0.10) $(0.02) $(0.05) $0.29 $10.29 4.62% $128,832 0.60%
(0.05) (0.02) (0.05) 0.28 10.28 3.98 109,246 1.30
(0.05) (0.02) (0.05) 0.28 10.28 3.96 63,925 1.30
(0.12) (0.03) (0.05) 0.29 10.29 4.92 2,205 0.23
(0.09) (0.01) (0.05) 0.29 10.29 4.45 378 0.73
- -----------------------------------------------------------------------------------------------------
$(0.05) $ -- $(0.04) $0.16 $10.16 2.57% $ 47,135 0.60%
(0.01) -- (0.04) 0.14 10.14 1.93 41,204 1.30
(0.01) -- (0.04) 0.15 10.15 2.04 21,726 1.30
(0.07) -- (0.04) 0.16 10.16 2.80 124 0.24
(0.04) (0.02) (0.04) 0.15 10.15 2.54 121 0.74
- -----------------------------------------------------------------------------------------------------
</TABLE>
2-BB
<PAGE>
APPENDIX B
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income expenses to income to Portfolio
to average average net average turnover
net assets(c) assets(c) net assets(c) rate(d)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goldman Sachs Balanced
Strategy Portfolio for
the Period Ended
December 31,(b)
1998 - Class A Shares 3.03% 1.46% 2.17% 50.84%
1998 - Class B Shares 2.38 2.08 1.60 50.84
1998 - Class C Shares 2.34 2.08 1.56 50.84
1998 - Institutional
Shares 3.55 1.02 2.77 50.84
1998 - Service Shares 2.90 1.52 2.12 50.84
- --------------------------------------------------------------------------------------------
Goldman Sachs Growth and
Income Strategy
Portfolio for the
Period Ended December
31,(b)
1998 - Class A Shares 2.37% 1.05% 1.92% 41.91%
1998 - Class B Shares 1.72 1.68 1.34 41.91
1998 - Class C Shares 1.68 1.68 1.30 41.91
1998 - Institutional
Shares 2.97 0.61 2.59 41.91
1998 - Service Shares 2.28 1.11 1.90 41.91
- --------------------------------------------------------------------------------------------
Goldman Sachs Growth
Strategy Portfolio for
the Period Ended
December 31,(b)
1998 - Class A Shares 1.50% 1.15% 0.95% 38.43%
1998 - Class B Shares 0.83 1.78 0.35 38.43
1998 - Class C Shares 0.79 1.78 0.31 38.43
1998 - Institutional
Shares 2.88 0.71 2.40 38.43
1998 - Service Shares 1.63 1.21 1.15 38.43
- --------------------------------------------------------------------------------------------
Goldman Sachs Aggressive
Growth Strategy
Portfolio for the
Period Ended December
31,(b)
1998 - Class A Shares 0.91% 1.42% 0.09% 26.27%
1998 - Class B Shares 0.14 2.05 (0.61) 26.27
1998 - Class C Shares 0.16 2.05 (0.59) 26.27
1998 - Institutional
Shares 8.17 0.99 7.42 26.27
1998 - Service Shares 0.76 1.49 0.01 26.27
- --------------------------------------------------------------------------------------------
</TABLE>
3-BB
<PAGE>
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales or redemption charges. Total return would be reduced
if a sales or redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
4-BB
<PAGE>
Index
1 General Investment Management Approach
2 Portfolio Performance
3 Portfolio Investment Objectives and Strategies
3 Goldman Sachs Conservative Strategy Portfolio
4 Goldman Sachs Balanced Strategy Portfolio
5 Goldman Sachs Growth And Income Strategy Portfolio
6 Goldman Sachs Growth Strategy Portfolio
7 Goldman Sachs Aggressive Growth Strategy Portfolio
Principal Investment Strategies
Principal Risks of the Portfolios
Description of the
Underlying Funds
Principal Risks of the
Underlying Funds
Portfolio Performance
Portfolio Fees and
Expenses
Service Providers
31 Dividends
32 Shareholder Guide
32 How To Buy Shares
42 How To Sell Shares
51 Taxation
A-1 Appendix A:
Additional Information on
the Underlying Funds
B-1 Appendix B:
Financial Highlights
17
<PAGE>
Goldman Sachs Asset Allocation Portfolios Prospectus (Class A, B and C Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Portfolios' investments is available in the
Portfolios' annual and semiannual reports to shareholders. In the Portfo-
lios' annual reports, you will find a discussion of the market conditions
and investment strategies that significantly affected the Portfolios' per-
formance during the last fiscal year.
Statement Of Additional Information
Additional information about the Portfolios and their policies is also
available in the Portfolios' Additional Statement. The Additional Statement
is incorporated by reference into this Prospectus (is legally considered
part of this Prospectus).
The Portfolios' annual and semiannual reports, and the Additional Statement,
are available free upon request by calling Goldman Sachs at 1-800-526-7384.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-526-7384
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Portfolios' documents are
located online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus only)
You may review and obtain copies of Portfolio documents by visiting the
SEC's Public Reference Room in Washington, D.C. You may also obtain copies
of Portfolio documents by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, D.C. 20549-6009. Information on
the operation of the public reference room may be obtained by calling the
SEC at 1-800-SEC-0330. The Portfolio's investment company registration num-
ber is 811-5349.
[LOGO]
18
<PAGE>
Prospectus Institutional
Shares
May 1, 1999
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
. Goldman Sachs
Conservative
Strategy Portfolio
. Goldman Sachs
Balanced Strategy
Portfolio
(formerly, the
Income Strategy
Portfolio)
. Goldman Sachs
Growth and
(INSERT ARTWORK) Income Strategy
Portfolio
. Goldman Sachs
Growth Strategy
Portfolio
. Goldman Sachs
Aggressive
Growth Strategy
Portfolio
[LOGO OF GOLDMAN
SACHS APPEARS
HERE]
THE TERMS "PORTFOLIOS" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
"PORTFOLIOS."
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment
Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman, Sachs
& Co. ("Goldman Sachs"), serves as investment adviser (the "Investment Advis-
er") to five asset allocation portfolios: the Conservative Strategy Portfolio,
Balanced Strategy Portfolio (formerly, the Income Strategy Portfolio), Growth
and Income Strategy Portfolio, Growth Strategy Portfolio and Aggressive Growth
Strategy Portfolio (referred to as the "Portfolios" or the "Funds" interchange-
ably herein). The Portfolios are intended for investors who prefer to have
their asset allocation decisions made by professional money managers. Each
Portfolio seeks to achieve its objectives by investing in a combination of
underlying funds for which Goldman Sachs now or in the future acts as invest-
ment adviser or principal underwriter (the "Underlying Funds"). Some of these
Funds invest primarily in fixed-income or money market securities (the "Under-
lying Fixed-Income Funds"); other Funds invest primarily in equity securities
(the "Underlying Equity Funds"). You may choose to invest in one or more of the
Portfolios based on your personal investment goals, risk tolerance, and finan-
cial circumstances.
Goldman Sachs' Asset Allocation Investment Philosophy
The Investment Adviser's Quantitative Research Group uses disciplined quantita-
tive models to determine the relative attractiveness of the world's stock, bond
and currency markets. These models use financial and economic variables to cap-
ture fundamental relationships that it believes make sense. While the Invest-
ment Adviser's process is rigorous and quantitative, it also incorporates clear
economic reasoning behind each recommendation.
Each Portfolio starts with a "base-line" or strategic allocation among the var-
ious asset classes. The Investment Adviser then tactically deviates from the
strategic allocations based on forecasts provided by the models. The tactical
process seeks to add value by overweighing attractive markets and underweighing
unattractive markets. Greater deviations from the strategic allocation of a
given Portfolio result in higher risk that the tactical allocation will
underperform the strategic allocation. However, the Investment Adviser's risk
control process balances the amount any asset class can be overweighed in seek-
ing to achieve higher expected returns
The Asset Allocation Investment Philosophy involves investing a Portfolio's
assets in other Goldman Sachs Funds within specified equity and fixed-income
percentage ranges.
- --------------------------------------------------------------------------------
1-Z
<PAGE>
against the amount of risk imposed by that deviation from the strategic
allocation. The Investment Adviser employs Goldman Sachs' proprietary Black-
Litterman asset allocation technique in an effort to optimally balance these
two goals. This technique combines the Quantitative Research Group's market
forecast with economic equilibrium in seeking to construct risk-controlled
portfolios.
2-Z
<PAGE>
Portfolio Investment Objectives and Strategies
Goldman Sachs Conservative Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks current income, consistent with the preservation of cap-
ital and secondarily also considers the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 80% of the Portfolio's total assets
will be allocated among Underlying Fixed-Income Funds, with a focus on
short-term investments including money market funds. Allocation to Under-
lying Equity Funds is intended to add diversification and enhance returns,
but will also add some volatility. The Investment Adviser expects that the
Portfolio will invest a relatively significant percentage of its assets in
the Global Income Fund, Financial Square Prime Obligations Fund and CORE
Large Cap Value Fund. It is expected that the Portfolio will invest more
than 25% of its assets in the Short Duration Government Fund. The Portfolio
may not invest in International Underlying Equity Funds.
3-Z
<PAGE>
Goldman Sachs Balanced Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks current income and long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 60% of the Portfolio's total assets
will be allocated among Underlying Fixed-Income Funds. Allocation to Under-
lying Equity Funds is intended to add diversification and enhance returns,
but will also add some volatility. The Investment Adviser expects that the
Portfolio will invest a relatively significant percentage of its equity
allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE
International Equity Funds and will invest a relatively significant percent-
age of its assets in the Global Income Fund. It is expected that the Portfo-
lio will invest more than 25% of its assets in the Short Duration Government
Fund.
4-Z
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Growth and Income Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 60% of the Portfolio's total assets
will be allocated among Underlying Equity Funds, which are intended to pro-
vide the capital appreciation component. Allocation to Underlying Fixed-
Income Funds is intended to provide the income component. The Investment
Adviser expects that the Portfolio will invest a relatively significant per-
centage of its equity allocation in the CORE Large Cap Growth, CORE Large
Cap Value and CORE International Equity Funds and will invest a relatively
significant percentage of its assets in the CORE Fixed Income and Global
Income Funds.
5-Z
<PAGE>
Goldman Sachs Growth Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation and secondarily current
income.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 80% of the Portfolio's total assets
will be allocated among Underlying Equity Funds, with a blend of domestic
large cap, small cap and international exposure to seek capital apprecia-
tion. Allocation to Underlying Fixed-Income Funds is intended to provide
diversification. The Investment Adviser expects that the Portfolio will
invest a relatively significant percentage of its equity allocation in the
CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity
Funds.
6-Z
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Aggressive Growth Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, substantially all of the Portfolio's total assets
will be allocated among Underlying Equity Funds, with a greater focus on
small cap and international investments. The Investment Adviser expects that
the Portfolio will invest a relatively significant percentage of its assets
in the CORE Large Cap Growth, CORE Large Cap Value and CORE International
Equity Funds.
7-Z
<PAGE>
Principal Investment Strategies
Each Portfolio seeks to achieve its investment objective by investing within
specified equity and fixed-income ranges among Underlying Funds. The table
below illustrates the current Underlying Equity/Fixed-Income Fund allocation
targets and ranges for each Portfolio:
Equity/Fixed-Income Range (Percentage of Each Portfolio's Total Assets)
<TABLE>
<CAPTION>
Portfolio Target Range
- -------------------------------------------
<S> <C> <C>
Conservative Strategy
Equity 20% 0%-25%
Fixed-Income 80% 75%-100%
- -------------------------------------------
Balanced Strategy
Equity 40% 20%-60%
Fixed-Income 60% 40%-80%
- -------------------------------------------
Growth and Income Strategy
Equity 60% 40%-80%
Fixed-Income 40% 20%-60%
- -------------------------------------------
Growth Strategy
Equity 80% 60%-100%
Fixed-Income 20% 0%-40%
- -------------------------------------------
Aggressive Growth Strategy
Equity 100% 75%-100%
Fixed-Income 0% 0%-25%
- -------------------------------------------
</TABLE>
The Investment Adviser will invest in particular Underlying Funds based on var-
ious criteria. Among other things, the Investment Adviser will analyze the
Underlying Funds' respective investment objectives, policies and investment
strategies in order to determine which Underlying Funds, in combination with
other Underlying Funds, are appropriate in light of a Portfolio's investment
objective.
Each Portfolio's turnover rate is expected not to exceed 50% annually. A Port-
folio may purchase or sell securities to: (a) accommodate purchases and sales
of its shares; (b) change the percentages of its assets invested in each of the
Underlying Funds in response to economic or market conditions; and (c) maintain
or modify the allocation of its assets among the Underlying Funds within the
percentage ranges described above.
8-Z
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
While each Portfolio can invest in any or all of the Underlying Funds, it is
expected that each Portfolio will normally invest in only some of the Under-
lying Funds at any particular time. Each Portfolio's investment in any of
the Underlying Funds may, and in some cases is expected to, exceed 25% of
such Portfolio's total assets.
THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE
EQUITY/FIXED INCOME TARGETS AND RANGES AND THE INVESTMENTS IN EACH UNDER-
LYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER APPROVAL.
9-Z
<PAGE>
Principal Risks of the Portfolios
Loss of money is a risk of investing in each Portfolio. An investment in a
Portfolio is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other governmental agency. While
the Portfolios offer a greater level of diversification than many other types
of mutual funds, a single Portfolio may not provide a complete investment pro-
gram for an investor. The following summarizes the types of risks from which
loss may result:
^Investing in the Underlying Funds
The investments of each Portfolio are concentrated in the Underlying Funds, and
each Portfolio's investment performance is directly related to the investment
performance of the Underlying Funds held by it. The ability of each Portfolio
to meet its investment objectives is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those
Underlying Funds by the Investment Adviser. The value of the Underlying Funds'
investments, and the net asset values ("NAV") of the shares of both the Portfo-
lios and the Underlying Funds, will fluctuate in response to various market and
economic factors related to the equity and fixed-income markets, as well as the
financial condition and prospects of issuers in which the Underlying Funds
invest. There can be no assurance that the investment objective of any Portfo-
lio or any Underlying Fund will be achieved.
^Investments of the Underlying Funds
Because the Portfolios invest in the Underlying Funds, the Portfolios' share-
holders will be affected by the investment policies of the Underlying Funds in
direct proportion to the amount of assets the Portfolios allocate to those
Funds. Each Portfolio may invest in Underlying Funds that in turn invest in
small capitalization companies and foreign issuers and thus are subject to
additional risks, including changes in foreign currency exchange rates and
political risk. Foreign investments may include securities of issuers located
in emerging countries in Asia, Latin America, Eastern Europe and Africa. Each
Portfolio may also invest in Underlying Funds that in turn invest in non-
investment grade fixed-income securities ("junk bonds"), which are considered
speculative by traditional standards. In addition, the Underlying Funds may
purchase derivative securities; enter into forward currency transactions; lend
their portfolio securities; enter into futures contracts and options transac-
tions; purchase zero coupon bonds and payment-in-kind bonds; purchase securi-
ties issued by real estate investment trusts ("REITs") and other issuers in the
real estate industry; purchase restricted and
10-Z
<PAGE>
PRINCIPAL RISKS OF THE PORTFOLIOS
illiquid securities; purchase securities on a when-issued or delayed deliv-
ery basis; enter into repurchase agreements; borrow money; and engage in
various other investment practices. The risks presented by these investment
practices are discussed in Appendix A to this Prospectus and the Additional
Statement.
^Affiliated Persons
In managing the Portfolios, the Investment Adviser will have the authority
to select and substitute Underlying Funds. The Investment Adviser is subject
to conflicts of interest in allocating Portfolio assets among the various
Underlying Funds both because the fees payable to it and/or its affiliates
by some Underlying Funds are higher than the fees payable by other Under-
lying Funds and because the Investment Adviser and its affiliates are also
responsible for managing the Underlying Funds. The Trustees and officers of
the Goldman Sachs Trust (the "Trust") may also have conflicting interests in
fulfilling their fiduciary duties to both the Portfolios and the Underlying
Funds.
^Expenses
You may invest in the Underlying Funds directly. By investing in the Under-
lying Funds indirectly through a Portfolio, you will incur not only a pro-
portionate share of the expenses of the Underlying Funds held by the Portfo-
lio (including operating costs and investment management fees), but also
expenses of the Portfolio.
^Temporary Investments
Although the Portfolios normally seek to remain substantially invested in
the Underlying Funds, each Portfolio may invest a portion of its assets in
high-quality, short-term debt obligations (including commercial paper, cer-
tificates of deposit, bankers' acceptances, repurchase agreements, debt
obligations backed by the full faith and credit of the U.S. government and
demand and time deposits of domestic and foreign banks and savings and loan
associations) to maintain liquidity, to meet shareholder redemptions and for
other short-term cash needs. Also, there may be times when, in the opinion
of the Investment Adviser, abnormal market or economic conditions warrant
that, for temporary defensive purposes, a Portfolio may invest without limi-
tation in short-term obligations.
^Other Risks
Each Portfolio is subject to other risks, such as (1) the risk that the
operations of a Portfolio and the Underlying Funds in which it invests, or
the value of their securities, will be disrupted by the "Year 2000 Problem;"
(2) the risk that a Portfolio will not be able to pay redemption proceeds
within the period stated in its prospectus because of unusual market condi-
tions, high volume of redemption requests or other reasons (Liquidity Risk)
or (3) the risk that a strategy used by the investment adviser may fail to
produce the intended results (Management Risk).
11-Z
<PAGE>
Description of the Underlying Funds
DESCRIPTION OF THE UNDERLYING FUNDS
The following is a concise description of the investment objectives and
practices for each of the Underlying Funds that are available for investment
by the Portfolios as of the date of this Prospectus. A Portfolio may also
invest in other Underlying Funds not listed below that may become available
for investment in the future at the discretion of the Investment Adviser
without shareholder approval. Additional information regarding the invest-
ment practices of the Underlying Funds is provided in Appendix A to this
Prospectus and the Additional Statement. No offer is made in this Prospectus
of any of the Underlying Funds.
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
Growth and Long-term growth At least 65% of total assets in equity securities that the investment adviser considers to
Income of capital and have favorable prospects for capital appreciation and/or dividend paying ability.
growth of
income.
-------------------------------------------------------------------------------------------------------------------------------
CORE Large Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Value of capital and foreign issuers traded in the United States. The Fund's investments are selected using both
dividend income. a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index.
-------------------------------------------------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Equity of capital and foreign issuers traded in the United States. The Fund's investments are selected using both
dividend income. a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index.
-------------------------------------------------------------------------------------------------------------------------------
CORE Large Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Growth of capital. foreign issuers traded in the United States. The Fund's investments are selected using both
Dividend a variety of quantitative techniques and fundamental research in seeking to maximize the
income is a Fund's expected return, while maintaining risk, style, capitalization and industry
secondary characteristics similar to the Russell 1000 Growth Index.
consideration.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12-Z
<PAGE>
DESCRIPTION OF THE UNDERLYING FUNDS
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
CORE Small Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Equity of capital. foreign issuers traded in the United States. The Fund's investments are selected using both
a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index.
-------------------------------------------------------------------------------------------------------------------------------
Capital Growth Long-term At least 90% of total assets in a diversified portfolio of equity securities. Long-term
capital capital appreciation potential is considered in selecting investments.
growth.
-------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Long-term At least 65% of total assets in equity securities of companies with public stock market
capital capitalizations within the range of the market capitalization of companies constituting the
appreciation. Russell Midcap Index at the time of the investment (currently between $400 million and $16
billion).
-------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Long-term At least 65% of total assets in equity securities of companies with public stock market
capital capitalizations of $1 billion or less at the time of investment.
growth.
-------------------------------------------------------------------------------------------------------------------------------
Real Estate Total return Substantially all, and at least 80%, of total assets in a diversified portfolio of equity
Securities comprised securities of issuers that are primarily engaged in or related to the real estate industry.
of long-term The Fund expects that a substantial portion of its total assets will be invested in REITS.
growth of
capital and
dividend income.
-------------------------------------------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity securities of companies organized outside the United
International of capital. States or whose securities are principally traded outside the United States. The Fund's
Equity investments are selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the unhedged Morgan Stanley Capital
International (MSCI) Europe, Australia and Far East Index (the "EAFE Index"). The Fund may
employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13-Z
<PAGE>
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
International Long-term Substantially all, and at least 65%, of total assets in equity securities of companies
Equity capital organized outside the United States or whose securities are principally traded outside the
appreciation. United States. The Fund may employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
European Equity Long-term Substantially all, and at least 65%, of total assets in equity securities of European
capital companies. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
Japanese Equity Long-term Substantially all, and at least 65%, of total assets in equity securities of Japanese
capital companies. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
International Long-term Substantially all, and at least 65%, of total assets in equity securities of companies with
Small Cap capital public stock market capitalizations of $1 billion or less at the time of investment that
appreciation. are organized outside the United States or whose securities are principally traded outside
the United States. The Fund may employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
Emerging Long-term Substantially all, and at least 65%, of total assets in equity securities of emerging
Markets Equity capital country issuers. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
Asia Growth Long-term Substantially all, and at least 65%, of total assets in equity securities of companies in
capital China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South
appreciation. Korea, Sri Lanka, Taiwan and Thailand. The Fund may employ certain currency management
techniques.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14-Z
<PAGE>
DESCRIPTION OF THE UNDERLYING FUNDS
<TABLE>
<CAPTION>
Approximate
Investment Duration or Interest Rate
Fund Objectives Maturity Sensitivity
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Square Prime Maximize Maximum Maturity of 3-month
Obligations current income Individual treasury bill
to the extent Investments = 13
consistent months at time of
with the purchase. Maximum
maintenance of Dollar-Weighted
liquidity. Average Portfolio
Maturity = 90 days
-----------------------------------------------------------------------------
Adjustable Rate Government A high level Target Duration = 9-month U.S.
of current 6-month to 1-year Treasury bill
income, U.S. Treasury
consistent Securities Maximum
with low Duration*= 2 years
volatility of
principal.
-----------------------------------------------------------------------------
Short Duration Government A high level Target Duration = 2 2-year U.S.
of current year U.S. Treasury Treasury note
income and Security plus or
secondarily, minus .5 years
in seeking Maximum Duration*=
current 3 years
income, may
also consider
the potential
for capital
appreciation.
-----------------------------------------------------------------------------
Government Income A high level Target Duration = 5-year U.S.
of current Lehman Brothers Treasury note
income, Mutual Fund
consistent Government/Mortgage
with safety of Index plus or minus
principal. 1 year Maximum
Duration*= 6 years
-----------------------------------------------------------------------------
Core Fixed Income Total return Target Duration = 5-year U.S.
consisting of Lehman Brothers Treasury note
capital Aggregate Bond
appreciation Index plus or minus
and income 1 year Maximum
that exceeds Duration*= 6 years
the total
return of the
Lehman
Brothers
Aggregate Bond
Index.
-----------------------------------------------------------------------------
Global Income A high total Target Duration = 6-year
return, J.P. Morgan Global government
emphasizing Government Bond bond
current Index (hedged) plus
income, and, or minus 2.5 years
to a lesser Maximum Duration*=
extent, 7.5 years
providing
opportunities
for capital
appreciation.
-----------------------------------------------------------------------------
High Yield A high level Target Duration = 6-year bond
of current Lehman Brothers
income and High Yield Bond
capital Index plus or minus
appreciation. 2.5 years Maximum
Duration* = 7.5
years
-----------------------------------------------------------------------------
</TABLE>
* Under normal interest rate conditions.
15-Z
<PAGE>
<TABLE>
<CAPTION>
Credit
Investment Sector Quality Other Investments
----------------------------------------------------------------------------------------
<S> <C> <C>
Money market High Quality N/A
instruments (short-term
including securities ratings of
issued or guaranteed A-1, P-1 or
by the U.S. comparable
government, its quality).
agencies,
instrumentalities or
sponsored
enterprises ("U.S.
Government
Securities"); U.S.
bank obligations,
commercial paper and
other short-term
obligations of U.S.
corporations,
governmental and
other entities;
asset-backed and
receivables-backed
securities; and
related repurchase
agreements.
----------------------------------------------------------------------------------------
At least 65% of U.S. Fixed-rate mortgage
total assets in U.S. Government pass-through
Government Securities securities and
Securities that are repurchase
adjustable rate agreements
mortgage pass- collateralized by
through securities U.S. Government
and other mortgage Securities.
securities with
periodic interest
rate resets.
----------------------------------------------------------------------------------------
At least 65% of U.S. Mortgage pass-
total assets in U.S. Government through securities
Government Securities and other
Securities and securities
repurchase representing an
agreements interest in or
collateralized by collateralized by
such securities. mortgage loans.
----------------------------------------------------------------------------------------
At least 65% of U.S. Non-government
assets in U.S. Government mortgage pass-
Government Securities through securities,
Securities, and non-U.S. asset-backed
including mortgage- Government securities and
backed U.S. Securities = corporate fixed-
Government AAA/Aaa income securities.
Securities and
repurchase
agreements
collateralized by
such securities.
----------------------------------------------------------------------------------------
At least 65% of Minimum = Foreign fixed-
assets in fixed- BBB/Baa income, municipal
income securities, Minimum for and convertible
including U.S. non-dollar securities, foreign
Government securities = currencies and
Securities, AA/Aa repurchase
corporate, mortgage- agreements
backed and asset- collateralized by
backed securities. U.S. Government
Securities.
----------------------------------------------------------------------------------------
Securities of U.S. Minimum = Mortgage and asset-
and foreign BBB/Baa At backed securities,
governments and least 50% = foreign currencies
corporations. AAA/Aaa and repurchase
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government
securities.
----------------------------------------------------------------------------------------
Except for temporary At least 65% Mortgage-backed and
defensive purposes, = BB/Ba or asset-backed
at least 65% of below securities, U.S.
assets in fixed- Government
income securities Securities,
rated below investment grade
investment grade, corporate fixed-
including U.S. and income securities,
non-U.S. dollar structured
corporate debt, securities, foreign
foreign government currencies and
securities, repurchase
convertible agreements
securities and collateralized by
preferred stock. U.S. Government
Securities.
----------------------------------------------------------------------------------------
</TABLE>
16-Z
<PAGE>
Principal Risks of the Underlying Funds
The following summarizes important risks that apply to the Underlying Funds and
may result in a loss of your investment in a Portfolio. There can be no assur-
ance that an Underlying Fund will achieve its investment objective.
Risks That Apply To All Underlying Funds:
^Market Risk--The risk that the value of the securities in which an Under-
lying Fund invests may go up or down in response to the prospects of indi-
vidual companies and/or general economic conditions. Price changes may be
temporary or last for extended periods.
^Derivatives Risk--The risk that loss may result from an Underlying Fund's
investments in options, futures, swaps, structured securities and other
derivative instruments, which may be leveraged.
^Management Risk--The risk that a strategy used by an investment adviser to
the Underlying Funds may fail to produce the intended results.
^Liquidity Risk--The risk that an Underlying Fund will not be able to pay
redemption proceeds within the time period stated in this Prospectus,
because of unusual market conditions, an unusually high volume of redemp-
tion requests, or other reasons. Funds that invest in small capitalization
stocks, REITs and emerging country issuers will be especially subject to
the risk that during certain periods the liquidity of particular issuers or
industries, or all securities within these investment categories, will
shrink or disappear suddenly and without warning as a result of adverse
economic, market or political events, or adverse investor perceptions,
whether or not accurate.
^Other Risks--Each Underlying Fund is subject to other risks, such as the
risk that its operations, or the value of its portfolio securities, will be
disrupted by the "Year 2000 Problem."
Risks That Apply Primarily To The Underlying Fixed-Income Funds:
^Interest Rate Risk--The risk that when interest rates increase, fixed-
income securities held by an Underlying Fund will decline in value. Long-
term fixed-income securities will normally have more price volatility
because of this risk than short-term securities.
^Credit/Default Risk--The risk that an issuer of fixed-income securities
held by an Underlying Fund (which may have low credit ratings) may default
on its obligation to pay interest and repay principal.
^Call Risk--The risk that an issuer will exercise its right to pay principal
on an obligation held by an Underlying Fund (such as a mortgage-backed secu-
17-Z
<PAGE>
rity) earlier than expected. This may happen when there is a decline in
interest rates. Under these circumstances, an Underlying Fund may be unable
to recoup all of its initial investment and will also suffer from having to
reinvest in lower yielding securities.
^Extension Risk--The risk that an issuer will exercise its right to pay
principal on an obligation held by an Underlying Fund (such as a mortgage-
backed security) later than expected. This may happen when there is a rise
in interest rates. Under these circumstances, the value of an obligation
will decrease, and an Underlying Fund will also suffer from the inability
to invest in higher yielding securities.
^Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risk That Applies Primarily To The Underlying Equity Funds:
^Stock Risk--The risk that stock prices have historically risen and fallen
in periodic cycles. As of the date of this Prospectus, U.S. stock markets
and certain foreign stock markets were trading at or close to record high
levels. There is no guarantee that such levels will continue.
Risks That Are Particularly Important For Specific Underlying Funds:
^Concentration Risk--The European Equity Fund invests primarily in equity
securities of European companies. The Japanese Equity Fund invests primar-
ily in equity securities of Japanese companies. The Global Income Fund may
invest more than 25% of its total assets in the securities of corporate and
governmental issuers located in each of Canada, Germany, Japan, and the
United Kingdom as well as in the securities of U.S. issuers. Concentration
of the investments of these or other Underlying Funds in issuers located in
a particular country or region will subject the Underlying Fund, to a
greater extent than if investments were not so concentrated, to the risks
of adverse securities markets, exchange rates and social, political, regu-
latory or economic events which may occur in that country or region.
^Foreign Risks--Underlying Funds that invest in foreign securities will be
subject to risks with respect to their foreign investments that are not
typically associated with domestic issuers. These risks result from less
government regulation, less public information and less economic, political
and social stability. These risks may involve the imposition of exchange
controls, confiscation and other government restrictions. The Underlying
Funds will also be subject to the risk of negative foreign currency rate
fluctuations. Foreign risks will normally be greatest when an Underlying
Fund invests in issuers located in emerging countries.
18-Z
<PAGE>
PRINCIPAL RISKS OF THE UNDERLYING FUNDS
^Emerging Markets Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capi-
talizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting require-
ments as the securities markets of more developed countries. Further,
investment in equity securities of issuers located in Russia and certain
other emerging countries involves risk of loss resulting from problems in
share registration and custody and substantial economic and political dis-
ruptions. These risks are not normally associated with investments in more
developed countries.
^"Junk Bond" Risk--The High Yield Fund will invest in non-investment grade
fixed-income securities (commonly known as "junk bonds") that are consid-
ered predominantly speculative by traditional investment standards. Non-
investment grade fixed-income securities and unrated securities of compara-
ble credit quality are subject to the increased risk of an issuer's
inability to meet principal and interest payment obligations. These securi-
ties may be subject to greater price volatility due to such factors as spe-
cific corporate developments, interest rate sensitivity, negative percep-
tions of the junk bond markets generally and less secondary market
liquidity.
^Small Cap Stock and REIT Risks--The securities of small capitalization com-
panies and REITs involve greater risks than those associated with larger,
more established companies, and the securities may be subject to more
abrupt or erratic price movements. Securities of such issuers may lack suf-
ficient market liquidity to enable an Underlying Fund to effect sales at an
advantageous time or without a substantial drop in price.
More information about the portfolio securities and investment techniques of
the Underlying Funds, and their associated risks, is provided in Appendix A.
You should consider the investment risks discussed in this section and in
Appendix A. Both are important to your investment choice.
19-Z
<PAGE>
Portfolio Performance
HOW THE PORTFOLIOS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Portfolio by showing: (a) changes in the performance of a
Portfolio's Institutional Shares from year to year; and (b) how the average
annual returns of a Portfolio's Institutional Shares compare to those of a
broad-based securities market index. The bar charts and tables assume rein-
vestment of dividends and distributions. A Portfolio's past performance is
not necessarily an indication of how the Portfolio will perform in the
future. Performance reflects expense limitations in effect. If expense limi-
tations were not in place, a Portfolio's performance would have been
reduced. The Conservative Strategy Portfolio did not commence until February
8, 1999. Since the Portfolio has less than one calendar year's performance,
no performance information is provided in this section.
2
<PAGE>
PORTFOLIO PERFORMANCE
Balanced Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 1/2/98)
S&P 500 Index* % %
Two-Year U.S. Treasury Security** % %
Lehman Brothers High Yield Bond Index*** % %
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The Two-Year U.S. Treasury security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
*** The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not reflect any fees or expenses.
3
<PAGE>
Growth and Income Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
---------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 1/2/98)
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Lehman Brothers Aggregate Bond Index*** % %
Lehman Brothers High Yield Bond Index+ % %
---------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of securi-
ties in twenty developed markets. The Index does not reflect any fees or
expenses.
*** The Lehman Brothers Aggregate Bond Index represents a diversified portfolio
of fixed-income securities, including U.S. Treasuries, investment-grade
corporate bonds, and mortgage-back and asset-backed securities. The Index
figures do not reflect any fees or expenses.
+ The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of Ba1,
a minimum amount outstanding of $100 million and at least one year to maturi-
ty. The Index is unmanaged and does not reflect any fees or expenses.
4
<PAGE>
PORTFOLIO PERFORMANCE
Growth Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 1/2/98)
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of securi-
ties in twenty developed markets. The Index does not reflect any fees or
expenses.
*** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
+ The unmanaged Morgan Stanley Capital International Emerging Markets Free
(EMF) Index is a market capitalization weighted composite of securities in
over thirty emerging market countries. "Free" indicates an index that
excludes shares in otherwise free markets that are not purchasable by for-
eigners. The Index figures do not reflect any fees or expenses.
5
<PAGE>
PORTFOLIO PERFORMANCE
Aggressive Growth Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 1/2/98)
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of securi-
ties in twenty developed markets. The Index does not reflect any fees or
expenses.
*** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
+ The unmanaged Morgan Stanley Capital International Emerging Markets Free
(EMF) Index is a market capitalization weighted composite of securities in
over thirty emerging market countries. "Free" indicates an index that
excludes shares in otherwise free markets that are not purchasable by for-
eigners. The Index figures do not reflect any fees or expenses.
6
<PAGE>
(This page intentionally left blank)
<PAGE>
Portfolio Fees and Expenses (Institutional Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Institutional Shares of a Portfolio.
<TABLE>
<CAPTION>
Conservative Balanced
Strategy Strategy
Portfolio Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None
Redemption Fees None None
Exchange Fees None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/1/
Management Fees (for asset allocation)/2/ 0.35% 0.35%
Other Expenses/3/ 0.29% 0.47%
Underlying Fund Expenses/1/ 0.55% 0.69%
- ------------------------------------------------------------------------------
Total Other Expenses 0.84% 0.84%
- ------------------------------------------------------------------------------
Total Portfolio Operating Expenses* 1.19% 1.51%
- ------------------------------------------------------------------------------
</TABLE>
See page 10 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Conservative Balanced
Strategy Strategy
Portfolio Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/1/
Management Fees (for asset allocation)/2/ 0.15% 0.15%
Other Expenses/3/ 0.04% 0.04%
Underlying Fund Expenses/1/ 0.55% 0.69%
- ------------------------------------------------------------------------------
Total Other Expenses 0.59% 0.73%
- ------------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 0.74% 0.88%
- ------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Portfolio Fees and Expenses continued
<TABLE>
<CAPTION>
Growth and Aggressive
Income Growth Growth
Strategy Strategy Strategy
Portfolio Portfolio Portfolio
- ------------------------------------------------
<S> <C> <C>
None None None
None None None
None None None
None None None
None None None
0.35% 0.35% 0.35%
0.20% 0.23% 0.41%
0.79% 0.84% 0.90%
- ------------------------------------------------
0.99% 1.07% 1.31%
- ------------------------------------------------
1.34% 1.42% 1.66%
- ------------------------------------------------
<CAPTION>
Growth and Aggressive
Income Growth Growth
Strategy Strategy Strategy
Portfolio Portfolio Portfolio
- ----------------------------------------
<S> <C> <C>
0.15% 0.15% 0.15%
0.04% 0.04% 0.04%
0.79% 0.84% 0.90%
- ----------------------------------------
0.83% 0.88% 0.94%
- ----------------------------------------
0.98% 1.03% 1.09%
- ----------------------------------------
</TABLE>
9
<PAGE>
PORTFOLIO FEES AND EXPENSES
/1/The Portfolios' annual operating expenses have been restated to reflect cur-
rent fees, except for the Conservative Strategy Portfolio, whose expenses are
estimated for the current fiscal year. "Underlying Fund Expenses" for each
Portfolio are based upon the strategic allocation of each Portfolio's invest-
ment in the Underlying Funds and upon the actual total operating expenses of
the Underlying Funds. Actual Underlying Fund expenses incurred by each Portfo-
lio may vary with changes in the allocation of each Portfolio's assets among
the Underlying Funds and with other events that directly affect the expenses of
the Underlying Funds.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Portfolios equal to 0.20%. As a result of fee waivers,
current management fees of the Portfolios are 0.15% of each Portfolio's average
daily net assets. The waiver may be terminated at any time at the option of the
Investment Adviser.
/3/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Portfolio's Institutional Shares plus all other ordi-
nary expenses not detailed above. The Investment Adviser has voluntarily agreed
to reduce or limit "Other Expenses" (excluding management fees, transfer agency
fees, taxes, interest and brokerage fees and litigation, indemnification and
other extraordinary expenses) to 0.00% of each Portfolio's average daily net
assets.
10
<PAGE>
PORTFOLIO FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Portfolio (without the waivers and expense limitations) with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
Institutional Shares of a Portfolio for the time periods indicated and then
redeem all of your shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that a Portfolio's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Conservative Strategy $121 $378 $654 $1,443
- -----------------------------------------------------------
Balanced Strategy $ 84 $262 $455 $1,014
- -----------------------------------------------------------
Growth and Income Strategy $ 56 $176 $307 $ 689
- -----------------------------------------------------------
Growth Strategy $ 59 $186 $324 $ 726
- -----------------------------------------------------------
Aggressive Growth Strategy $ 78 $243 $922 $ 942
- -----------------------------------------------------------
</TABLE>
Institutions that invest in Institutional Shares on behalf of their customers
may charge other fees directly to their customer accounts in connection with
their investments. You should contact your institution for information regard-
ing such charges. Such fees, if any, may affect the return customers realize
with respect to their investments.
Certain institutions that invest in Institutional Shares on behalf of their
customers may receive other compensation in connection with the sale and dis-
tribution of Institutional Shares or for services to their accounts and/or the
Portfolios. For additional information regarding such compensation, see "Share-
holder Guide" in the Prospectus and "Other Information" in the Statement of
Additional Information ("Additional Statement").
11
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Portfolio
----------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Conservative Strategy
One New York Plaza Balanced Strategy
New York, New York 10004 Growth and Income Strategy
Growth Strategy
Aggressive Growth Strategy
----------------------------------------------------------------------------
Except as noted below, GSAM also serves as investment adviser to each Under-
lying Fund.
<CAPTION>
Investment Adviser Underlying Fund
----------------------------------------------------------------------------
<S> <C>
Goldman Sachs Funds Management, L.P. ("GSFM") CORE U.S. Equity
One New York Plaza Capital Growth
New York, New York 10004 CORE Large Cap Value
Adjustable Rate Government
Short Duration Government
----------------------------------------------------------------------------
Goldman Sachs Asset Management International Equity
International ("GSAMI") Japanese Equity
133 Peterborough Court European Equity
London EC4A 2BB International Small Cap
England Emerging Markets Equity
Asia Growth
Global Income
----------------------------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. GSAMI, a member of the Investment Management Regulatory Organization
Limited since 1990 and a registered investment adviser since 1991, is an
affiliate of Goldman Sachs. As of December 31, 1998, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $195 billion.
Under an Asset Allocation Management Agreement ("Management Agreement") with
each Portfolio, the Investment Adviser, subject to the general supervision
of the Trustees, provides day-to-day advice as to each Portfolio's
1-AA
<PAGE>
investment transactions, including determinations concerning changes to (a)
the Underlying Funds in which the Portfolios may invest and (b) the percent-
age range of assets of any Portfolio that may be invested in the Underlying
Equity Funds and the Underlying Fixed-Income Funds as separate groups.
Goldman Sachs has agreed to permit the Portfolios to use the name "Goldman
Sachs" or a derivative thereof as part of each Portfolio's name for as long
as a Portfolio's Management Agreement is in effect.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and cler-
ical services to the Funds
..Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information and other
reports filed with the Securities and Exchange Commission (the "SEC") and
other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Portfolio Contractual Rate December 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
Conservative Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Balanced Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Growth and Income Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Growth Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Aggressive Growth Strategy 0.35% 0.15%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
2-AA
<PAGE>
SERVICE PROVIDERS
In addition, each Portfolio, as a shareholder in the Underlying Funds, will
indirectly bear a proportionate share of any investment management fees and
other expenses paid by the Underlying Funds. The following chart shows the cur-
rent total operating expense ratios (management fee plus other operating
expenses) of Institutional Shares of each Underlying Fund in which the Portfo-
lios may invest. In addition, the following chart shows the contractual invest-
ment management fees payable to the Investment Adviser by the Underlying Funds
(in each case as an annualized percentage of a Fund's average net assets).
Absent voluntary fee waivers and/or expense reimbursements, which may be dis-
continued at any time, the total operating expense ratios of certain Underlying
Funds would be higher.
<TABLE>
<CAPTION>
Total
Contractual Operating
Management Expense
Underlying Funds Fee Ratio
- ---------------------------------------------------------------------------
<S> <C> <C>
Financial Square Prime Obligations Money Market Fund 0.205% 0.18%
- ---------------------------------------------------------------------------
Short Duration Government Fund 0.50% 0.54%
- ---------------------------------------------------------------------------
Adjustable Rate Government Fund 0.40% 0.49%
- ---------------------------------------------------------------------------
Core Fixed Income Fund 0.40% 0.54%
- ---------------------------------------------------------------------------
Government Income Fund 0.90% 0.58%
- ---------------------------------------------------------------------------
Global Income Fund 0.70% 0.69%
- ---------------------------------------------------------------------------
High Yield Fund 0.80% 0.76%
- ---------------------------------------------------------------------------
Growth and Income Fund 0.70% 0.79%
- ---------------------------------------------------------------------------
CORE U.S. Equity Fund 0.75% 0.74%
- ---------------------------------------------------------------------------
CORE Large Cap Growth Fund 0.75% 0.64%
- ---------------------------------------------------------------------------
CORE Large Cap Value Fund 0.60% 0.64%
- ---------------------------------------------------------------------------
CORE Small Cap Equity Fund 0.85% 0.93%
- ---------------------------------------------------------------------------
Capital Growth Fund 1.00% 1.04%
- ---------------------------------------------------------------------------
CORE International Equity Fund 0.85% 1.01%
- ---------------------------------------------------------------------------
Mid Cap Value Fund 0.75% 0.89%
- ---------------------------------------------------------------------------
Small Cap Value Fund 1.00% 1.10%
- ---------------------------------------------------------------------------
International Equity Fund 1.00% 1.14%
- ---------------------------------------------------------------------------
Japanese Equity Fund 1.00% 1.05%
- ---------------------------------------------------------------------------
European Equity Fund 1.00% 1.39%
- ---------------------------------------------------------------------------
International Small Cap Fund 1.20% 1.40%
- ---------------------------------------------------------------------------
Emerging Markets Equity Fund 1.20% 1.39%
- ---------------------------------------------------------------------------
Asia Growth Fund 1.00% 1.20%
- ---------------------------------------------------------------------------
Real Estate Securities Fund 1.00% 1.04%
- ---------------------------------------------------------------------------
</TABLE>
3-AA
<PAGE>
PORTFOLIO MANAGERS
Quantitative Research Team
..The 20-person Quantitative Research Team includes six Ph.Ds and one CFA,
with extensive academic and practitioner experience
..Disciplined, quantitative models are used to determine the relative attrac-
tiveness of the world's stock, bond and currency markets
..Theory and economic intuition guide the investment process
<TABLE>
<CAPTION>
Years Primarily
Name and Title Responsible Five Year Employment History
- --------------------------------------------------------------------------------
<C> <C> <S>
Mark M. Carhart, Since Mr. Carhart joined the Investment
Ph.D., CFA Vice 1998 Adviser as a member of the Quantitative
Chairman, Co-Head Research and Risk Management Team in
Quantitative Research 1997. From August 1995 to September
and Senior Portfolio 1997, he was Assistant Professor of
Manager Finance at the Marshall School of
Business at USC and a Senior Fellow of
the Wharton Financial Institutions
Center. From 1993 to 1995, he was a
lecturer and graduate student at the
University of Chicago Graduate School of
Business.
- --------------------------------------------------------------------------------
Raymond J. Iwanowski Since Mr. Iwanowski joined the Investment
Vice President, Co- 1998 Adviser as an associate and portfolio
Head Quantitative manager in 1997. From 1993 to 1997, he
Research and Senior was a Vice President and head of the
Portfolio Manager Fixed Derivatives Client Research group
at Salomon Brothers.
- --------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since Mr. Chriss joined the Investment Adviser
Vice President and 1998 in 1998. From 1996 to 1998, he worked in
Portfolio Manager the equity division of Morgan Stanley
Dean Witter. From 1994 to 1996, he was a
post-doctoral fellow in the Mathematics
Department of Harvard University.
- --------------------------------------------------------------------------------
Giorgio DeSantis, Since Mr. DeSantis joined the Investment
Ph.D. Vice President 1998 Adviser in 1998. From 1992 to 1998, he
and Portfolio Manager was Assistant Professor of Finance and
Business Economics at the Marshall
School of Business at USC.
- --------------------------------------------------------------------------------
William J. Fallon, Since Mr. Fallon joined the Investment Adviser
Ph.D. Vice President 1998 in 1998. From 1996 to 1998, he worked in
and Portfolio Manager the Firmwide Risk Group of Goldman
Sachs. From 1991 to 1996, he attended
Columbia University, where he earned a
Ph.D. in Finance.
- --------------------------------------------------------------------------------
Guang-Liang He, PhD. Since Mr. He joined the Investment Adviser in
Vice President and 1998 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman Sachs. From 1992
to 1997, he worked at Quantitative
Financial Strategies, Inc.
- --------------------------------------------------------------------------------
</TABLE>
4-AA
<PAGE>
SERVICE PROVIDERS
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois, 60606, also serves as Funds'
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Underlying Funds or Portfolios. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its
own amount.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to an Underlying Fund or limit an Underlying Fund's investment activities.
Goldman Sachs and its affiliates engage in proprietary trading and advise
accounts and funds which have investment objectives similar to those of the
Underlying Funds and/or which engage in and compete for transactions in the
same types of securities, currencies and instruments as the Underlying
Funds. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strate-
gies, or the activities or strategies used for other accounts managed by
them, for the benefit of the management of the Underlying Funds. The results
of an Underlying Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that an Under-
lying Fund could sustain losses during periods in which Goldman Sachs and
its affiliates and other accounts achieve significant profits on their trad-
ing for proprietary or other accounts. In addition, the Underlying Funds
may, from time to time, enter into transactions in which other clients of
Goldman Sachs have an adverse interest. An Underlying Fund's activities may
be limited because of regulatory restrictions applicable to Goldman Sachs
and its affiliates, and/or their internal policies designed to comply with
such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather
5-AA
<PAGE>
than the year "2000," leading to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct for-
ward-looking calculations, these computer problems may occur prior to Janu-
ary 1, 2000. Like other investment companies and financial and business
organizations, the Portfolios and the Underlying Funds could be adversely
affected in their ability to process securities trades, price securities,
provide shareholder account services and otherwise conduct normal business
operations if the Investment Adviser or other service providers do not ade-
quately address this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Portfolios' other
service providers that they are taking the steps necessary so that they do
not experience Year 2000 Problems, and the Investment Adviser will continue
to monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Portfolios at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Portfolios. The Investment
Adviser may obtain such Year 2000 information from various sources which the
Investment Adviser believes to be reliable, including the issuers' public
regulatory filings. However, the Investment Adviser is not in a position to
verify the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Portfolios' other service providers will be
sufficient to avoid any adverse effect on the Portfolios due to the Year
2000 Problem.
6-AA
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions from
net realized capital gains. You may choose to have dividends and distributions
paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for exchanges in certain ILA Portfolios. See
the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from net capital gains
are declared and paid as follows:
<TABLE>
<CAPTION>
Investment Capital Gains
Portfolio Income Dividends Distributions
- ----------------------------------------------------------
<S> <C> <C>
Conservative Strategy Monthly Annually
- ----------------------------------------------------------
Balanced Strategy Monthly Annually
- ----------------------------------------------------------
Growth and Income Strategy Quarterly Annually
- ----------------------------------------------------------
Aggressive Growth Strategy Quarterly Annually
- ----------------------------------------------------------
Growth Strategy Annually Annually
- ----------------------------------------------------------
</TABLE>
From time to time a portion of a Portfolio's dividends may constitute a return
of capital.
At the time of an investor's purchase of shares of a Portfolio, a portion of
the net asset value ("NAV") per share may be represented by undistributed
income or realized or unrealized appreciation of the Portfolio's portfolio
securities. Therefore, subsequent distributions on such shares from such income
or realized appreciation may be taxable to the investor even if the NAV of the
shares is, as a result of the distributions, reduced below the cost of such
shares and the distributions (or portions thereof) represent a return of a por-
tion of the purchase price.
7-AA
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Institutional
Shares.
HOW TO BUY SHARES
How Can I Purchase Institutional Shares Of The Funds?
You may purchase Institutional Shares on any business day at their NAV next
determined after receipt of an order. No sales load is charged. You should
place an order with Goldman Sachs at 1-800-621-2550 and either:
.. Wire federal funds to State Street Bank and Trust Company ("State Street")
(each Fund's custodian) on the next business day; or
.. Initiate an Automated Clearing House Network ("ACH") transfer; or
.. Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. Goldman Sachs Trust (the "Trust") will not accept a check drawn
on a foreign bank or a third-party check.
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
Purchases of Institutional Shares must be settled within three business days
of receipt of a complete purchase order.
How Do I Purchase Shares Through a Financial Institution?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of the Trust, pur-
chase, redemption and exchange orders placed by or on behalf of their cus-
tomers, and may designate other intermediaries to accept such orders, if
approved by the Trust. In these cases:
.. A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
.. Authorized institutions and intermediaries will be responsible for trans-
mitting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your institution or intermediary to learn whether it is
authorized to accept orders for the Trust.
1-G
<PAGE>
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Fund's Institutional
Shares. These payments may be in addition to other payments borne by the
Funds.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to certain institutions and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs Funds. Subject to applicable NASD regulations,
the Investment Adviser, Distributor and/or their affiliates may also con-
tribute to various cash and non-cash incentive arrangements to promote the
sale of shares. This additional compensation can vary among such institu-
tions depending upon such factors as the amounts their customers have
invested (or may invest) in particular Goldman Sachs Funds, the particular
program involved, or the amount of reimbursable expenses. Additional compen-
sation based on sales may, but is currently not expected to, exceed 0.50%
(annualized) of the amount invested.
In addition to Institutional Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Institutional
Shares. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
back cover of this Prospectus.
2-G
<PAGE>
SHAREHOLDER GUIDE
What is My Minimum Investment in the Funds?
<TABLE>
<CAPTION>
Type of Investor Minimum Investment
-------------------------------------------------------------------------------
<S> <C>
. Banks, trust companies or $1,000,000 in Institutional Shares of a Fund
other depository institutions alone or in combination with other assets
investing for their own under the management of GSAM and its affiliates
account or on behalf of
clients
. Pension and profit sharing
plans, pension funds and
other company-sponsored
benefit plans
. State, county, city or any
instrumentality, department,
authority or agency thereof
. Corporations with at least
$100 million in assets or in
outstanding publicly traded
securities
. "Wrap" account sponsors
(provided they have an
agreement covering the
arrangement with GSAM)
. Registered investment
advisers investing for
accounts for which they
receive asset-based fees
-------------------------------------------------------------------------------
. Individual investors $10,000,000
. Qualified non-profit
organizations, charitable
trusts, foundations and
endowments
. Accounts over which GSAM or
its advisory affiliates have
investment discretion
-------------------------------------------------------------------------------
</TABLE>
The minimum investment requirement may be waived for current and former
officers, partners, directors or employees of Goldman Sachs or any of its
affiliates or for other investors at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
.. Modify or waive the minimum investment amounts.
.. Reject or restrict any purchase or exchange orders by a particular pur-chaser
(or group of related purchasers). This may occur, for example, when a pattern
of frequent purchases, sales or exchanges of Institutional Shares of a Fund
is evident, or if purchases, sales or exchanges are, or a subse-quent abrupt
redemption might be, of a size that would disrupt the manage-ment of a Fund.
3-G
<PAGE>
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Institutional
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = -----------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Trustees.
.. NAV per share of each class is calculated by State Street each business day
as of the close of regular trading on the New York Stock Exchange (normally
4:00 p.m. New York time). Fund shares will not be priced on any day the New
York Stock Exchange is closed.
.. When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
.. When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of the nature and materiality of the
event, its effect on Fund operations and other relevant factors.
4-G
<PAGE>
SHAREHOLDER GUIDE
HOW TO SELL SHARES
How Can I Sell Institutional Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its Institu-
tional Shares upon request on any business day at their NAV next determined
after receipt of such request in proper form. You may request that redemp-
tion proceeds be sent to you by check or by wire (if the wire instructions
are on record). Redemptions may be requested in writing or by telephone.
<TABLE>
<CAPTION>
Instructions For Redemptions:
------------------------------------------------------------------------
<S> <C> <C>
By Writing: . Write a letter of instruction that includes:
. Your name(s) and signature(s)
. Your account number
. The Fund name and Class of Shares
. The dollar amount you want to sell
. How and where to send the proceeds
. Obtain a signature guarantee
. Mail your request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
. You may request that redemption proceeds be
sent to you by check or by wire
------------------------------------------------------------------------
By Telephone: If you have not declined the telephone
redemption privileges on your Account Application:
. Call 1-800-621-2550 (8:00 a.m. to 4:00 p.m.
New York time)
------------------------------------------------------------------------
</TABLE>
Certain institutions and intermediaries are authorized to accept redemption
requests on behalf of the Funds as described under "How Do I Purchase Shares
Through A Financial Institution?"
What Is A Signature Guarantee?
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
5-G
<PAGE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
.. All telephone requests are recorded.
.. Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing and
signed by an authorized person designated on the Account Application. The
written request will be confirmed by telephone with both the requesting party
and the designated bank account to verify instructions.
.. The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
.. Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request, unless you are selling shares you recently paid for by
check. In that case, the Funds will pay you when your check has cleared,
which may take up to 15 days. If the Federal Reserve Bank is closed on the
day that the redemption proceeds would ordinarily be wired, wiring the
redemption proceeds may be delayed one additional business day.
.. To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
account application to the Transfer Agent.
.. Neither the Trust, Goldman Sachs nor any other institution assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
.. If the redeemed shares were recently paid for by check, the Funds will pay
the redemption proceeds when the check has cleared, which may take up to 15
days.
6-G
<PAGE>
SHAREHOLDER GUIDE
By Check: You may elect in writing to receive your redemption proceeds by
check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of a properly executed redemp-
tion request, unless you are selling shares you recently paid for by check.
In that case, the Funds will pay you when your check has cleared, which may
take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
.. Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
.. Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests
by their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions may set times by
which they must receive redemption requests. These institutions may also
require additional documentation from you.
The Trust reserves the right to:
.. Redeem your shares if your account balance falls below $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Fund will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
.. Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
.. Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
You may exchange Institutional Shares of a Fund at NAV for Institutional
Shares of any other Goldman Sachs Fund. The exchange privilege may be mate-
rially modified or withdrawn at any time upon 60 days' written notice to
you.
7-G
<PAGE>
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C> <C>
By Writing: . Write a letter of instruction that includes:
. The recordholder name(s) and signature(s)
. The account number
. The Fund name and Class of Shares
. The dollar amount to be exchanged
. Mail the request to:
Goldman Sachs Funds
Name of Fund and Class of Shares
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privileges on your Account Application:
. 1-800-621-2550 (8:00a.m. to 4:00 p.m.
New York time)
-----------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
.. You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
.. All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
.. Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only
if the exchange instructions are in writing and are signed by an authorized
person designated on the Account Application.
.. Exchanges are available only in states where exchanges may be legally made.
.. It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
.. Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
8-G
<PAGE>
SHAREHOLDER GUIDE
What Types of Reports Will I Be Sent Regarding Investments in Institutional
Shares?
You will receive an annual report containing audited financial statements
and a semiannual report. To eliminate unnecessary duplication, only one copy
of such reports will be sent to shareholders with the same mailing address.
If you would like a duplicate copy to be mailed to you, please contact
Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly
account statement. A year-to-date statement for your account will be pro-
vided upon request made to Goldman Sachs. The Funds do not generally provide
sub-accounting services.
9-G
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Portfolio distributions are taxable to you as ordinary income (unless your
investment is in an IRA or other tax-advantaged account) to the extent they
are attributable to the Portfolio's net investment income, certain net real-
ized foreign exchange gains and net short-term capital gains. They are tax-
able as long-term capital gains to the extent they are attributable to the
Portfolio's excess of net long-term capital gains (including long-term capi-
tal gain distributions received from Underlying Fund investments) over net
short-term capital losses. The tax status of any distribution is the same
regardless of how long you have been in the Portfolio and whether you rein-
vest in additional shares or take the distribution as cash. Certain distri-
butions paid by a Portfolio in January of a given year may be taxable to
shareholders as if received the prior December 31. The tax status and
amounts of the dividends and distributions for each calendar year will be
detailed in your annual tax statement from the Portfolio.
The REIT investments of the underlying Real Estate Securities Fund often do
not provide complete tax information to the Fund until after the calendar
year-end. Consequently, because of the delay, it may be necessary for the
Fund to request permission to extend the deadline for issuance of Forms
1099-DIV beyond January 31.
At any time, a portion of a Portfolio's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Under-
lying Fund's portfolio securities. Therefore, subsequent distributions on a
Portfolio's shares may be taxable to you, even if the NAV of your shares is,
as a result, reduced below the cost of those shares and the distributions
represent a return of your purchase price.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from Underlying Fund
investments may be eligible, in the hands of the corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding
period requirements and debt financing limitations.
There are certain tax requirements that all Portfolios must follow in order
to avoid federal taxation. In its efforts to adhere to these requirements,
the Funds may have to limit their investment activity in some types of
instruments.
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TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Portfolio shares may generate a tax liability (un-
less your investment is in an IRA or other tax-advantaged account). Depend-
ing upon the purchase or sale price of the shares you sell or exchange, you
may have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Portfolio, based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods that you hold shares.) Any
loss recognized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from a Portfolio or on the value of the
shares held by you. More tax information is provided in the Additional
Statement. You should also consult your own tax adviser for information
regarding all tax consequences applicable to your investments in the Portfo-
lios.
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Appendix A
Additional Information on the Underlying Funds
This Appendix provides further information on certain types of securities
and techniques that may be used by the Underlying Funds, including their
associated risks. Additional information is provided in the Additional
Statement, which is available upon request, and in the prospectuses of the
Underlying Funds.
The Underlying Equity Funds invest primarily in common stocks and other
equity securities, including preferred stocks, interests in real estate
investment trusts, convertible debt obligations, convertible preferred
stocks, equity interests in trusts, partnerships, joint ventures, limited
liability companies and similar enterprises, warrants and stock purchase
rights ("equity securities"). The Underlying Fixed-Income Funds invest pri-
marily in fixed-income securities, including senior and subordinated corpo-
rate debt obligations (such as bonds, debentures, notes and commercial
paper), convertible and non-convertible corporate debt obligations, loan
participations and preferred stock.
The Short Duration Government and Adjustable Rate Government Funds invest in
U.S. Government Securities and related repurchase agreements, and neither of
these Funds, the Government Income Fund nor the Financial Square Prime Obli-
gations Fund makes foreign investments. The investments of the Financial
Square Prime Obligations Fund are limited by SEC regulations applicable to
money market funds as described in its prospectus, and do not include many
of the types of investments discussed below that are permitted for the other
Underlying Funds. With these exceptions, and the further exceptions noted
below, the following description applies generally to the Underlying Funds.
A. Description of the Underlying Funds
Underlying Equity Funds
The investment advisers of the Underlying Equity Funds may, in choosing
securities, utilize first-hand fundamental research, including visiting com-
pany facilities to assess operations and to meet decision-makers. The
investment advisers may also use macro analysis of numerous economic and
valuation variables to anticipate changes in company earnings and the over-
all investment climate. The investment advisers are able to draw on the
research and market expertise of the Goldman Sachs Global Investment
Research Department and other affiliates, as well as information provided by
other securities dealers. Equity securities held by an Underlying Equity
Fund will generally be sold when an investment adviser
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believes that the market price fully reflects or exceeds the securities'
fundamental valuation or when other more attractive investments are identi-
fied.
Domestic Value Style Funds. The Growth and Income, Mid Cap Value and Small
Cap Value Funds are managed using a value oriented approach. The Funds'
investment adviser evaluates securities using fundamental analysis and
intends to purchase equity securities that are, in its view, underpriced
relative to a combination of such companies' long-term earnings prospects,
growth rate, free cash flow and/or dividend-paying ability.
Consideration will be given to the business quality of the issuer. Factors
positively affecting the investment adviser's view of that quality include
the competitiveness and degree of regulation in the markets in which the
company operates, the existence of a management team with a record of suc-
cess, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on cap-
ital invested in the business. These Underlying Funds may also purchase
securities of companies that have experienced difficulties and that, in the
opinion of the investment adviser, are available at attractive prices.
Domestic Growth Style Fund. The Capital Growth Fund is managed using a
growth oriented approach. Equity securities for this Fund are selected based
on their prospects for above average growth. The Fund's investment adviser
will select securities of growth companies trading, in the investment advis-
er's opinion, at a reasonable price relative to other industries, competi-
tors and historical price/ earnings multiples. The Fund will generally
invest in companies whose earnings are believed to be in a relatively strong
growth trend or, to a lesser extent, in companies in which significant fur-
ther growth is not anticipated but whose market value per share is thought
to be undervalued.
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity and CORE International Equity Funds
(the "CORE Equity Funds") are managed using both quantitative and fundamen-
tal techniques. CORE is an acronym for "Computer-Optimized, Research-
Enhanced," which reflects the Funds' investment process. This investment
process and the proprietary multifactor model used to implement it are dis-
cussed below.
Quantitative Investment Process. The Funds' investment advisers begin with a
broad universe of U.S. equity securities for the CORE U.S. Equity, CORE
Large Cap Growth, CORE Large Cap Value and CORE Small Cap Equity Funds (the
"CORE U.S. Equity Funds"), and a broad universe of foreign equity securities
for the CORE International Equity Fund. The investment advisers use proprie-
tary multifactor models (each a "Multifactor Model") to forecast the returns
of differ-
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APPENDIX A
ent markets, currencies and individual securities. In the case of an U.S.
equity security followed by the Goldman Sachs Global Investment Research
Department (the "Research Department"), a rating is assigned based upon the
Research Department's evaluation. In the discretion of the investment advis-
er, ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign
equity security, an investment adviser may rely on research from both the
Research Department and other industry sources.
In building a diversified portfolio for each CORE Equity Fund, an investment
adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio consists primarily of securities rated highest by
the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Quantitative Multifactor Models. The Multifactor Models are rigorous comput-
erized rating systems for forecasting the returns of different equity mar-
kets, currencies, and individual equity securities according to fundamental
investment characteristics. The CORE U.S. Equity Funds use one Multifactor
Model to forecast the returns of securities held in each Fund's portfolio.
The CORE International Equity Fund uses multiple Multifactor Models to fore-
cast returns. Currently, the CORE International Equity Fund uses one model
to forecast equity market returns, one model to forecast currency returns
and 22 separate models to forecast individual equity security returns in 22
different countries. Despite this variety, all Multifactor Models incorpo-
rate common variables covering measures of value, growth, momentum and risk
(e.g., book/price ratio, earnings/price ratio, price momentum, price vola-
tility, consensus growth forecasts, earnings estimate revisions, earnings
stability, and, in the case of models for the CORE International Equity
Fund, currency momentum and country political risk ratings). All of the fac-
tors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Equity Funds are derived using a statistical formulation that con-
siders each factor's historical performance in different market environ-
ments. As such, the U.S. Multifactor Model is designed to evaluate each
security using only the factors that are statistically related to returns in
the anticipated market environment. Because they include many disparate fac-
tors, the Funds' investment advisers believe that all the Multifactor Models
are broader in scope and provide a more thorough evaluation than most con-
ventional, quantitative models. Securities
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and markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive com-
bination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a quali-
tative (i.e., research enhanced) method of selecting securities, each CORE
Equity Fund seeks to capitalize on the strengths of each discipline.
Actively Managed International Funds. The International Equity, Japanese
Equity, European Equity, International Small Cap, Emerging Markets Equity
and Asia Growth Funds are managed using an active international approach.
This approach utilizes a consistent process of stock selection undertaken by
portfolio management teams located within each of the major investment
regions, including Europe, Japan, Asia and the United States. In selecting
securities, the investment adviser uses a long-term, bottom-up strategy
based on first-hand fundamental research that is designed to give broad
exposure to the available opportunities while seeking to add return primar-
ily through stock selection. Equity securities for these Funds are evaluated
based on three key factors--the business, the management and the valuation.
The investment adviser ordinarily seeks securities that have, in its opin-
ion, superior earnings growth potential, sustainable franchise value with
management attuned to creating shareholder value and relatively discounted
valuations. In addition, the investment adviser uses a multi-factor risk
model which seeks to assure that deviations from the benchmark are justifi-
able.
Real Estate Securities Fund. The investment strategy of the Real Estate
Securities Fund is based on the premise that property market fundamentals
are the primary determinant of growth underlying the success of companies in
the real estate industry. The Fund's research and investment process is
designed to identify those companies with strong property fundamentals and
strong management teams. This process is includes real estate market
research and securities analysis. The Fund's investment adviser will take
into account fundamental trends in underlying property markets as determined
by proprietary models, research of local real estate markets, earnings, cash
flow growth and stability, the relationship between asset values and market
prices of the securities and dividend payment history. The investment
adviser will attempt to purchase securities so that its underlying portfolio
will be diversified geographically and by property type.
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APPENDIX A
Underlying Fixed-Income Funds
As stated above, each Underlying Fixed-Income Fund has policies relating to
its duration (or maturity in the case of the Financial Square Prime Obliga-
tions Fund). A Fund's duration approximates its price sensitivity to changes
in interest rates. Maturity measures the time until final payment is due; it
takes no account of the pattern of a security's cash flows over time. In
computing portfolio duration, an Underlying Fixed-Income Fund will estimate
the duration of obligations that are subject to prepayment or redemption by
the issuer taking into account the influence of interest rates on prepay-
ments and coupon flows. This method of computing duration is known as
"option-adjusted" duration. A Fund will not be limited as to its maximum
weighted average portfolio maturity or the maximum stated maturity with
respect to individual securities unless otherwise noted.
Except for the Financial Square Prime Obligations Fund (which is subject to
more restrictive SEC regulations applicable to money market funds), an
Underlying Fixed-Income Fund will deem a security to have met its minimum
credit rating requirement if the security receives the minimum required
long-term rating (or the equivalent short-term credit rating) at the time of
purchase from at least one rating organization (including, but not limited
to, Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service,
Inc. ("Moody's")) even though it has been rated below the minimum rating by
one or more other rating organizations, or, if unrated by a rating organiza-
tion, is determined by the Fund's investment adviser to be of comparable
quality. If a security satisfies a Fund's minimum rating criteria at the
time of purchase and is subsequently downgraded below such rating, the Fund
will not be required to dispose of such security. If a downgrade occurs, the
Fund's investment adviser will consider what action, including the sale of
such security, is in the best interest of the Fund and its shareholders.
The Underlying Fixed-Income Funds may (but are not required to) employ cer-
tain active management techniques to manage their duration and term struc-
ture, to seek to hedge exposure to foreign currencies and to seek to enhance
returns. These techniques include (with respect to one or more of the
Funds), but are not limited to, the use of financial futures contracts,
option contracts (including options on futures), forward foreign currency
exchange contracts, currency options and futures, currency, mortgage, credit
and interest rate swaps and interest rate floors, caps and collars. Currency
and interest rate management techniques involve risks different from those
associated with investing solely in U.S. dollar-denominated fixed-income
securities of U.S. issuers. Certain of the Funds may invest in custodial
receipts, municipal securities and convertible securities. The Funds may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repur-
chase agreements, reverse repurchase agreements and other investment prac-
tices.
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B. General Risks of the Underlying Funds
The Underlying Equity Funds will be subject to the risks associated with
common stocks and other equity securities. In general, stock values fluctu-
ate in response to the activities of individual companies and in response to
general market and economic conditions. Accordingly, the value of the stocks
that a Fund holds may decline over short or extended periods. The stock mar-
kets tend to be cyclical, with periods when stock prices generally rise and
periods when prices generally decline.
The Underlying Fixed-Income Funds will be subject to the risks associated
with fixed-income securities. These risks include interest rate risk, credit
risk and call/extension risk, In general, interest rate risk involves the
risk that when interest rates decline, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that the issuer
could default on its obligations and a Fund will not recover its investment.
Call risk and extension risk are normally present in adjustable rate mort-
gage loans ("ARMs"), mortgage-backed securities and asset-backed securities.
For example, homeowners have the option to prepay their mortgages. There-
fore, the duration of a security backed by home mortgages can either shorten
(call risk) or lengthen (extension risk). In general, if interest rates on
new mortgage loans fall sufficiently below the interest rates on existing
outstanding mortgage loans, the rate of prepayment would be expected to
increase. Conversely, if mortgage loan interest rates rise above the inter-
est rates on existing outstanding mortgage loans, the rate of prepayment
would be expected to decrease. In either case, a change in the prepayment
rate can result in losses to investors.
The Financial Square Prime Obligations Fund attempts to maintain a stable
NAV of $1.00 per share and values its assets using the amortized cost method
in accordance with SEC regulations. There is no assurance, however, that the
Financial Square Prime Obligations Fund will be successful in maintaining
its per share value at $1.00 on a continuous basis. The per share NAVs of
the other Underlying Funds are expected to fluctuate on a daily basis.
The turnover rates of the Underlying Funds have ranged from 41% to 315% dur-
ing their most recent fiscal years. There can be no assurance that the turn-
over rates of the Underlying Funds will remain within this range during sub-
sequent fiscal years. Higher turnover rates may result in higher brokerage
costs and expenses for the Underlying Funds. In addition, higher turn-
over rates may result in higher taxable realized gains for shareholders.
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<PAGE>
APPENDIX A
C. Other Risks of the Underlying Funds
Risks of Investing in Small Capitalization Companies and REITs. Investments
in small capitalization companies and REITs involve greater risk and portfo-
lio price volatility than investments in larger capitalization stocks. Among
the reasons for the greater price volatility of these investments are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such securities. Small capitalization companies
and REITs may be thinly traded and may have to be sold at a discount from
current market prices or in small lots over an extended period of time. In
addition, these securities are subject to the risk that during certain peri-
ods the liquidity of particular issuers or industries, or all securities in
these investment categories, will shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions, whether or not accurate. Because of the lack of suffi-
cient market liquidity, an Underlying Fund may incur losses because it will
be required to effect sales at a disadvantageous time and only then at a
substantial drop in price. Small capitalization companies and REITs also
often have limited product lines, markets or financial resources; may depend
on or use a few key personnel for management; and may be susceptible to
losses and risks of bankruptcy. Transaction costs for these investments are
often higher than those for larger capitalization companies. Investments in
small capitalization companies and REITs may be more difficult to price pre-
cisely than other types of securities because of their characteristics and
lower trading volumes.
Risks of Derivative Investments. An Underlying Fund's transactions, if any,
in options, futures, options on futures, swaps, interest rate caps, floors
and collars, structured securities, inverse floating-rate securities,
stripped mortgage-backed securities and currency transactions involve addi-
tional risk of loss. Loss can result from a lack of correlation between
changes in the value of derivative instruments and the portfolio assets (if
any) being hedged, the potential illiquidity of the markets for derivative
instruments, or the risks arising from margin requirements and related lev-
erage factors associated with such transactions. The use of these management
techniques also involves the risk of loss if the investment adviser is
incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. The Underlying Funds may also invest in derivative
investments for non-hedging purposes (that is, to seek to increase total
return), which is considered as a speculative practice and presents even
greater risk of loss.
Derivative mortgage-backed securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact
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<PAGE>
the cash flow and the market value of these securities. In general, the risk
of faster than anticipated prepayments adversely affects IOs, super floaters
and premium priced mortgage-backed securities. The risk of slower than
anticipated prepayments generally adversely affects POs, floating-rate secu-
rities subject to interest rate caps, support tranches and discount priced
mortgage-backed securities. In addition, particular derivative securities
may be leveraged such that their exposure (i.e., price sensitivity) to
interest rate and/or prepayment risk is magnified.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. Dual index or yield curve floaters are subject to lower prices in the
event of an unfavorable change in the spread between two designated interest
rates.
Risks of Foreign Investments. Certain of the Underlying Funds may invest in
foreign securities in accordance with their investment objectives and poli-
cies. Foreign investments involve special risks that are not typically asso-
ciated with U.S. dollar denominated or quoted securities of U.S. issuers.
Foreign investments may be affected by changes in currency rates, changes in
foreign or U.S. laws or restrictions applicable to such investments and
changes in exchange control regulations (e.g., currency blockage). A decline
in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denomi-
nated relative to the U.S. dollar would reduce the value of the portfolio
security.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
in the European Union ("EU"), such as the United Kingdom and Denmark, into
the euro and the admission of other non-EU countries such as Poland, Latvia
and Lithuania as members of the EU may have an impact on the euro. These or
other factors, including political and economic risks, could cause market
disruptions, and could adversely affect the value of securities held by the
Underlying Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States.
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APPENDIX A
In addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep
pace with the volume of securities transactions, thus making it difficult to
conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less gov-
ernment regulation of foreign markets, companies and securities dealers than
in the United States. Foreign securities markets may have substantially less
volume than U.S. securities markets and securities of many foreign issuers
are less liquid and more volatile than securities of comparable domestic
issuers. Furthermore, with respect to certain foreign countries, there is a
possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding or other taxes on dividend or interest payments
(or, in some cases, capital gains), limitations on the removal of funds or
other assets of the Underlying Funds, and political or social instability or
diplomatic developments which could affect investments in those countries.
Concentration of a Fund's assets in one of a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations involves risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwill-
ing to repay principal or interest when due in accordance with the terms of
such debt, and an Underlying Fund may have limited recourse to compel pay-
ment in the event of a default. Periods of economic uncertainty may result
in volatility of market prices of sovereign debt, and in turn the Underlying
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Underlying Funds may also invest in European
Depository Receipts ("EDRs") or other similar instruments representing secu-
rities of foreign issuers. ADRs represent the right to receive securities of
foreign issuers deposited
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<PAGE>
in a domestic bank or a correspondent bank. Prices of ADRs are quoted in
U.S. dollars, and ADRs are traded in the United States. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are
not necessarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Underlying Funds may invest in securi-
ties of issuers located in emerging countries. The risks of foreign invest-
ment are heightened when the issuer is located in an emerging country. The
International Equity, European Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in emerging countries. Up to 35% of the total assets
of the Emerging Markets Equity Fund may be invested in securities of issuers
in any one emerging country. The Growth and Income, Small Cap Value, Mid Cap
Value, High Yield and CORE International Equity Funds may each invest up to
25%, and the Core Fixed Income, Global Income and Capital Growth Funds may
each invest up to 10%, of their respective total assets in securities of
issuers in emerging countries.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant invest-
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APPENDIX A
ment losses. Investing in emerging countries involves greater risk of loss
due to expropriation, nationalization, confiscation of assets and property
or the imposition of restrictions on foreign investments and on repatriation
of capital invested.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
An Underlying Fund's investment in emerging countries may also be subject to
withholding or other taxes, which may be significant and may reduce the
return from an investment in such country to the Underlying Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve an Under-
lying Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for an Underlying Fund to value its portfolio securi-
ties and could cause the Underlying Fund to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses
due to the failure of a counterparty to pay for securities the Underlying
Fund has delivered or the Underlying Fund's inability to complete its con-
tractual obligations. The creditworthiness of the local securities firms
used by the Underlying Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries, thus subjecting
the Underlying Fund to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make an Underlying Fund's investments in such countries less liq-
uid and more volatile than investments in countries with more developed
securities markets (such as the United States, Japan and most Western Euro-
pean countries). An Underlying Fund's investments in emerging countries are
subject to the risk that the liquidity of a particular investment, or
investments generally, in such countries will shrink or disappear suddenly
and without warning as a result of adverse economic, market or political
conditions, or adverse investor perceptions, whether or not accurate.
Because of the lack of sufficient market liquidity, an Underlying Fund may
incur losses because it will be required to effect sales at a disadvanta-
geous time
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<PAGE>
and only then at a substantial drop in price. Investments in emerging coun-
tries may be more difficult to price precisely because of their characteris-
tics and lower trading volumes.
An Underlying Fund's use of foreign currency management techniques in emerg-
ing countries may be limited. Due to the limited market for these instru-
ments in emerging countries, the Investment Adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging countries, if any, will be covered by such instruments.
Risks of Illiquid Securities. The Underlying Funds may invest up to 15% (10%
in the case of the Financial Square Prime Obligations Fund) of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
^Both domestic and foreign securities that are not readily marketable
^Certain municipal leases and participation interests
^Certain stripped mortgage-backed securities
^Repurchase agreements and time deposits with a notice or demand period of
more than seven days
^Certain over-the-counter options
^Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that
the restricted security is eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 ("144A Securities") and, therefore, is
liquid
Investing in 144A Securities may decrease the liquidity of an Underlying
Fund's portfolio to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities. The pur-
chase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
Risks of Non-Diversification and Concentration. The Global Income Fund is
registered as a "non-diversified" Fund under the 1940 Act and is, therefore,
more susceptible to adverse developments affecting any single issuer. In
addition, the Global Income Fund, and certain other Underlying Funds, may
invest more than 25% of their total assets in the securities of corporate
and governmental issuers located in a particular foreign country or region.
Concentration of a Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in that country or region.
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<PAGE>
APPENDIX A
Temporary Investment Risks. Each Underlying Fund (other than the CORE Funds)
may invest up to 100% of its total assets, and each CORE Fund may invest up
to 35% of its total assets, in short-term debt securities. When an Under-
lying Fund's assets are invested in such instruments, the Underlying Fund
may not be achieving its investment objective.
D. Investment Securities and Techniques
U.S. Government Securities. The Underlying Funds may invest in U.S. Govern-
ment Securities. Generally, these securities include U.S. Treasury obliga-
tions and obligations issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises. U.S. Government Securities also
include Treasury receipts and U.S. Government Securities that have been
stripped by the U.S. Government, where the interest and principal components
of the securities are traded independently. Interests in U.S. Government
Securities may be purchased in the form of custodial receipts.
Mortgage-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may invest in so-called "Mortgage-Backed Securities." These
securities represent direct or indirect participations in, or are collater-
alized by and payable from, mortgage loans secured by real property.
Mortgage-Backed Securities can be backed by either fixed rate mortgage loans
or adjustable rate mortgage loans, and may be issued by either a governmen-
tal or non-governmental entity. Privately issued Mortgage-Backed Securities
are normally structured with one or more types of "credit enhancement." How-
ever, these Mortgage-Backed Securities typically do not have the same credit
standing as U.S. government guaranteed Mortgage-Backed Securities.
Mortgage-Backed Securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs"), real estate mortgage invest-
ment conduit ("REMIC") pass-through or participation certificates and
stripped mortgage-backed securities ("SMBS"). CMOs provide an investor with
a specified interest in the cash flow from a pool of underlying mortgages or
of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In
most cases, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. A REMIC is a CMO that qualifies for special
tax treatment and invests in certain mortgages principally secured by inter-
ests in real property and other permitted investments. SMBS are derivative
multiple class Mortgage-Backed Securities. The market value of SMBS consist-
ing entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage
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<PAGE>
loans are generally higher than prevailing market yields on other Mortgage-
Backed Securities because their cash flow patterns are more volatile and
there is a greater risk that the initial investment will not be fully
recouped.
Asset-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may also invest in asset-backed securities. Certain Funds'
Asset-Backed securities are limited to securities that are issued or guaran-
teed by U.S. government agencies, instrumentalities or sponsored enter-
prises. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Accordingly, an Underlying Fund's ability to
maintain positions in such securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject
to generally prevailing interest rates at that time. Asset-backed securities
present credit risks that are not presented by Mortgage-Backed Securities.
This is because asset-backed securities generally do not have the benefit of
a security interest in collateral that is comparable in quality to mortgage
assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities. In the event of a default, an Underlying Fund may suffer a loss
if it cannot sell collateral quickly and receive the amount it is owed.
Municipal Securities. Certain Underlying Funds may make limited investments
in instruments issued by state and local governmental issuers. These securi-
ties may include private activity bonds, municipal leases, certificates of
participation and "auction rate" securities.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. The Underlying Funds may invest in corporate debt obligations, trust
preferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures and other obligations of corporations to
pay interest and repay principal, and include securities issued by banks and
other financial institutions. A trust preferred or capital security is a
long dated bond (for example, 30 years) with preferred features. The pre-
ferred features are that payment of interest can be deferred for a specified
period without initiating a default event. The securities are generally
senior in claim to standard preferred stock but junior to other bondholders.
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<PAGE>
APPENDIX A
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than nonconvertible securities of similar quali-
ty. Convertible securities in which an Underlying Fund invests are subject
to the same rating criteria as its other investments in fixed-income securi-
ties. Convertible securities have both equity and fixed-income risk charac-
teristics. Like all fixed-income securities, the value of convertible secu-
rities is susceptible to the risk of market losses attributable to changes
in interest rates. Generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price of the con-
vertible security, the convertible security tends to reflect the market
price of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security, like a fixed-income securi-
ty, tends to trade increasingly on a yield basis, and thus may not decline
in price to the same extent as the underlying common stock.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Each Underlying Fund may invest in zero coupon, deferred interest, pay-in-
kind and capital appreciation bonds. These securities are issued at a dis-
count from their face value because interest payments are typically post-
poned until maturity. Pay-in-kind securities are securities that have
interest payable by the delivery of additional securities.The market prices
of these securities generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality.
Rating Criteria. The rating requirements for each of the Underlying Fixed-
Income Funds are stated above. Except as noted below, the Underlying Equity
Funds (other than the five CORE Equity Funds, which only invest in debt
instruments that are cash equivalents) may invest in debt securities rated
at least investment grade at the time of investment. Investment grade debt
securities are securities rated BBB or higher by Standard & Poor's or Baa or
higher by Moody's. The Growth and Income, Capital Growth, Small Cap Value,
International Equity, Japanese Equity, European Equity, International Small
Cap, Emerging Markets Equity, Asia Growth and Real Estate Securities Funds
may invest up to 10%, 10%, 35%, 35%, 35%, 35%, 35%, 35%, 35% and 20%,
respectively, of their total assets in debt securities which are rated in
the lowest rating categories by Standard & Poor's or Moody's (i.e., BB or
lower by Standard & Poor's or Ba or lower by Moody's), including securities
rated D by Moody's or Standard & Poor's. The Mid Cap Value Fund may invest
up to 10% of its total assets in below investment grade debt securities
rated B or higher by Standard & Poor's or Moody's. Fixed-
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<PAGE>
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," are considered predominately spec-
ulative and may be questionable as to principal and interest payments as
described above.
Structured Securities and Inverse Floaters. The Underlying Funds may invest
in structured securities. Structured securities are securities whose value
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multi-
ple of changes in the value of the Reference. Consequently, structured secu-
rities may present a greater degree of market risk than other types of
fixed-income securities, and may be more volatile, less liquid and more dif-
ficult to price accurately than less complex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The
higher the degree of leverage of an inverse floater, the greater the vola-
tility of its market value.
Foreign Currency Transactions. The Underlying Funds may, to the extent con-
sistent with its investment policies, purchase or sell foreign currencies on
a cash basis or through forward contracts. A forward contract involves an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. A Fund may engage in foreign currency
transactions for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, certain
Underlying Funds may also enter into such transactions to seek to increase
total return, which is considered a speculative practice. Some Funds may
also engage in cross-hedging by using forward contracts in a currency dif-
ferent from that in which the hedged security is denominated or quoted if
the investment adviser determines that there is a pattern of correlation
between the two currencies. The Underlying Funds may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of its investment adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date.
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<PAGE>
APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, an Underlying Fund's value to fluc-
tuate. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or the failure
to intervene, or by currency controls or political developments in the
United States or abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive an Underlying Fund of
unrealized profits, or the benefits of a currency hedge, or could force the
Underlying Fund to cover its purchase or sale commitments, if any, at the
current market price.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Underlying Fund
(other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Large Cap
Value Funds) may write (sell) covered call and put options and purchase put
and call options on any securities in which it may invest or on any securi-
ties index comprised of securities in which it may invest. An Underlying
Fund, may also, to the extent it invests in foreign securities, purchase and
sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of an investment adviser to manage future price fluctua-
tions and the degree of correlation between the options and securities (or
currency) markets. If an investment adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in an Underlying Fund's investment portfolio, the Underlying
Fund may incur losses that it would not otherwise incur. The use of options
can also increase an Underlying Fund's transaction costs. Options written or
purchased by the Underlying Funds may be traded on either U.S. or foreign
exchanges or over-the-counter. Foreign and over-the-counter options will
present greater possibility of loss because of their greater liquidity and
credit risks.
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<PAGE>
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Underlying Funds may engage in
futures transactions on both U.S. and foreign exchanges.
The Underlying Funds may purchase and sell futures contracts, and purchase
and write call and put options on futures contracts, in order to seek to
increase total return or to hedge against changes in interest rates, securi-
ties prices or currency exchange rates, or to otherwise manage their term
structures and durations in accordance with their investment objectives and
policies. The Underlying Funds may also enter into closing purchase and sale
transactions with respect to such contracts and options. An Underlying Fund
will engage in futures and related options transactions for bona fide hedg-
ing purposes as defined in regulations of the Commodity Futures Trading Com-
mission or to seek to increase total return to the extent permitted by such
regulations. The Underlying Funds may not purchase or sell futures contracts
or purchase or sell related options to seek to increase total return, except
for closing purchase or sale transactions, if immediately thereafter the sum
of the amount of initial margin deposits and premiums paid on an Underlying
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of an Underlying Fund's net assets. Futures contracts and related
options present the following risks:
^While an Underlying Fund may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices or cur-
rency exchange rates may result in a poorer overall performance than if the
Fund had not entered into any futures contracts or options transactions.
^Because perfect correlation between a futures position and portfolio position
that is intended to be protected is impossible to achieve, the desired pro-
tection may not be obtained and an Underlying Fund may be exposed to addi-
tional risk of loss.
^The loss incurred by an Underlying Fund in entering into futures contracts
and in writing call options on futures is potentially unlimited and may
exceed the amount of the premium received.
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<PAGE>
Appendix A
^Futures markets are highly volatile and the use of futures may increase the
volatility of an Underlying Fund's NAV.
^As a result of the low margin deposits normally required in futures trading,
a relatively small price movement in a futures contract may result in sub-
stantial losses to an Underlying Fund.
^Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
^Foreign exchanges may not provide the same protection as U.S. exchanges.
Preferred Stock, Warrants and Rights. The Underlying Funds may invest in
preferred stock, warrants and rights. Preferred stocks are securities that
represent an ownership interest providing the holder with claims on the
issuer's earnings and assets before common stock owners but after bond own-
ers. Unlike debt securities, the obligations of an issuer of preferred
stock, including dividend and other payment obligations, may not typically
be accelerated by the holders of such preferred stock on the occurrence of
an event of default or other non-compliance by the issuer of the preferred
stock. Warrants and other rights are options to buy a stated number of
shares of common stock at a specified price at any time during the life of
the warrant. The holders of warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
Real Estate Investment Trusts ("REITs"). The Real Estate Securities Fund
expects to invest a substantial portion of its total assets in REITs, which
are pooled investment vehicles that invest primarily in either real estate
or real estate related loans. In addition, other Underlying Equity Funds may
invest in REITs from time to time. The value of a REIT is affected by
changes in the value of the properties owned by the REIT or securing mort-
gage loans held by the REIT. REITs are dependent upon the ability of the
REITs' managers, and are subject to heavy cash flow dependency, default by
borrowers and the qualification of the REITs under applicable regulatory
requirements for favorable federal income tax treatment. REITs are also sub-
ject to risks generally associated with investments in real estate including
possible declines in the value of real estate, general and local economic
conditions, environmental problems and changes in interest rates. To the
extent that assets underlying a REIT are concentrated geographically, by
property type or in certain other respects, these risks may be heightened.
Each Underlying Fund will indirectly bear its proportionate share of any
expenses, including management fees, paid by a REIT in which it invests.
Standard and Poor's Depository Receipts. Each Underlying Equity Fund may,
consistent with its investment policies, purchase Standard & Poor's Deposi-
tory
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<PAGE>
Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded securities that
represent ownership in the SPDR Trust, a trust which has been established to
accumulate and hold a portfolio of common stocks that is intended to track
the price performance and dividend yield of the S&P 500. The SPDR Trust is
sponsored by a subsidiary of the American Stock Exchange. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its assets
in securities included in the MSCI indices for specified countries. WEBS are
listed on the American Stock Exchange (the "AMEX"), and were initially
offered to the public in 1996. The market prices of WEBS are expected to
fluctuate in accordance with both changes in the net asset values of their
underlying indices and supply and demand of WEBS on the AMEX. To date, WEBS
have traded at relatively modest discounts and premiums to their net asset
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the AMEX necessary to maintain the list-
ing of WEBS will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting WEBS should occur in the
future, the liquidity and value of an Underlying Fund's shares could also be
substantially and adversely affected, and the Underlying Fund's ability to
provide investment results approximating the performance of securities in
the EAFE Index could be impaired. If such disruptions were to occur, an
Underlying Fund could be required to reconsider the use of WEBS as part of
its investment strategy.
Other Investment Companies. An Underlying Fund may invest in securities of
other investment companies subject to the limitations prescribed by the
Investment Company Act. These limitations include a prohibition on any Fund
acquiring more than 3% of the voting shares of any other investment company,
and a prohibition on investing more than 5% of an Underlying Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. An Underlying Fund
will indirectly bear its proportionate share of any management fees and
other expenses paid by such other investment companies. Such other invest-
ment companies will have investment objectives, policies and restrictions
substantially similar to those of the acquiring Fund and will be subject to
substantially the same risks.
Equity Swaps. Each Underlying Equity Fund may invest up to 10% of its total
assets in equity swaps. Equity swaps allow the parties to a swap agreement
to
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<PAGE>
APPENDIX A
exchange the dividend income or other components of return on an equity
investment (e.g., a group of equity securities or an index) for a component
of return on another non-equity or equity investment.
An equity swap may be used by an Underlying Fund to invest in a market with-
out owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very vola-
tile. To the extent that an investment adviser does not accurately analyze
and predict the potential relative fluctuation of the components swapped
with another party, an Underlying Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, an Underlying
Fund may suffer a loss if the counterparty defaults.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to an Underlying Fund at the time of entering into the
transaction. A forward commitment involves the entering into a contract to
purchase or sell securities for a fixed price at a future date beyond the
customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although an Underlying Fund
will generally purchase securities on a when-issued or forward commitment
basis with the intention of acquiring securities for its portfolio, an
Underlying Fund may dispose of when-issued securities or forward commitments
before settlement whenever its investment adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Underlying Fund may enter into repurchase
agreements with dealers in U.S. Government Securities and member banks of
the Federal Reserve System which furnish collateral at least equal in value
or market price to the amount of their repurchase obligation. Some Under-
lying Funds may also enter into repurchase agreements involving certain for-
eign government securities. If the other party or "seller" defaults, an
Underlying Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Under-
lying Fund in connection with the repurchase agreements are less than the
repurchase price and the cost of the Underlying Fund associated with delay
and enforcement of the repurchase agreement. In addition, in the event of
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<PAGE>
bankruptcy of the seller, an Underlying Fund could suffer additional losses
if a court determines that the Underlying Fund's interest in the collateral
is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to an
Underlying Fund's shareholders. In addition, certain Underlying Funds,
together with other registered investment companies having advisory agree-
ments with the Investment 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.
Lending of Portfolio Securities. Securities lending involves the lending of
securities owned by an Underlying Fund to financial institutions such as
certain broker-dealers. The borrowers are required to secure their loans
continuously with cash, cash equivalents, U.S. Government Securities or let-
ters of credit in an amount at least equal to the market value of the secu-
rities loaned. Cash collateral may be invested in cash equivalents. If an
investment adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
an Underlying Fund (including the loan collateral).
An Underlying Fund may lend its securities to increase its income. An Under-
lying Fund may, however, experience delay in the recovery of its securities
or possible loss if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Underlying Fund.
Short Sales Against-the-Box. Certain Underlying Funds may make short sales
against-the-box. A short sale against-the-box means that at all times when a
short position is open the Underlying Fund will own an equal amount of secu-
rities sold short, or securities convertible into or exchangeable for, with-
out the payment of any further consideration, an equal amount of the securi-
ties of the same issuer as the securities sold short.
Mortgage Dollar Rolls. The Underlying Fixed-Income Funds (except the High
Yield Fund) and the Real Estate Securities Fund may enter into "mortgage
dollar rolls." A mortgage dollar roll involves the sale by an Underlying
Fund of securities for delivery in the current month, simultaneously con-
tracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified
future date. During the roll period, the Underlying Fund loses the right to
receive principal and interest paid on the securities sold. However, the
Underlying Fund benefits to the extent of any difference between (a) the
price received for the securities sold and (b) the lower forward price for
the future purchase and/or fee income plus the interest earned on the
24-NN
<PAGE>
APPENDIX A
cash proceeds of the securities sold. Unless the benefits of a mortgage dol-
lar roll exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the roll, the use of this technique will diminish the performance of
the Underlying Fund.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
Borrowings and Reverse Repurchase Agreements. The Underlying Funds can bor-
row money from banks and enter into reverse repurchase agreements with banks
and other financial institutions in amounts not exceeding one-third of its
total assets. Reverse repurchase agreements involve the sale of securities
held by an Underlying Fund subject to the Underlying Fund's agreement to
repurchase them at a mutually agreed upon date and price (including inter-
est). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the investment adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by an
Underlying Fund decline in value while these transactions are outstanding,
the NAV of the Underlying Fund's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addi-
tion, reverse repurchase agreements involve the risk that any interest
income earned by an Underlying Fund (from the investment of the proceeds)
will be less than the interest expense of the transaction, that the market
value of the securities sold by an Underlying Fund will decline below the
price the Underlying Fund is obligated to pay to repurchase the securities,
and that the securities may not be returned to the Underlying Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. To the extent consistent with their
investment policies, the Underlying Funds may enter into interest rate
swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps,
floors and collars. Interest rate swaps involve the exchange by an Under-
lying Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest
25-NN
<PAGE>
rate swaps in that they represent commitments to pay and receive interest.
The notional principal amount, however, is tied to a reference pool or pools
of mortgages. Credit swaps involve the receipt of floating or fixed rate
payments in exchange for assuming potential credit losses of an underlying
security. Credit swaps give one party to a transaction the right to dispose
of or acquire an asset (or group of assets), or the right to receive or make
a payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates.
An Underlying Fund may enter into swap transactions for hedging purposes or
to seek to increase total return. The use of interest rate, mortgage, credit
and currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the investment adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of an Underlying Fund would be less favorable than it would have been
if these investment techniques were not used.
Miscellaneous Techniques
In addition to the techniques and investments described above, certain
Underlying Funds may engage in the following techniques and investments: (i)
yield curve options (Underlying Fixed-Income Funds and Real Estate Securi-
ties Fund only); (ii) loan participations (High Yield Fund only); and (iii)
unseasoned companies.
26-NN
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Port-
folio's financial performance for the past five years (or less if the Port-
folio has been in operation for less than five years). Certain information
reflects financial results for a single Portfolio share. The total returns
in the table represent the rate that an investor would have earned or lost
on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP,
whose report, along with a Portfolio's financial statements, is included in
the Portfolio's annual report (available upon request without charge). Dur-
ing the period shown, the Trust did not offer the Goldman Sachs Conservative
Strategy Portfolio. Accordingly, there are no financial highlights for this
Portfolio.
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Income from
investment operations(e)
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Goldman Sachs Balanced Strategy
Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.25 $0.38
1998 - Class B Shares 10.00 0.19 0.38
1998 - Class C Shares 10.00 0.19 0.39
1998 - Institutional Shares 10.00 0.30 0.39
1998 - Service Shares 10.00 0.25 0.37
- -------------------------------------------------------------------------
Goldman Sachs Growth and Income
Strategy Portfolio for the Period
Ended December 31,(b)
1998 - Class A Shares $10.00 $0.18 $0.47
1998 - Class B Shares 10.00 0.12 0.46
1998 - Class C Shares 10.00 0.12 0.46
1998 - Institutional Shares 10.00 0.20 0.49
1998 - Service Shares 10.00 0.16 0.48
- -------------------------------------------------------------------------
Goldman Sachs Growth Strategy
Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.10 $0.36
1998 - Class B Shares 10.00 0.05 0.35
1998 - Class C Shares 10.00 0.05 0.35
1998 - Institutional Shares 10.00 0.12 0.37
1998 - Service Shares 10.00 0.09 0.35
- -------------------------------------------------------------------------
Goldman Sachs Aggressive Growth
Strategy Portfolio for the Period
Ended December 31,(b)
1998 - Class A Shares $10.00 $0.05 $0.20
1998 - Class B Shares 10.00 0.01 0.18
1998 - Class C Shares 10.00 0.01 0.19
1998 - Institutional Shares 10.00 0.07 0.20
1998 - Service Shares 10.00 0.04 0.21
- -------------------------------------------------------------------------
</TABLE>
1-BB
<PAGE>
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gain value of period return(a)(d) (in 000s) net assets(c)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.25) $(0.03) $(0.04) $0.31 $10.31 6.38% $ 40,237 0.60%
(0.19) (0.03) (0.04) 0.31 10.31 5.75 33,763 1.30
(0.19) (0.03) (0.04) 0.32 10.32 5.83 24,195 1.30
(0.30) (0.03) (0.04) 0.32 10.32 6.99 205 0.24
(0.25) (0.02) (0.04) 0.31 10.31 6.30 456 0.74
- -----------------------------------------------------------------------------------------------------
$(0.18) $(0.04) $(0.05) $0.38 $10.38 6.55% $181,441 0.60%
(0.12) (0.05) (0.05) 0.36 10.36 5.82 138,914 1.30
(0.12) (0.05) (0.05) 0.36 10.36 5.80 100,711 1.30
(0.20) (0.05) (0.05) 0.39 10.39 6.96 9,030 0.23
(0.16) (0.06) (0.05) 0.37 10.37 6.43 1,354 0.73
- -----------------------------------------------------------------------------------------------------
$(0.10) $(0.02) $(0.05) $0.29 $10.29 4.62% $128,832 0.60%
(0.05) (0.02) (0.05) 0.28 10.28 3.98 109,246 1.30
(0.05) (0.02) (0.05) 0.28 10.28 3.96 63,925 1.30
(0.12) (0.03) (0.05) 0.29 10.29 4.92 2,205 0.23
(0.09) (0.01) (0.05) 0.29 10.29 4.45 378 0.73
- -----------------------------------------------------------------------------------------------------
$(0.05) $ -- $(0.04) $0.16 $10.16 2.57% $ 47,135 0.60%
(0.01) -- (0.04) 0.14 10.14 1.93 41,204 1.30
(0.01) -- (0.04) 0.15 10.15 2.04 21,726 1.30
(0.07) -- (0.04) 0.16 10.16 2.80 124 0.24
(0.04) (0.02) (0.04) 0.15 10.15 2.54 121 0.74
- -----------------------------------------------------------------------------------------------------
</TABLE>
2-BB
<PAGE>
APPENDIX B
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income expenses to income to Portfolio
to average average net average turnover
net assets(c) assets(c) net assets(c) rate(d)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goldman Sachs Balanced
Strategy Portfolio for
the Period Ended
December 31,(b)
1998 - Class A Shares 3.03% 1.46% 2.17% 50.84%
1998 - Class B Shares 2.38 2.08 1.60 50.84
1998 - Class C Shares 2.34 2.08 1.56 50.84
1998 - Institutional
Shares 3.55 1.02 2.77 50.84
1998 - Service Shares 2.90 1.52 2.12 50.84
- --------------------------------------------------------------------------------------------
Goldman Sachs Growth and
Income Strategy
Portfolio for the
Period Ended December
31,(b)
1998 - Class A Shares 2.37% 1.05% 1.92% 41.91%
1998 - Class B Shares 1.72 1.68 1.34 41.91
1998 - Class C Shares 1.68 1.68 1.30 41.91
1998 - Institutional
Shares 2.97 0.61 2.59 41.91
1998 - Service Shares 2.28 1.11 1.90 41.91
- --------------------------------------------------------------------------------------------
Goldman Sachs Growth
Strategy Portfolio for
the Period Ended
December 31,(b)
1998 - Class A Shares 1.50% 1.15% 0.95% 38.43%
1998 - Class B Shares 0.83 1.78 0.35 38.43
1998 - Class C Shares 0.79 1.78 0.31 38.43
1998 - Institutional
Shares 2.88 0.71 2.40 38.43
1998 - Service Shares 1.63 1.21 1.15 38.43
- --------------------------------------------------------------------------------------------
Goldman Sachs Aggressive
Growth Strategy
Portfolio for the
Period Ended December
31,(b)
1998 - Class A Shares 0.91% 1.42% 0.09% 26.27%
1998 - Class B Shares 0.14 2.05 (0.61) 26.27
1998 - Class C Shares 0.16 2.05 (0.59) 26.27
1998 - Institutional
Shares 8.17 0.99 7.42 26.27
1998 - Service Shares 0.76 1.49 0.01 26.27
- --------------------------------------------------------------------------------------------
</TABLE>
3-BB
<PAGE>
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales or redemption charges. Total return would be reduced
if a sales or redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
4-BB
<PAGE>
Index
<TABLE>
<S><C>
1 General Investment Management Approach
3 Fund Investment Objectives and Strategies
4 Goldman Sachs Conservative Strategy Portfolio
5 Goldman Sachs Balanced Strategy Portfolio
6 Goldman Sachs Growth and Income Strategy Portfolio
7 Goldman Sachs Growth Strategy Portfolio
8 Goldman Sachs Aggressive Growth Strategy Portfolio
Principal Investment Stategies
Principal Risks of the Portfolios
Description of the Underlying Funds
Principal Risks of the Underlying Funds
Portfolio Performance
Portfolio Fees and
Expenses
Service Providers
30 Dividends
32 Shareholder Guide
32 How To Buy Shares
42 How To Sell Shares
51 Taxation
A-1 Appendix A:
Additional Information
on the Underlying Funds
B-1 Appendix B:
Financial Highlights
</TABLE>
12
<PAGE>
Goldman Sachs Asset Allocation Portfolios Prospectus (Institutional Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Portfolios' investments is available in the
Portfolios' annual and semiannual reports to shareholders. In the Portfo-
lios' annual reports, you will find a discussion of the market conditions
and investment strategies that significantly affect the Portfolios' perfor-
mance during the last fiscal year.
Statement of Additional Information
Additional information about the Portfolios and their policies is also
available in the Portfolios' Additional Statement. The Additional Statement
is incorporated by reference into this Prospectus (is legally considered
part of this Prospectus).
The Portfolios' annual and semiannual reports, and the Additional Statement,
are available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - gs - [email protected]
On the Internet - Text-only versions of the Portfolios' documents are
located online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Portfolio documents by visiting the
SEC's Public Reference Room in Washington, D.C. You may also obtain copies
of Portfolio documents by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, D.C. 20549-6009. Information on
the operation of the public reference room may be obtained by calling the
SEC at 1-800-SEC-0330. The Portfolio's investment company registration num-
ber is 811-5349.
[LOGO]
13
<PAGE>
Prospectus
Service Shares
May 1, 1999
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
.Goldman Sachs
Conservative Strategy
Portfolio
.Goldman Sachs Balanced
Strategy Portfolio
(formerly, the Income
Strategy Portfolio)
(INSERT ARTWORK) .Goldman Sachs Growth
and Income Strategy
Portfolio
.Goldman Sachs Growth
Strategy Portfolio
.Goldman Sachs
Aggressive Growth
Strategy Portfolio
THE TERMS "PORTFOLIOS" AND "FUNDS" MAY BE USED
INTERCHANGEABLY HEREIN TO REFER TO THE
"PORTFOLIOS."
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK DEPOSIT
AND IS NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. AN INVESTMENT IN A FUND INVOLVES
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
[LOGO OF GOLDMAN SACHS APPEARS HERE]
<PAGE>
General Investment
Management Approach
Goldman Sachs Asset Management, a separate operating division of Goldman, Sachs
& Co. ("Goldman Sachs"), serves as investment adviser (the "Investment Advis-
er") to five asset allocation portfolios: the Conservative Strategy Portfolio,
Balanced Strategy Portfolio (formerly, the Income Strategy Portfolio), Growth
and Income Strategy Portfolio, Growth Strategy Portfolio and Aggressive Growth
Strategy Portfolio (referred to as the "Portfolios" or the "Funds" interchange-
ably herein). The Portfolios are intended for investors who prefer to have
their asset allocation decisions made by professional money managers. Each
Portfolio seeks to achieve its objectives by investing in a combination of
underlying funds for which Goldman Sachs now or in the future acts as invest-
ment adviser or principal underwriter (the "Underlying Funds"). Some of these
Funds invest primarily in fixed-income or money market securities (the "Under-
lying Fixed-Income Funds"); other Funds invest primarily in equity securities
(the "Underlying Equity Funds"). You may choose to invest in one or more of the
Portfolios based on your personal investment goals, risk tolerance, and finan-
cial circumstances.
Goldman Sachs' Asset Allocation Investment Philosophy
The Investment Adviser's Quantitative Research Group uses disciplined quantita-
tive models to determine the relative attractiveness of the world's stock, bond
and currency markets. These models use financial and economic variables to cap-
ture fundamental relationships that it believes make sense. While the Invest-
ment Adviser's process is rigorous and quantitative, it also incorporates clear
economic reasoning behind each recommendation.
Each Portfolio starts with a "base-line" or strategic allocation among the var-
ious asset classes. The Investment Adviser then tactically deviates from the
strategic allocations based on forecasts provided by the models. The tactical
process seeks to add value by overweighing attractive markets and underweighing
unattractive markets. Greater deviations from the strategic allocation of a
given Portfolio result in higher risk that the tactical allocation will
underperform the strategic allocation. However, the Investment Adviser's risk
control process balances the amount any asset class can be overweighed in seek-
ing to achieve higher expected returns
The Asset Allocation Investment Philosophy involves investing a Portfolio's
assets in other Goldman Sachs Funds within specified equity and fixed-income
percentage ranges.
- --------------------------------------------------------------------------------
1-Z
<PAGE>
against the amount of risk imposed by that deviation from the strategic
allocation. The Investment Adviser employs Goldman Sachs' proprietary Black-
Litterman asset allocation technique in an effort to optimally balance these
two goals. This technique combines the Quantitative Research Group's market
forecast with economic equilibrium in seeking to construct risk-controlled
portfolios.
2-Z
<PAGE>
Portfolio Investment Objectives and Strategies
Goldman Sachs Conservative Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks current income, consistent with the preservation of cap-
ital and secondarily also considers the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 80% of the Portfolio's total assets
will be allocated among Underlying Fixed-Income Funds, with a focus on
short-term investments including money market funds. Allocation to Under-
lying Equity Funds is intended to add diversification and enhance returns,
but will also add some volatility. The Investment Adviser expects that the
Portfolio will invest a relatively significant percentage of its assets in
the Global Income Fund, Financial Square Prime Obligations Fund and CORE
Large Cap Value Fund. It is expected that the Portfolio will invest more
than 25% of its assets in the Short Duration Government Fund. The Portfolio
may not invest in International Underlying Equity Funds.
3-Z
<PAGE>
Goldman Sachs Balanced Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks current income and long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 60% of the Portfolio's total assets
will be allocated among Underlying Fixed-Income Funds. Allocation to Under-
lying Equity Funds is intended to add diversification and enhance returns,
but will also add some volatility. The Investment Adviser expects that the
Portfolio will invest a relatively significant percentage of its equity
allocation in the CORE Large Cap Growth, CORE Large Cap Value and CORE
International Equity Funds and will invest a relatively significant percent-
age of its assets in the Global Income Fund. It is expected that the Portfo-
lio will invest more than 25% of its assets in the Short Duration Government
Fund.
4-Z
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Growth and Income Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 60% of the Portfolio's total assets
will be allocated among Underlying Equity Funds, which are intended to pro-
vide the capital appreciation component. Allocation to Underlying Fixed-
Income Funds is intended to provide the income component. The Investment
Adviser expects that the Portfolio will invest a relatively significant per-
centage of its equity allocation in the CORE Large Cap Growth, CORE Large
Cap Value and CORE International Equity Funds and will invest a relatively
significant percentage of its assets in the CORE Fixed Income and Global
Income Funds.
5-Z
<PAGE>
Goldman Sachs Growth Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation and secondarily current
income.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, approximately 80% of the Portfolio's total assets
will be allocated among Underlying Equity Funds, with a blend of domestic
large cap, small cap and international exposure to seek capital apprecia-
tion. Allocation to Underlying Fixed-Income Funds is intended to provide
diversification. The Investment Adviser expects that the Portfolio will
invest a relatively significant percentage of its equity allocation in the
CORE Large Cap Growth, CORE Large Cap Value and CORE International Equity
Funds.
6-Z
<PAGE>
PORTFOLIO INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Aggressive Growth Strategy Portfolio
INVESTMENT OBJECTIVE
The Portfolio seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY
Under normal conditions, substantially all of the Portfolio's total assets
will be allocated among Underlying Equity Funds, with a greater focus on
small cap and international investments. The Investment Adviser expects that
the Portfolio will invest a relatively significant percentage of its assets
in the CORE Large Cap Growth, CORE Large Cap Value and CORE International
Equity Funds.
7-Z
<PAGE>
Principal Investment Strategies
Each Portfolio seeks to achieve its investment objective by investing within
specified equity and fixed-income ranges among Underlying Funds. The table
below illustrates the current Underlying Equity/Fixed-Income Fund allocation
targets and ranges for each Portfolio:
Equity/Fixed-Income Range (Percentage of Each Portfolio's Total Assets)
<TABLE>
<CAPTION>
Portfolio Target Range
- -------------------------------------------
<S> <C> <C>
Conservative Strategy
Equity 20% 0%-25%
Fixed-Income 80% 75%-100%
- -------------------------------------------
Balanced Strategy
Equity 40% 20%-60%
Fixed-Income 60% 40%-80%
- -------------------------------------------
Growth and Income Strategy
Equity 60% 40%-80%
Fixed-Income 40% 20%-60%
- -------------------------------------------
Growth Strategy
Equity 80% 60%-100%
Fixed-Income 20% 0%-40%
- -------------------------------------------
Aggressive Growth Strategy
Equity 100% 75%-100%
Fixed-Income 0% 0%-25%
- -------------------------------------------
</TABLE>
The Investment Adviser will invest in particular Underlying Funds based on var-
ious criteria. Among other things, the Investment Adviser will analyze the
Underlying Funds' respective investment objectives, policies and investment
strategies in order to determine which Underlying Funds, in combination with
other Underlying Funds, are appropriate in light of a Portfolio's investment
objective.
Each Portfolio's turnover rate is expected not to exceed 50% annually. A Port-
folio may purchase or sell securities to: (a) accommodate purchases and sales
of its shares; (b) change the percentages of its assets invested in each of the
Underlying Funds in response to economic or market conditions; and (c) maintain
or modify the allocation of its assets among the Underlying Funds within the
percentage ranges described above.
8-Z
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
While each Portfolio can invest in any or all of the Underlying Funds, it is
expected that each Portfolio will normally invest in only some of the Under-
lying Funds at any particular time. Each Portfolio's investment in any of
the Underlying Funds may, and in some cases is expected to, exceed 25% of
such Portfolio's total assets.
THE PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE
EQUITY/FIXED INCOME TARGETS AND RANGES AND THE INVESTMENTS IN EACH UNDER-
LYING FUND MAY BE CHANGED FROM TIME TO TIME WITHOUT SHAREHOLDER APPROVAL.
9-Z
<PAGE>
Principal Risks of the Portfolios
Loss of money is a risk of investing in each Portfolio. An investment in a
Portfolio is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other governmental agency. While
the Portfolios offer a greater level of diversification than many other types
of mutual funds, a single Portfolio may not provide a complete investment pro-
gram for an investor. The following summarizes the types of risks from which
loss may result:
^Investing in the Underlying Funds
The investments of each Portfolio are concentrated in the Underlying Funds, and
each Portfolio's investment performance is directly related to the investment
performance of the Underlying Funds held by it. The ability of each Portfolio
to meet its investment objectives is directly related to the ability of the
Underlying Funds to meet their objectives as well as the allocation among those
Underlying Funds by the Investment Adviser. The value of the Underlying Funds'
investments, and the net asset values ("NAV") of the shares of both the Portfo-
lios and the Underlying Funds, will fluctuate in response to various market and
economic factors related to the equity and fixed-income markets, as well as the
financial condition and prospects of issuers in which the Underlying Funds
invest. There can be no assurance that the investment objective of any Portfo-
lio or any Underlying Fund will be achieved.
^Investments of the Underlying Funds
Because the Portfolios invest in the Underlying Funds, the Portfolios' share-
holders will be affected by the investment policies of the Underlying Funds in
direct proportion to the amount of assets the Portfolios allocate to those
Funds. Each Portfolio may invest in Underlying Funds that in turn invest in
small capitalization companies and foreign issuers and thus are subject to
additional risks, including changes in foreign currency exchange rates and
political risk. Foreign investments may include securities of issuers located
in emerging countries in Asia, Latin America, Eastern Europe and Africa. Each
Portfolio may also invest in Underlying Funds that in turn invest in non-
investment grade fixed-income securities ("junk bonds"), which are considered
speculative by traditional standards. In addition, the Underlying Funds may
purchase derivative securities; enter into forward currency transactions; lend
their portfolio securities; enter into futures contracts and options transac-
tions; purchase zero coupon bonds and payment-in-kind bonds; purchase securi-
ties issued by real estate investment trusts ("REITs") and other issuers in the
real estate industry; purchase restricted and
10-Z
<PAGE>
PRINCIPAL RISKS OF THE PORTFOLIOS
illiquid securities; purchase securities on a when-issued or delayed deliv-
ery basis; enter into repurchase agreements; borrow money; and engage in
various other investment practices. The risks presented by these investment
practices are discussed in Appendix A to this Prospectus and the Additional
Statement.
^Affiliated Persons
In managing the Portfolios, the Investment Adviser will have the authority
to select and substitute Underlying Funds. The Investment Adviser is subject
to conflicts of interest in allocating Portfolio assets among the various
Underlying Funds both because the fees payable to it and/or its affiliates
by some Underlying Funds are higher than the fees payable by other Under-
lying Funds and because the Investment Adviser and its affiliates are also
responsible for managing the Underlying Funds. The Trustees and officers of
the Goldman Sachs Trust (the "Trust") may also have conflicting interests in
fulfilling their fiduciary duties to both the Portfolios and the Underlying
Funds.
^Expenses
You may invest in the Underlying Funds directly. By investing in the Under-
lying Funds indirectly through a Portfolio, you will incur not only a pro-
portionate share of the expenses of the Underlying Funds held by the Portfo-
lio (including operating costs and investment management fees), but also
expenses of the Portfolio.
^Temporary Investments
Although the Portfolios normally seek to remain substantially invested in
the Underlying Funds, each Portfolio may invest a portion of its assets in
high-quality, short-term debt obligations (including commercial paper, cer-
tificates of deposit, bankers' acceptances, repurchase agreements, debt
obligations backed by the full faith and credit of the U.S. government and
demand and time deposits of domestic and foreign banks and savings and loan
associations) to maintain liquidity, to meet shareholder redemptions and for
other short-term cash needs. Also, there may be times when, in the opinion
of the Investment Adviser, abnormal market or economic conditions warrant
that, for temporary defensive purposes, a Portfolio may invest without limi-
tation in short-term obligations.
^Other Risks
Each Portfolio is subject to other risks, such as (1) the risk that the
operations of a Portfolio and the Underlying Funds in which it invests, or
the value of their securities, will be disrupted by the "Year 2000 Problem;"
(2) the risk that a Portfolio will not be able to pay redemption proceeds
within the period stated in its prospectus because of unusual market condi-
tions, high volume of redemption requests or other reasons (Liquidity Risk)
or (3) the risk that a strategy used by the investment adviser may fail to
produce the intended results (Management Risk).
11-Z
<PAGE>
Description of the Underlying Funds
DESCRIPTION OF THE UNDERLYING FUNDS
The following is a concise description of the investment objectives and
practices for each of the Underlying Funds that are available for investment
by the Portfolios as of the date of this Prospectus. A Portfolio may also
invest in other Underlying Funds not listed below that may become available
for investment in the future at the discretion of the Investment Adviser
without shareholder approval. Additional information regarding the invest-
ment practices of the Underlying Funds is provided in Appendix A to this
Prospectus and the Additional Statement. No offer is made in this Prospectus
of any of the Underlying Funds.
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
Growth and Long-term growth At least 65% of total assets in equity securities that the investment adviser considers to
Income of capital and have favorable prospects for capital appreciation and/or dividend paying ability.
growth of
income.
-------------------------------------------------------------------------------------------------------------------------------
CORE Large Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Value of capital and foreign issuers traded in the United States. The Fund's investments are selected using both
dividend income. a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 1000 Value Index.
-------------------------------------------------------------------------------------------------------------------------------
CORE U.S. Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Equity of capital and foreign issuers traded in the United States. The Fund's investments are selected using both
dividend income. a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index.
-------------------------------------------------------------------------------------------------------------------------------
CORE Large Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Growth of capital. foreign issuers traded in the United States. The Fund's investments are selected using both
Dividend a variety of quantitative techniques and fundamental research in seeking to maximize the
income is a Fund's expected return, while maintaining risk, style, capitalization and industry
secondary characteristics similar to the Russell 1000 Growth Index.
consideration.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12-Z
<PAGE>
DESCRIPTION OF THE UNDERLYING FUNDS
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
CORE Small Cap Long-term growth At least 90% of total assets in equity securities of U.S. issuers, including certain
Equity of capital. foreign issuers traded in the United States. The Fund's investments are selected using both
a variety of quantitative techniques and fundamental research in seeking to maximize the
Fund's expected return, while maintaining risk, style, capitalization and industry
characteristics similar to the Russell 2000 Index.
-------------------------------------------------------------------------------------------------------------------------------
Capital Growth Long-term At least 90% of total assets in a diversified portfolio of equity securities. Long-term
capital capital appreciation potential is considered in selecting investments.
growth.
-------------------------------------------------------------------------------------------------------------------------------
Mid Cap Value Long-term At least 65% of total assets in equity securities of companies with public stock market
capital capitalizations within the range of the market capitalization of companies constituting the
appreciation. Russell Midcap Index at the time of the investment (currently between $400 million and $16
billion).
-------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Long-term At least 65% of total assets in equity securities of companies with public stock market
capital capitalizations of $1 billion or less at the time of investment.
growth.
-------------------------------------------------------------------------------------------------------------------------------
Real Estate Total return Substantially all, and at least 80%, of total assets in a diversified portfolio of equity
Securities comprised securities of issuers that are primarily engaged in or related to the real estate industry.
of long-term The Fund expects that a substantial portion of its total assets will be invested in REITS.
growth of
capital and
dividend income.
-------------------------------------------------------------------------------------------------------------------------------
CORE Long-term growth At least 90% of total assets in equity securities of companies organized outside the United
International of capital. States or whose securities are principally traded outside the United States. The Fund's
Equity investments are selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintaining risk, style,
capitalization and industry characteristics similar to the unhedged Morgan Stanley Capital
International (MSCI) Europe, Australia and Far East Index (the "EAFE Index"). The Fund may
employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13-Z
<PAGE>
<TABLE>
<CAPTION>
Investment
Fund Objectives Investment Criteria
-------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
International Long-term Substantially all, and at least 65%, of total assets in equity securities of companies
Equity capital organized outside the United States or whose securities are principally traded outside the
appreciation. United States. The Fund may employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
European Equity Long-term Substantially all, and at least 65%, of total assets in equity securities of European
capital companies. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
Japanese Equity Long-term Substantially all, and at least 65%, of total assets in equity securities of Japanese
capital companies. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
International Long-term Substantially all, and at least 65%, of total assets in equity securities of companies with
Small Cap capital public stock market capitalizations of $1 billion or less at the time of investment that
appreciation. are organized outside the United States or whose securities are principally traded outside
the United States. The Fund may employ certain currency management techniques.
-------------------------------------------------------------------------------------------------------------------------------
Emerging Long-term Substantially all, and at least 65%, of total assets in equity securities of emerging
Markets Equity capital country issuers. The Fund may employ certain currency management techniques.
appreciation.
-------------------------------------------------------------------------------------------------------------------------------
Asia Growth Long-term Substantially all, and at least 65%, of total assets in equity securities of companies in
capital China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South
appreciation. Korea, Sri Lanka, Taiwan and Thailand. The Fund may employ certain currency management
techniques.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14-Z
<PAGE>
DESCRIPTION OF THE UNDERLYING FUNDS
<TABLE>
<CAPTION>
Approximate
Investment Duration or Interest Rate
Fund Objectives Maturity Sensitivity
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Square Prime Maximize Maximum Maturity of 3-month
Obligations current income Individual treasury bill
to the extent Investments = 13
consistent months at time of
with the purchase. Maximum
maintenance of Dollar-Weighted
liquidity. Average Portfolio
Maturity = 90 days
-----------------------------------------------------------------------------
Adjustable Rate Government A high level Target Duration = 9-month U.S.
of current 6-month to 1-year Treasury bill
income, U.S. Treasury
consistent Securities Maximum
with low Duration*= 2 years
volatility of
principal.
-----------------------------------------------------------------------------
Short Duration Government A high level Target Duration = 2 2-year U.S.
of current year U.S. Treasury Treasury note
income and Security plus or
secondarily, minus .5 years
in seeking Maximum Duration*=
current 3 years
income, may
also consider
the potential
for capital
appreciation.
-----------------------------------------------------------------------------
Government Income A high level Target Duration = 5-year U.S.
of current Lehman Brothers Treasury note
income, Mutual Fund
consistent Government/Mortgage
with safety of Index plus or minus
principal. 1 year Maximum
Duration*= 6 years
-----------------------------------------------------------------------------
Core Fixed Income Total return Target Duration = 5-year U.S.
consisting of Lehman Brothers Treasury note
capital Aggregate Bond
appreciation Index plus or minus
and income 1 year Maximum
that exceeds Duration*= 6 years
the total
return of the
Lehman
Brothers
Aggregate Bond
Index.
-----------------------------------------------------------------------------
Global Income A high total Target Duration = 6-year
return, J.P. Morgan Global government
emphasizing Government Bond bond
current Index (hedged) plus
income, and, or minus 2.5 years
to a lesser Maximum Duration*=
extent, 7.5 years
providing
opportunities
for capital
appreciation.
-----------------------------------------------------------------------------
High Yield A high level Target Duration = 6-year bond
of current Lehman Brothers
income and High Yield Bond
capital Index plus or minus
appreciation. 2.5 years Maximum
Duration* = 7.5
years
-----------------------------------------------------------------------------
</TABLE>
* Under normal interest rate conditions.
15-Z
<PAGE>
<TABLE>
<CAPTION>
Credit
Investment Sector Quality Other Investments
----------------------------------------------------------------------------------------
<S> <C> <C>
Money market High Quality N/A
instruments (short-term
including securities ratings of
issued or guaranteed A-1, P-1 or
by the U.S. comparable
government, its quality).
agencies,
instrumentalities or
sponsored
enterprises ("U.S.
Government
Securities"); U.S.
bank obligations,
commercial paper and
other short-term
obligations of U.S.
corporations,
governmental and
other entities;
asset-backed and
receivables-backed
securities; and
related repurchase
agreements.
----------------------------------------------------------------------------------------
At least 65% of U.S. Fixed-rate mortgage
total assets in U.S. Government pass-through
Government Securities securities and
Securities that are repurchase
adjustable rate agreements
mortgage pass- collateralized by
through securities U.S. Government
and other mortgage Securities.
securities with
periodic interest
rate resets.
----------------------------------------------------------------------------------------
At least 65% of U.S. Mortgage pass-
total assets in U.S. Government through securities
Government Securities and other
Securities and securities
repurchase representing an
agreements interest in or
collateralized by collateralized by
such securities. mortgage loans.
----------------------------------------------------------------------------------------
At least 65% of U.S. Non-government
assets in U.S. Government mortgage pass-
Government Securities through securities,
Securities, and non-U.S. asset-backed
including mortgage- Government securities and
backed U.S. Securities = corporate fixed-
Government AAA/Aaa income securities.
Securities and
repurchase
agreements
collateralized by
such securities.
----------------------------------------------------------------------------------------
At least 65% of Minimum = Foreign fixed-
assets in fixed- BBB/Baa income, municipal
income securities, Minimum for and convertible
including U.S. non-dollar securities, foreign
Government securities = currencies and
Securities, AA/Aa repurchase
corporate, mortgage- agreements
backed and asset- collateralized by
backed securities. U.S. Government
Securities.
----------------------------------------------------------------------------------------
Securities of U.S. Minimum = Mortgage and asset-
and foreign BBB/Baa At backed securities,
governments and least 50% = foreign currencies
corporations. AAA/Aaa and repurchase
agreements
collateralized by
U.S. Government
Securities or
certain foreign
government
securities.
----------------------------------------------------------------------------------------
Except for temporary At least 65% Mortgage-backed and
defensive purposes, = BB/Ba or asset-backed
at least 65% of below securities, U.S.
assets in fixed- Government
income securities Securities,
rated below investment grade
investment grade, corporate fixed-
including U.S. and income securities,
non-U.S. dollar structured
corporate debt, securities, foreign
foreign government currencies and
securities, repurchase
convertible agreements
securities and collateralized by
preferred stock. U.S. Government
Securities.
----------------------------------------------------------------------------------------
</TABLE>
16-Z
<PAGE>
Principal Risks of the Underlying Funds
The following summarizes important risks that apply to the Underlying Funds and
may result in a loss of your investment in a Portfolio. There can be no assur-
ance that an Underlying Fund will achieve its investment objective.
Risks That Apply To All Underlying Funds:
^Market Risk--The risk that the value of the securities in which an Under-
lying Fund invests may go up or down in response to the prospects of indi-
vidual companies and/or general economic conditions. Price changes may be
temporary or last for extended periods.
^Derivatives Risk--The risk that loss may result from an Underlying Fund's
investments in options, futures, swaps, structured securities and other
derivative instruments, which may be leveraged.
^Management Risk--The risk that a strategy used by an investment adviser to
the Underlying Funds may fail to produce the intended results.
^Liquidity Risk--The risk that an Underlying Fund will not be able to pay
redemption proceeds within the time period stated in this Prospectus,
because of unusual market conditions, an unusually high volume of redemp-
tion requests, or other reasons. Funds that invest in small capitalization
stocks, REITs and emerging country issuers will be especially subject to
the risk that during certain periods the liquidity of particular issuers or
industries, or all securities within these investment categories, will
shrink or disappear suddenly and without warning as a result of adverse
economic, market or political events, or adverse investor perceptions,
whether or not accurate.
^Other Risks--Each Underlying Fund is subject to other risks, such as the
risk that its operations, or the value of its portfolio securities, will be
disrupted by the "Year 2000 Problem."
Risks That Apply Primarily To The Underlying Fixed-Income Funds:
^Interest Rate Risk--The risk that when interest rates increase, fixed-
income securities held by an Underlying Fund will decline in value. Long-
term fixed-income securities will normally have more price volatility
because of this risk than short-term securities.
^Credit/Default Risk--The risk that an issuer of fixed-income securities
held by an Underlying Fund (which may have low credit ratings) may default
on its obligation to pay interest and repay principal.
^Call Risk--The risk that an issuer will exercise its right to pay principal
on an obligation held by an Underlying Fund (such as a mortgage-backed secu-
17-Z
<PAGE>
rity) earlier than expected. This may happen when there is a decline in
interest rates. Under these circumstances, an Underlying Fund may be unable
to recoup all of its initial investment and will also suffer from having to
reinvest in lower yielding securities.
^Extension Risk--The risk that an issuer will exercise its right to pay
principal on an obligation held by an Underlying Fund (such as a mortgage-
backed security) later than expected. This may happen when there is a rise
in interest rates. Under these circumstances, the value of an obligation
will decrease, and an Underlying Fund will also suffer from the inability
to invest in higher yielding securities.
^Government Securities Risk--The risk that the U.S. government will not pro-
vide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
Risk That Applies Primarily To The Underlying Equity Funds:
^Stock Risk--The risk that stock prices have historically risen and fallen
in periodic cycles. As of the date of this Prospectus, U.S. stock markets
and certain foreign stock markets were trading at or close to record high
levels. There is no guarantee that such levels will continue.
Risks That Are Particularly Important For Specific Underlying Funds:
^Concentration Risk--The European Equity Fund invests primarily in equity
securities of European companies. The Japanese Equity Fund invests primar-
ily in equity securities of Japanese companies. The Global Income Fund may
invest more than 25% of its total assets in the securities of corporate and
governmental issuers located in each of Canada, Germany, Japan, and the
United Kingdom as well as in the securities of U.S. issuers. Concentration
of the investments of these or other Underlying Funds in issuers located in
a particular country or region will subject the Underlying Fund, to a
greater extent than if investments were not so concentrated, to the risks
of adverse securities markets, exchange rates and social, political, regu-
latory or economic events which may occur in that country or region.
^Foreign Risks--Underlying Funds that invest in foreign securities will be
subject to risks with respect to their foreign investments that are not
typically associated with domestic issuers. These risks result from less
government regulation, less public information and less economic, political
and social stability. These risks may involve the imposition of exchange
controls, confiscation and other government restrictions. The Underlying
Funds will also be subject to the risk of negative foreign currency rate
fluctuations. Foreign risks will normally be greatest when an Underlying
Fund invests in issuers located in emerging countries.
18-Z
<PAGE>
PRINCIPAL RISKS OF THE UNDERLYING FUNDS
^Emerging Markets Risk--The securities markets of Asian, Latin American,
Eastern European, African and other emerging countries are less liquid, are
especially subject to greater price volatility, have smaller market capi-
talizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting require-
ments as the securities markets of more developed countries. Further,
investment in equity securities of issuers located in Russia and certain
other emerging countries involves risk of loss resulting from problems in
share registration and custody and substantial economic and political dis-
ruptions. These risks are not normally associated with investments in more
developed countries.
^"Junk Bond" Risk--The High Yield Fund will invest in non-investment grade
fixed-income securities (commonly known as "junk bonds") that are consid-
ered predominantly speculative by traditional investment standards. Non-
investment grade fixed-income securities and unrated securities of compara-
ble credit quality are subject to the increased risk of an issuer's
inability to meet principal and interest payment obligations. These securi-
ties may be subject to greater price volatility due to such factors as spe-
cific corporate developments, interest rate sensitivity, negative percep-
tions of the junk bond markets generally and less secondary market
liquidity.
^Small Cap Stock and REIT Risks--The securities of small capitalization com-
panies and REITs involve greater risks than those associated with larger,
more established companies, and the securities may be subject to more
abrupt or erratic price movements. Securities of such issuers may lack suf-
ficient market liquidity to enable an Underlying Fund to effect sales at an
advantageous time or without a substantial drop in price.
More information about the portfolio securities and investment techniques of
the Underlying Funds, and their associated risks, is provided in Appendix A.
You should consider the investment risks discussed in this section and in
Appendix A. Both are important to your investment choice.
19-Z
<PAGE>
Portfolio Performance
HOW THE PORTFOLIOS HAVE PERFORMED
The bar charts and tables below provide an indication of the risks of
investing in a Portfolio by showing: (a) changes in the performance of a
Portfolio's Service Shares from year to year; and (b) how the average annual
returns of a Portfolio's Service Shares compare to those of a broad-based
securities market index. The bar charts and tables assume reinvestment of
dividends and distributions. A Portfolio's past performance is not necessar-
ily an indication of how the Portfolio will perform in the future. Perfor-
mance reflects expense limitations in effect. If expense limitations were
not in place, a Portfolio's performance would have been reduced. The Conser-
vative Strategy Portfolio did not commence operations until February 8,
1999. Since the Portfolio has less than one calendar year's performance, no
performance information is provided in this section.
2
<PAGE>
PORTFOLIO PERFORMANCE
Balanced Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
-----------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 1/2/98)
S&P 500 Index* % %
Two-Year U.S. Treasury Security** % %
Lehman Brothers High Yield Bond Index*** % %
-----------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
** The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
*** The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturity. The Index is unmanaged and does not reflect any fees or expenses.
3
<PAGE>
Growth and Income Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
---------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 1/2/98)
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Lehman Brothers Aggregate Bond Index*** % %
Lehman Brothers High Yield Bond Index+ % %
---------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of securi-
ties in twenty developed markets. The Index does not reflect any fees or
expenses.
*** The Lehman Brothers Aggregate Bond Index represents a diversified portfolio
of fixed-income securities, including U.S. Treasuries, investment-grade
corporate bonds, and mortgaged-backed and asset-backed securities. The
Index figures do not reflect any fees or expenses.
+ The Lehman Brothers High Yield Bond Index is a total return performance
benchmark for fixed-income securities having a maximum quality rating of
Ba1, a minimum amount outstanding of $100 million and at least one year to
maturi-ty. The Index is unmanaged and does not reflect any fees or expenses.
4
<PAGE>
PORTFOLIO PERFORMANCE
Growth Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 1/2/98)
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks, an
unmanaged index of common stock prices. The Index figures do not reflect any
fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of securi-
ties in twenty developed markets. The Index does not reflect any fees or
expenses.
*** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
+ The unmanaged Morgan Stanley Capital International Emerging Markets Free
(EMF) Index is a market capitalization-weighted composite of securities in
over thirty emerging market countries. "Free" indicates an index that
excludes shares in otherwise free markets that are not purchasable by for-
eigners. The Index figures do not reflect any fees or expenses.
5
<PAGE>
Aggressive Growth Strategy Portfolio
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q '98 %
(INSERT GRAPH)
Worst Quarter
Q '98 %
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1998 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 1/2/98)
S&P 500 Index* % %
Morgan Stanley Capital International Europe,
Australia, Far East (EAFE) Index** % %
Russell 2000 Index*** % %
Morgan Stanley Capital International Emerging Markets
Free (EMF) Index+ % %
------------------------------------------------------------------------------
</TABLE>
* The S&P 500 Index is the Standard & Poor's Composite Index of 500 stocks,
an unmanaged index of common stock prices. The Index figures do not reflect
any fees or expenses.
** The unmanaged Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is a market capitalization-weighted composite of securi-
ties in twenty developed markets. The Index does not reflect any fees or
expenses.
*** The Russell 2000 Index is an unmanaged index of common stock prices. The
Index figures do not reflect any fees or expenses.
+ The unmanaged Morgan Stanley Capital International Emerging Markets Free
(EMF) Index is a market capitalization-weighted composite of securities in
over thirty emerging market countries. "Free" indicates an index that
excludes shares in otherwise free markets that are not purchasable by for-
eigners. The Index figures do not reflect any fees or expenses.
6
<PAGE>
(This page intentionally left blank)
<PAGE>
Portfolio Fees and Expenses (Service Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Service Shares of a Portfolio.
<TABLE>
<CAPTION>
Conservative Balanced
Strategy Strategy
Portfolio Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases None None
Maximum Deferred Sales Charge (Load) None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None
Redemption Fees None None
Exchange Fees None None
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/1/
Management Fees (for asset allocation)/2/ 0.35% 0.35%
Service Fees/3/ 0.50% 0.50%
Other Expenses/4/ 0.29% 0.47%
Underlying Fund Expenses/1/ 0.55% 0.69%
- ------------------------------------------------------------------------------
Total Other Expenses 0.84% 1.16%
- ------------------------------------------------------------------------------
Total Portfolio Operating Expenses* 1.69% 2.01%
- ------------------------------------------------------------------------------
</TABLE>
See page 10 for all other footnotes.
* As a result of current waivers and expense limitations,
"Other Expenses" and "Total Portfolio Operating Expenses" of
the Portfolios which are actually incurred are as set forth
below. The waivers and expense limitations may be terminated
at any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Portfolio Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Conservative Balanced
Strategy Strategy
Portfolio Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C>
Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets):/1/
Management Fees (for asset allocation)/2/ 0.15% 0.15%
Service Fees/3/ 0.50% 0.50%
Other Expenses/4/ 0.04% 0.04%
Underlying Fund Expenses/1/ 0.55% 0.69%
- ------------------------------------------------------------------------------
Total Other Expenses 0.59% 0.73%
- ------------------------------------------------------------------------------
Total Portfolio Operating Expenses (after current
waivers and expense limitations)* 1.24% 1.38%
- ------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Portfolio Fees and Expenses continued
<TABLE>
<CAPTION>
Growth and Aggressive
Income Growth Growth
Strategy Strategy Strategy
Portfolio Portfolio Portfolio
- ------------------------------------------------------------
<S> <C> <C>
None None None
None None None
None None None
None None None
0.35% 0.35% 0.35%
0.50% 0.50% 0.50%
0.20% 0.23% 0.41%
0.79% 0.84% 0.90%
- ------------------------------------------------------------
0.99% 1.07% 1.31%
- ------------------------------------------------------------
1.84% 1.92% 2.16%
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Growth and Aggressive
Income Growth Growth
Strategy Strategy Strategy
Portfolio Portfolio Portfolio
- -------------------------------------------------------
<S> <C> <C>
0.15% 0.15% 0.15%
0.50% 0.50% 0.50%
0.04% 0.04% 0.04%
0.79% 0.84% 0.90%
- -------------------------------------------------------
0.83% 0.84% 0.94%
- -------------------------------------------------------
1.48% 1.53% 1.59%
- -------------------------------------------------------
</TABLE>
9
<PAGE>
PORTFOLIO FEES AND EXPENSES
/1/The Portfolios' annual operating expenses have been restated to reflect cur-
rent fees, except for the Conservative Strategy Portfolio, whose expenses are
estimated for the current fiscal year. "Underlying Fund Expenses" for each
Portfolio are based upon the strategic allocation of each Portfolio's invest-
ment in the Underlying Funds and upon the actual total operating expenses of
the Underlying Funds. Actual Underlying Fund Expenses incurred by each Portfo-
lio may vary with changes in the allocation of each Portfolio's assets among
the Underlying Funds and with other events that directly affect the expenses of
the Underlying Funds.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Portfolios equal to 0.20%. As a result of fee waivers,
current management fees of the Portfolios are 0.15% of each Portfolio's average
daily net assets. The waiver may be terminated at any time at the option of the
Investment Adviser.
/3/Service Organizations may charge other fees to their customers who are bene-
ficial owners of Service Shares in connection with their customers' accounts.
Such fees may affect the return such customers realize with respect to their
investments.
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Portfolio's Service Shares plus all other ordinary
expenses not detailed above. The Investment Adviser has voluntarily agreed to
reduce or limit "Other Expenses" (excluding management fees, transfer agency
fees, service fees, taxes, interest and brokerage fees and litigation, indemni-
fication and other extraordinary expenses) to 0.00% of each Portfolio's average
daily net assets.
10
<PAGE>
PORTFOLIO FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Portfolio (without the waivers and expense limitations) with the cost of
investing in other mutual funds. The Example assumes that you invest $10,000 in
Service Shares of a Portfolio for the time periods indicated and then redeem
all of your shares at the end of those periods. The Example also assumes that
your investment has a 5% return each year and that a Portfolio's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Conservative Strategy $172 $553 $918 $1,998
- -----------------------------------------------------------
Balanced Strategy $134 $418 $723 $1,590
- -----------------------------------------------------------
Growth and Income Strategy $107 $334 $579 $1,283
- -----------------------------------------------------------
Growth Strategy $110 $343 $595 $1,317
- -----------------------------------------------------------
Aggressive Growth Strategy $128 $400 $692 $1,523
- -----------------------------------------------------------
</TABLE>
Service Organizations may charge other fees directly to their customers who are
the beneficial owners of Service Shares in connection with their customers'
accounts. You should contact your service organization for information regard-
ing such charges. Such fees may affect the return their customers realize with
respect to their investments.
Certain Service Organizations may receive other compensation in connection with
the sale and distribution of Service Shares or for services to their customers'
accounts and/or the Portfolios. For additional information regarding such com-
pensation, see "Shareholder Guide" in the Prospectus and "Other Information" in
the Statement of Additional Information ("Additional Statement").
11
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Portfolio
----------------------------------------------------------------------------
<S> <C>
Goldman Sachs Asset Management ("GSAM") Conservative Strategy
One New York Plaza Balanced Strategy
New York, New York 10004 Growth and Income Strategy
Growth Strategy
Aggressive Growth Strategy
----------------------------------------------------------------------------
Except as noted below, GSAM also serves as investment adviser to each Under-
lying Fund.
<CAPTION>
Investment Adviser Underlying Fund
----------------------------------------------------------------------------
<S> <C>
Goldman Sachs Funds Management, L.P. ("GSFM") CORE U.S. Equity
One New York Plaza Capital Growth
New York, New York 10004 CORE Large Cap Value
Adjustable Rate Government
Short Duration Government
----------------------------------------------------------------------------
Goldman Sachs Asset Management International Equity
International ("GSAMI") Japanese Equity
133 Peterborough Court European Equity
London EC4A 2BB International Small Cap
England Emerging Markets Equity
Asia Growth
Global Income
----------------------------------------------------------------------------
</TABLE>
GSAM is a separate operating division of Goldman Sachs, which registered as
an investment adviser in 1981. GSFM, a registered investment adviser since
1990, is a Delaware limited partnership which is an affiliate of Goldman
Sachs. GSAMI, a member of the Investment Management Regulatory Organization
Limited since 1990 and a registered investment adviser since 1991, is an
affiliate of Goldman Sachs. As of December 31, 1998, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser or distributor
for assets in excess of $195 billion.
Under an Asset Allocation Management Agreement ("Management Agreement") with
each Portfolio, the Investment Adviser, subject to the general supervision
of the Trustees, provides day-to-day advice as to each Portfolio's
1-AA
<PAGE>
investment transactions, including determinations concerning changes to (a)
the Underlying Funds in which the Portfolios may invest and (b) the percent-
age range of assets of any Portfolio that may be invested in the Underlying
Equity Funds and the Underlying Fixed-Income Funds as separate groups.
Goldman Sachs has agreed to permit the Portfolios to use the name "Goldman
Sachs" or a derivative thereof as part of each Portfolio's name for as long
as a Portfolio's Management Agreement is in effect.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and cler-
ical services to the Funds
..Arranges for the preparation of all required tax returns, reports to share-
holders, prospectuses and statements of additional information and other
reports filed with the Securities and Exchange Commission (the "SEC") and
other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below:
<TABLE>
<CAPTION>
For the Fiscal Year Ended
Portfolio Contractual Rate December 31, 1998
-----------------------------------------------------------------------
<S> <C> <C>
Conservative Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Balanced Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Growth and Income Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Growth Strategy 0.35% 0.15%
-----------------------------------------------------------------------
Aggressive Growth Strategy 0.35% 0.15%
-----------------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
2-AA
<PAGE>
SERVICE PROVIDERS
In addition, each Portfolio, as a shareholder in the Underlying Funds, will
indirectly bear a proportionate share of any investment management fees and
other expenses paid by the Underlying Funds. The following chart shows the cur-
rent total operating expense ratios (management fee plus other operating
expenses) of Institutional Shares of each Underlying Fund in which the Portfo-
lios may invest. In addition, the following chart shows the contractual invest-
ment management fees payable to the Investment Adviser by the Underlying Funds
(in each case as an annualized percentage of a Fund's average net assets).
Absent voluntary fee waivers and/or expense reimbursements, which may be dis-
continued at any time, the total operating expense ratios of certain Underlying
Funds would be higher.
<TABLE>
<CAPTION>
Total
Contractual Operating
Management Expense
Underlying Funds Fee Ratio
- ---------------------------------------------------------------------------
<S> <C> <C>
Financial Square Prime Obligations Money Market Fund 0.205% 0.18%
- ---------------------------------------------------------------------------
Short Duration Government Fund 0.50% 0.54%
- ---------------------------------------------------------------------------
Adjustable Rate Government Fund 0.40% 0.49%
- ---------------------------------------------------------------------------
Core Fixed Income Fund 0.40% 0.54%
- ---------------------------------------------------------------------------
Government Income Fund 0.90% 0.58%
- ---------------------------------------------------------------------------
Global Income Fund 0.70% 0.69%
- ---------------------------------------------------------------------------
High Yield Fund 0.80% 0.76%
- ---------------------------------------------------------------------------
Growth and Income Fund 0.70% 0.79%
- ---------------------------------------------------------------------------
CORE U.S. Equity Fund 0.75% 0.74%
- ---------------------------------------------------------------------------
CORE Large Cap Growth Fund 0.75% 0.64%
- ---------------------------------------------------------------------------
CORE Large Cap Value Fund 0.60% 0.64%
- ---------------------------------------------------------------------------
CORE Small Cap Equity Fund 0.85% 0.93%
- ---------------------------------------------------------------------------
Capital Growth Fund 1.00% 1.04%
- ---------------------------------------------------------------------------
CORE International Equity Fund 0.85% 1.01%
- ---------------------------------------------------------------------------
Mid Cap Value Fund 0.75% 0.89%
- ---------------------------------------------------------------------------
Small Cap Value Fund 1.00% 1.10%
- ---------------------------------------------------------------------------
International Equity Fund 1.00% 1.14%
- ---------------------------------------------------------------------------
Japanese Equity Fund 1.00% 1.05%
- ---------------------------------------------------------------------------
European Equity Fund 1.00% 1.39%
- ---------------------------------------------------------------------------
International Small Cap Fund 1.20% 1.40%
- ---------------------------------------------------------------------------
Emerging Markets Equity Fund 1.20% 1.39%
- ---------------------------------------------------------------------------
Asia Growth Fund 1.00% 1.20%
- ---------------------------------------------------------------------------
Real Estate Securities Fund 1.00% 1.04%
- ---------------------------------------------------------------------------
</TABLE>
3-AA
<PAGE>
PORTFOLIO MANAGERS
Quantitative Research Team
..The 20-person Quantitative Research Team includes six Ph.Ds and one CFA,
with extensive academic and practitioner experience
..Disciplined, quantitative models are used to determine the relative attrac-
tiveness of the world's stock, bond and currency markets
..Theory and economic intuition guide the investment process
<TABLE>
<CAPTION>
Years Primarily
Name and Title Responsible Five Year Employment History
- --------------------------------------------------------------------------------
<C> <C> <S>
Mark M. Carhart, Since Mr. Carhart joined the Investment
Ph.D., CFA Vice 1998 Adviser as a member of the Quantitative
Chairman, Co-Head Research and Risk Management Team in
Quantitative Research 1997. From August 1995 to September
and Senior Portfolio 1997, he was Assistant Professor of
Manager Finance at the Marshall School of
Business at USC and a Senior Fellow of
the Wharton Financial Institutions
Center. From 1993 to 1995, he was a
lecturer and graduate student at the
University of Chicago Graduate School of
Business.
- --------------------------------------------------------------------------------
Raymond J. Iwanowski Since Mr. Iwanowski joined the Investment
Vice President, Co- 1998 Adviser as an associate and portfolio
Head Quantitative manager in 1997. From 1993 to 1997, he
Research and Senior was a Vice President and head of the
Portfolio Manager Fixed Derivatives Client Research group
at Salomon Brothers.
- --------------------------------------------------------------------------------
Neil Chriss, Ph.D. Since Mr. Chriss joined the Investment Adviser
Vice President and 1998 in 1998. From 1996 to 1998, he worked in
Portfolio Manager the equity division of Morgan Stanley
Dean Witter. From 1994 to 1996, he was a
post-doctoral fellow in the Mathematics
Department of Harvard University.
- --------------------------------------------------------------------------------
Giorgio DeSantis, Since Mr. DeSantis joined the Investment
Ph.D. Vice President 1998 Adviser in 1998. From 1992 to 1998, he
and Portfolio Manager was Assistant Professor of Finance and
Business Economics at the Marshall
School of Business at USC.
- --------------------------------------------------------------------------------
William J. Fallon, Since Mr. Fallon joined the Investment Adviser
Ph.D. Vice President 1998 in 1998. From 1996 to 1998, he worked in
and Portfolio Manager the Firmwide Risk Group of Goldman
Sachs. From 1991 to 1996, he attended
Columbia University, where he earned a
Ph.D. in Finance.
- --------------------------------------------------------------------------------
Guang-Liang He, PhD. Since Mr. He joined the Investment Adviser in
Vice President and 1998 1998. In 1997, he worked in the Firmwide
Portfolio Manager Risk Group of Goldman Sachs. From 1992
to 1997, he worked at Quantitative
Financial Strategies, Inc.
- --------------------------------------------------------------------------------
</TABLE>
4-AA
<PAGE>
SERVICE PROVIDERS
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois, 60606, also serves as Funds'
transfer agent (the "Transfer Agent") and as such, performs various share-
holder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Underlying Funds or Portfolios. Goldman Sachs reserves
the right to redeem at any time some or all of the shares acquired for its
own amount.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to an Underlying Fund or limit an Underlying Fund's investment activities.
Goldman Sachs and its affiliates engage in proprietary trading and advise
accounts and funds which have investment objectives similar to those of the
Underlying Funds and/or which engage in and compete for transactions in the
same types of securities, currencies and instruments as the Underlying
Funds. Goldman Sachs and its affiliates will not have any obligation to make
available any information regarding their proprietary activities or strate-
gies, or the activities or strategies used for other accounts managed by
them, for the benefit of the management of the Underlying Funds. The results
of an Underlying Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that an Under-
lying Fund could sustain losses during periods in which Goldman Sachs and
its affiliates and other accounts achieve significant profits on their trad-
ing for proprietary or other accounts. In addition, the Underlying Funds
may, from time to time, enter into transactions in which other clients of
Goldman Sachs have an adverse interest. An Underlying Fund's activities may
be limited because of regulatory restrictions applicable to Goldman Sachs
and its affiliates, and/or their internal policies designed to comply with
such restrictions.
YEAR 2000
Many computer systems were designed using only two digits to signify the
year (for example, "98" for "1998"). On January 1, 2000, if these computer
systems are not corrected, they may incorrectly interpret "00" as the year
"1900" rather
5-AA
<PAGE>
than the year "2000," leading to computer shutdowns or errors (commonly
known as the "Year 2000 Problem"). To the extent these systems conduct for-
ward-looking calculations, these computer problems may occur prior to Janu-
ary 1, 2000. Like other investment companies and financial and business
organizations, the Portfolios and the Underlying Funds could be adversely
affected in their ability to process securities trades, price securities,
provide shareholder account services and otherwise conduct normal business
operations if the Investment Adviser or other service providers do not ade-
quately address this problem in a timely manner.
In order to address the Year 2000 Problem, the Investment Adviser has taken
the following measures:
..The Investment Adviser has established a dedicated group to analyze these
issues and to implement the systems modifications necessary to prepare for
the Year 2000 Problem.
..The Investment Adviser has sought assurances from the Portfolios' other
service providers that they are taking the steps necessary so that they do
not experience Year 2000 Problems, and the Investment Adviser will continue
to monitor the situation.
Currently, the Investment Adviser does not anticipate that the transition to
the 21st century will have any material impact on its ability to continue to
service the Portfolios at current levels.
In addition, the Investment Adviser has undertaken measures to appropriately
take into account available information concerning the Year 2000 prepared-
ness of the issuers of securities held by the Portfolios. The Investment
Adviser may obtain such Year 2000 information from various sources which the
Investment Adviser believes to be reliable, including the issuers' public
regulatory filings. However, the Investment Adviser is not in a position to
verify the accuracy or completeness of such information.
At this time, however, no assurance can be given that the actions taken by
the Investment Adviser and the Portfolios' other service providers will be
sufficient to avoid any adverse effect on the Portfolios due to the Year
2000 Problem.
6-AA
<PAGE>
Dividends
Each Fund pays dividends from its net investment income and distributions from
net realized capital gains. You may choose to have dividends and distributions
paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for exchanges in certain ILA Portfolios. See
the Additional Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from net capital gains
are declared and paid as follows:
<TABLE>
<CAPTION>
Investment Capital Gains
Portfolio Income Dividends Distributions
- ----------------------------------------------------------
<S> <C> <C>
Conservative Strategy Monthly Annually
- ----------------------------------------------------------
Balanced Strategy Monthly Annually
- ----------------------------------------------------------
Growth and Income Strategy Quarterly Annually
- ----------------------------------------------------------
Aggressive Growth Strategy Quarterly Annually
- ----------------------------------------------------------
Growth Strategy Annually Annually
- ----------------------------------------------------------
</TABLE>
From time to time a portion of a Portfolio's dividends may constitute a return
of capital.
At the time of an investor's purchase of shares of a Portfolio, a portion of
the net asset value ("NAV") per share may be represented by undistributed
income or realized or unrealized appreciation of the Portfolio's portfolio
securities. Therefore, subsequent distributions on such shares from such income
or realized appreciation may be taxable to the investor even if the NAV of the
shares is, as a result of the distributions, reduced below the cost of such
shares and the distributions (or portions thereof) represent a return of a por-
tion of the purchase price.
7-AA
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their NAV next determined after receipt of an order by
Goldman Sachs from a Service Organization. No sales load is charged. Pur-
chases of Service Shares must be settled within three business days of
receipt of a complete purchase order.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to State Street Bank and Trust Company ("State Street")
(each Fund's custodian) on the next business day; or
..Initiate an Automated Clearing House Network ("ACH") transfer on the next
business day; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. Goldman Sachs Trust (the "Trust") will not accept a check drawn
on a foreign bank or a third-party check.
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
1-H
<PAGE>
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and may designate other interme-
diaries to accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations and intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payment for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, that are attributable to or held
in the name of a Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Subject to applicable NASD regu-
lations, the Investment Adviser, Distributor and/or their affiliates may
also contribute to various cash and non-cash incentive arrangements to pro-
mote the sale of shares. This additional compensation can vary among Service
Organizations depending upon such factors as the amounts their customers
have invested (or may invest) in particular Goldman Sachs Funds, the partic-
ular program involved, or the amount of reimbursable expenses. Additional
compensation based on sales may, but is currently not expected to, exceed
0.50% (annualized) of the amount invested.
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and
are entitled to different services than Service Shares. Information regard-
ing these other share classes may be obtained from your sales representative
or from Goldman Sachs by calling the number on the back cover of this Pro-
spectus.
2-H
<PAGE>
SHAREHOLDER GUIDE
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Serv-
ice Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Service Shares of a
Fund is evident, or if purchases, sales or exchanges are, or a subsequent
abrupt redemption might be, of a size that would disrupt the management of
a Fund.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations or if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Trustees.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). Fund shares will not be priced on any day
the New York Stock Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
3-H
<PAGE>
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be
reflected in a Fund's next determined NAV unless the Trust, in its discre-
tion, makes an adjustment in light of the nature and materially of the
event, its effect on Fund operations and other relevant factors.
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem Service Shares upon request on any business day at
their NAV next determined after receipt of such request of an order in
proper form. Redemption proceeds may be sent to recordholders by check or by
wire (if the wire instructions are on record).
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
--------------------------------------------
1-800-621-2550 (8:00 a.m. to
By Telephone: 4:00 p.m. New York time)
--------------------------------------------
</TABLE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not
4-H
<PAGE>
SHAREHOLDER GUIDE
employed, the Trust may be liable for any loss due to unauthorized or fraud-
ulent transactions. The following general policies are currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request will be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: The Funds will arrange for redemption proceeds to be wired as fed-
eral funds to the bank account designated in the recordholder's Account
Application. The following general policies govern wiring redemption pro-
ceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request, unless you are selling shares you recently paid for by
check. In that case, the Funds will pay you when your check has cleared,
which may take up to 15 days. If the Federal Reserve Bank is closed on the
day that the redemption proceeds would ordinarily be wired, wiring the
redemption proceeds may be delayed one additional business day.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organization.
..If the redeemed shares were recently paid for by check, the Funds will pay
the redemption proceeds when the check has cleared, which may take up to 15
days.
By Check: A recordholder may elect in writing to receive redemption proceeds
by check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of receipt of a properly exe-
cuted redemption request, unless the shares to be sold were recently paid
for by check. In that case, the Funds will pay the redemption proceeds when
the check has cleared, which may take up to 15 days.
5-H
<PAGE>
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
The Trust reserves the right to:
..Redeem the Service Shares of any Service Organization whose account balance
falls below $50 as a result of earlier redemptions. The Funds will not
redeem Service Shares on this basis if the value of the account falls below
the minimum account balance solely as a result of market conditions. The
Fund will give 60 days' prior written notice to allow a Service Organiza-
tion to purchase sufficient additional shares of the Fund in order to avoid
such redemption.
..Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the interests of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
Service Shares of any other Goldman Sachs Fund. The exchange privilege may
be materially modified or withdrawn at any time upon 60 days' written notice
to you.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-----------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Fund
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------------
By Telephone: if you have not declined the telephone redemption
privileges on your Account Application:
.1-800-621-2550 (8:00 a.m. to
4:00 p.m. New York time)
-----------------------------------------------------------------------
</TABLE>
6-H
<PAGE>
SHAREHOLDER GUIDE
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirement of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account.
Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will Be Sent Regarding Investments In Service Shares?
Service Organizations will receive from the Funds annual reports containing
audited financial statements and semiannual reports. Service Organizations
will also be provided with a printed confirmation for each transaction in
their account and a monthly account statement. A year-to-date statement for
accounts will be provided upon request made to Goldman Sachs. Service Orga-
nizations are responsible for providing these or other reports to their cus-
tomers who are the beneficial owners of Service Shares in accordance with
the rules that apply to their accounts with the Service Organizations.
7-H
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
Portfolio distributions are taxable to you as ordinary income (unless your
investment is in an IRA or other tax-advantaged account) to the extent they
are attributable to the Portfolio's net investment income, certain net real-
ized foreign exchange gains and net short-term capital gains. They are tax-
able as long-term capital gains to the extent they are attributable to the
Portfolio's excess of net long-term capital gains (including long-term capi-
tal gain distributions received from Underlying Fund investments) over net
short-term capital losses. The tax status of any distribution is the same
regardless of how long you have been in the Portfolio and whether you rein-
vest in additional shares or take the distribution as cash. Certain distri-
butions paid by a Portfolio in January of a given year may be taxable to
shareholders as if received the prior December 31. The tax status and
amounts of the dividends and distributions for each calendar year will be
detailed in your annual tax statement from the Portfolio.
The REIT investments of the underlying Real Estate Securities Fund often do
not provide complete tax information to the Fund until after the calendar
year-end. Consequently, because of the delay, it may be necessary for the
Fund to request permission to extend the deadline for issuance of Forms
1099-DIV beyond January 31.
At any time, a portion of a Portfolio's NAV per share may be represented by
undistributed income or realized or unrealized appreciation of the Under-
lying Fund's portfolio securities. Therefore, subsequent distributions on a
Portfolio's shares may be taxable to you, even if the NAV of your shares is,
as a result, reduced below the cost of those shares and the distributions
represent a return of your purchase price.
A Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from Underlying Fund
investments may be eligible, in the hands of the corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding
period requirements and debt financing limitations.
There are certain tax requirements that all Portfolios must follow in order
to avoid federal taxation. In its efforts to adhere to these requirements,
the Funds may have to limit their investment activity in some types of
instruments.
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TAXABILITY OF SALES AND EXCHANGES
Any sale or exchange of Portfolio shares may generate a tax liability (un-
less your investment is in an IRA or other tax-advantaged account). Depend-
ing upon the purchase or sale price of the shares you sell or exchange, you
may have a gain or a loss on the transaction.
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Portfolio, based on
the difference between your tax basis in the shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods that you hold shares.) Any
loss recognized on shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received with respect to the shares.
In addition to federal income taxes, you may be subject to state, local or
foreign taxes on payments received from a Portfolio or on the value of the
shares held by you. More tax information is provided in the Additional
Statement. You should also consult your own tax adviser for information
regarding all tax consequences applicable to your investments in the Portfo-
lios.
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Appendix A
Additional Information on the Underlying Funds
This Appendix provides further information on certain types of securities
and techniques that may be used by the Underlying Funds, including their
associated risks. Additional information is provided in the Additional
Statement, which is available upon request, and in the prospectuses of the
Underlying Funds.
The Underlying Equity Funds invest primarily in common stocks and other
equity securities, including preferred stocks, interests in real estate
investment trusts, convertible debt obligations, convertible preferred
stocks, equity interests in trusts, partnerships, joint ventures, limited
liability companies and similar enterprises, warrants and stock purchase
rights ("equity securities"). The Underlying Fixed-Income Funds invest pri-
marily in fixed-income securities, including senior and subordinated corpo-
rate debt obligations (such as bonds, debentures, notes and commercial
paper), convertible and non-convertible corporate debt obligations, loan
participations and preferred stock.
The Short Duration Government and Adjustable Rate Government Funds invest in
U.S. Government Securities and related repurchase agreements, and neither of
these Funds, the Government Income Fund nor the Financial Square Prime Obli-
gations Fund makes foreign investments. The investments of the Financial
Square Prime Obligations Fund are limited by SEC regulations applicable to
money market funds as described in its prospectus, and do not include many
of the types of investments discussed below that are permitted for the other
Underlying Funds. With these exceptions, and the further exceptions noted
below, the following description applies generally to the Underlying Funds.
A. Description of the Underlying Funds
Underlying Equity Funds
The investment advisers of the Underlying Equity Funds may, in choosing
securities, utilize first-hand fundamental research, including visiting com-
pany facilities to assess operations and to meet decision-makers. The
investment advisers may also use macro analysis of numerous economic and
valuation variables to anticipate changes in company earnings and the over-
all investment climate. The investment advisers are able to draw on the
research and market expertise of the Goldman Sachs Global Investment
Research Department and other affiliates, as well as information provided by
other securities dealers. Equity securities held by an Underlying Equity
Fund will generally be sold when an investment adviser
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believes that the market price fully reflects or exceeds the securities'
fundamental valuation or when other more attractive investments are identi-
fied.
Domestic Value Style Funds. The Growth and Income, Mid Cap Value and Small
Cap Value Funds are managed using a value oriented approach. The Funds'
investment adviser evaluates securities using fundamental analysis and
intends to purchase equity securities that are, in its view, underpriced
relative to a combination of such companies' long-term earnings prospects,
growth rate, free cash flow and/or dividend-paying ability.
Consideration will be given to the business quality of the issuer. Factors
positively affecting the investment adviser's view of that quality include
the competitiveness and degree of regulation in the markets in which the
company operates, the existence of a management team with a record of suc-
cess, the position of the company in the markets in which it operates, the
level of the company's financial leverage and the sustainable return on cap-
ital invested in the business. These Underlying Funds may also purchase
securities of companies that have experienced difficulties and that, in the
opinion of the investment adviser, are available at attractive prices.
Domestic Growth Style Fund. The Capital Growth Fund is managed using a
growth oriented approach. Equity securities for this Fund are selected based
on their prospects for above average growth. The Fund's investment adviser
will select securities of growth companies trading, in the investment advis-
er's opinion, at a reasonable price relative to other industries, competi-
tors and historical price/ earnings multiples. The Fund will generally
invest in companies whose earnings are believed to be in a relatively strong
growth trend or, to a lesser extent, in companies in which significant fur-
ther growth is not anticipated but whose market value per share is thought
to be undervalued.
Quantitative Style Funds. The CORE U.S. Equity, CORE Large Cap Growth, CORE
Large Cap Value, CORE Small Cap Equity and CORE International Equity Funds
(the "CORE Equity Funds") are managed using both quantitative and fundamen-
tal techniques. CORE is an acronym for "Computer-Optimized, Research-
Enhanced," which reflects the Funds' investment process. This investment
process and the proprietary multifactor model used to implement it are dis-
cussed below.
Quantitative Investment Process. The Funds' investment advisers begin with a
broad universe of U.S. equity securities for the CORE U.S. Equity, CORE
Large Cap Growth, CORE Large Cap Value and CORE Small Cap Equity Funds (the
"CORE U.S. Equity Funds"), and a broad universe of foreign equity securities
for the CORE International Equity Fund. The investment advisers use proprie-
tary multifactor models (each a "Multifactor Model") to forecast the returns
of differ-
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APPENDIX A
ent markets, currencies and individual securities. In the case of an U.S.
equity security followed by the Goldman Sachs Global Investment Research
Department (the "Research Department"), a rating is assigned based upon the
Research Department's evaluation. In the discretion of the investment advis-
er, ratings may also be assigned to U.S. equity securities based on research
ratings obtained from other industry sources. In the case of a foreign
equity security, an investment adviser may rely on research from both the
Research Department and other industry sources.
In building a diversified portfolio for each CORE Equity Fund, an investment
adviser utilizes optimization techniques to seek to maximize the Fund's
expected return, while maintaining a risk profile similar to the Fund's
benchmark. Each portfolio consists primarily of securities rated highest by
the foregoing investment process and has risk characteristics and industry
weightings similar to the relevant Fund's benchmark.
Quantitative Multifactor Models. The Multifactor Models are rigorous comput-
erized rating systems for forecasting the returns of different equity mar-
kets, currencies, and individual equity securities according to fundamental
investment characteristics. The CORE U.S. Equity Funds use one Multifactor
Model to forecast the returns of securities held in each Fund's portfolio.
The CORE International Equity Fund uses multiple Multifactor Models to fore-
cast returns. Currently, the CORE International Equity Fund uses one model
to forecast equity market returns, one model to forecast currency returns
and 22 separate models to forecast individual equity security returns in 22
different countries. Despite this variety, all Multifactor Models incorpo-
rate common variables covering measures of value, growth, momentum and risk
(e.g., book/price ratio, earnings/price ratio, price momentum, price vola-
tility, consensus growth forecasts, earnings estimate revisions, earnings
stability, and, in the case of models for the CORE International Equity
Fund, currency momentum and country political risk ratings). All of the fac-
tors used in the Multifactor Models have been shown to significantly impact
the performance of the securities, currencies and markets they were designed
to forecast.
The weightings assigned to the factors in the Multifactor Model used by the
CORE U.S. Equity Funds are derived using a statistical formulation that con-
siders each factor's historical performance in different market environ-
ments. As such, the U.S. Multifactor Model is designed to evaluate each
security using only the factors that are statistically related to returns in
the anticipated market environment. Because they include many disparate fac-
tors, the Funds' investment advisers believe that all the Multifactor Models
are broader in scope and provide a more thorough evaluation than most con-
ventional, quantitative models. Securities
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and markets ranked highest by the relevant Multifactor Model do not have one
dominant investment characteristic; rather, they possess an attractive com-
bination of investment characteristics.
Research Department. In assigning ratings to equity securities, the Research
Department uses a four category rating system ranging from "recommended for
purchase" to "likely to underperform." The ratings reflect the analyst's
judgment as to the investment results of a specific security and incorporate
economic outlook, valuation, risk and a variety of other factors.
By employing both a quantitative (i.e., the Multifactor Models) and a quali-
tative (i.e., research enhanced) method of selecting securities, each CORE
Equity Fund seeks to capitalize on the strengths of each discipline.
Actively Managed International Funds. The International Equity, Japanese
Equity, European Equity, International Small Cap, Emerging Markets Equity
and Asia Growth Funds are managed using an active international approach.
This approach utilizes a consistent process of stock selection undertaken by
portfolio management teams located within each of the major investment
regions, including Europe, Japan, Asia and the United States. In selecting
securities, the investment adviser uses a long-term, bottom-up strategy
based on first-hand fundamental research that is designed to give broad
exposure to the available opportunities while seeking to add return primar-
ily through stock selection. Equity securities for these Funds are evaluated
based on three key factors--the business, the management and the valuation.
The investment adviser ordinarily seeks securities that have, in its opin-
ion, superior earnings growth potential, sustainable franchise value with
management attuned to creating shareholder value and relatively discounted
valuations. In addition, the investment adviser uses a multi-factor risk
model which seeks to assure that deviations from the benchmark are justifi-
able.
Real Estate Securities Fund. The investment strategy of the Real Estate
Securities Fund is based on the premise that property market fundamentals
are the primary determinant of growth underlying the success of companies in
the real estate industry. The Fund's research and investment process is
designed to identify those companies with strong property fundamentals and
strong management teams. This process is includes real estate market
research and securities analysis. The Fund's investment adviser will take
into account fundamental trends in underlying property markets as determined
by proprietary models, research of local real estate markets, earnings, cash
flow growth and stability, the relationship between asset values and market
prices of the securities and dividend payment history. The investment
adviser will attempt to purchase securities so that its underlying portfolio
will be diversified geographically and by property type.
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APPENDIX A
Underlying Fixed-Income Funds
As stated above, each Underlying Fixed-Income Fund has policies relating to
its duration (or maturity in the case of the Financial Square Prime Obliga-
tions Fund). A Fund's duration approximates its price sensitivity to changes
in interest rates. Maturity measures the time until final payment is due; it
takes no account of the pattern of a security's cash flows over time. In
computing portfolio duration, an Underlying Fixed-Income Fund will estimate
the duration of obligations that are subject to prepayment or redemption by
the issuer taking into account the influence of interest rates on prepay-
ments and coupon flows. This method of computing duration is known as
"option-adjusted" duration. A Fund will not be limited as to its maximum
weighted average portfolio maturity or the maximum stated maturity with
respect to individual securities unless otherwise noted.
Except for the Financial Square Prime Obligations Fund (which is subject to
more restrictive SEC regulations applicable to money market funds), an
Underlying Fixed-Income Fund will deem a security to have met its minimum
credit rating requirement if the security receives the minimum required
long-term rating (or the equivalent short-term credit rating) at the time of
purchase from at least one rating organization (including, but not limited
to, Standard & Poor's Ratings Group ("S&P") and Moody's Investors Service,
Inc. ("Moody's")) even though it has been rated below the minimum rating by
one or more other rating organizations, or, if unrated by a rating organiza-
tion, is determined by the Fund's investment adviser to be of comparable
quality. If a security satisfies a Fund's minimum rating criteria at the
time of purchase and is subsequently downgraded below such rating, the Fund
will not be required to dispose of such security. If a downgrade occurs, the
Fund's investment adviser will consider what action, including the sale of
such security, is in the best interest of the Fund and its shareholders.
The Underlying Fixed-Income Funds may (but are not required to) employ cer-
tain active management techniques to manage their duration and term struc-
ture, to seek to hedge exposure to foreign currencies and to seek to enhance
returns. These techniques include (with respect to one or more of the
Funds), but are not limited to, the use of financial futures contracts,
option contracts (including options on futures), forward foreign currency
exchange contracts, currency options and futures, currency, mortgage, credit
and interest rate swaps and interest rate floors, caps and collars. Currency
and interest rate management techniques involve risks different from those
associated with investing solely in U.S. dollar-denominated fixed-income
securities of U.S. issuers. Certain of the Funds may invest in custodial
receipts, municipal securities and convertible securities. The Funds may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repur-
chase agreements, reverse repurchase agreements and other investment prac-
tices.
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B. General Risks of the Underlying Funds
The Underlying Equity Funds will be subject to the risks associated with
common stocks and other equity securities. In general, stock values fluctu-
ate in response to the activities of individual companies and in response to
general market and economic conditions. Accordingly, the value of the stocks
that a Fund holds may decline over short or extended periods. The stock mar-
kets tend to be cyclical, with periods when stock prices generally rise and
periods when prices generally decline.
The Underlying Fixed-Income Funds will be subject to the risks associated
with fixed-income securities. These risks include interest rate risk, credit
risk and call/extension risk, In general, interest rate risk involves the
risk that when interest rates decline, the market value of fixed-income
securities tends to decline. Credit risk involves the risk that the issuer
could default on its obligations and a Fund will not recover its investment.
Call risk and extension risk are normally present in adjustable rate mort-
gage loans ("ARMs"), mortgage-backed securities and asset-backed securities.
For example, homeowners have the option to prepay their mortgages. There-
fore, the duration of a security backed by home mortgages can either shorten
(call risk) or lengthen (extension risk). In general, if interest rates on
new mortgage loans fall sufficiently below the interest rates on existing
outstanding mortgage loans, the rate of prepayment would be expected to
increase. Conversely, if mortgage loan interest rates rise above the inter-
est rates on existing outstanding mortgage loans, the rate of prepayment
would be expected to decrease. In either case, a change in the prepayment
rate can result in losses to investors.
The Financial Square Prime Obligations Fund attempts to maintain a stable
NAV of $1.00 per share and values its assets using the amortized cost method
in accordance with SEC regulations. There is no assurance, however, that the
Financial Square Prime Obligations Fund will be successful in maintaining
its per share value at $1.00 on a continuous basis. The per share NAVs of
the other Underlying Funds are expected to fluctuate on a daily basis.
The turnover rates of the Underlying Funds have ranged from 41% to 315% dur-
ing their most recent fiscal years. There can be no assurance that the turn-
over rates of the Underlying Funds will remain within this range during sub-
sequent fiscal years. Higher turnover rates may result in higher brokerage
costs and expenses for the Underlying Funds. In addition, higher turn-
over rates may result in higher taxable realized gains for shareholders.
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<PAGE>
APPENDIX A
C. Other Risks of the Underlying Funds
Risks of Investing in Small Capitalization Companies and REITs. Investments
in small capitalization companies and REITs involve greater risk and portfo-
lio price volatility than investments in larger capitalization stocks. Among
the reasons for the greater price volatility of these investments are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such securities. Small capitalization companies
and REITs may be thinly traded and may have to be sold at a discount from
current market prices or in small lots over an extended period of time. In
addition, these securities are subject to the risk that during certain peri-
ods the liquidity of particular issuers or industries, or all securities in
these investment categories, will shrink or disappear suddenly and without
warning as a result of adverse economic or market conditions, or adverse
investor perceptions, whether or not accurate. Because of the lack of suffi-
cient market liquidity, an Underlying Fund may incur losses because it will
be required to effect sales at a disadvantageous time and only then at a
substantial drop in price. Small capitalization companies and REITs also
often have limited product lines, markets or financial resources; may depend
on or use a few key personnel for management; and may be susceptible to
losses and risks of bankruptcy. Transaction costs for these investments are
often higher than those for larger capitalization companies. Investments in
small capitalization companies and REITs may be more difficult to price pre-
cisely than other types of securities because of their characteristics and
lower trading volumes.
Risks of Derivative Investments. An Underlying Fund's transactions, if any,
in options, futures, options on futures, swaps, interest rate caps, floors
and collars, structured securities, inverse floating-rate securities,
stripped mortgage-backed securities and currency transactions involve addi-
tional risk of loss. Loss can result from a lack of correlation between
changes in the value of derivative instruments and the portfolio assets (if
any) being hedged, the potential illiquidity of the markets for derivative
instruments, or the risks arising from margin requirements and related lev-
erage factors associated with such transactions. The use of these management
techniques also involves the risk of loss if the investment adviser is
incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. The Underlying Funds may also invest in derivative
investments for non-hedging purposes (that is, to seek to increase total
return), which is considered as a speculative practice and presents even
greater risk of loss.
Derivative mortgage-backed securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact
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<PAGE>
the cash flow and the market value of these securities. In general, the risk
of faster than anticipated prepayments adversely affects IOs, super floaters
and premium priced mortgage-backed securities. The risk of slower than
anticipated prepayments generally adversely affects POs, floating-rate secu-
rities subject to interest rate caps, support tranches and discount priced
mortgage-backed securities. In addition, particular derivative securities
may be leveraged such that their exposure (i.e., price sensitivity) to
interest rate and/or prepayment risk is magnified.
Floating-rate derivative debt securities can present more complex types of
derivative and interest rate risks. For example, range floaters are subject
to the risk that the coupon will be reduced below market rates if a desig-
nated interest rate floats outside of a specified interest rate band or col-
lar. Dual index or yield curve floaters are subject to lower prices in the
event of an unfavorable change in the spread between two designated interest
rates.
Risks of Foreign Investments. Certain of the Underlying Funds may invest in
foreign securities in accordance with their investment objectives and poli-
cies. Foreign investments involve special risks that are not typically asso-
ciated with U.S. dollar denominated or quoted securities of U.S. issuers.
Foreign investments may be affected by changes in currency rates, changes in
foreign or U.S. laws or restrictions applicable to such investments and
changes in exchange control regulations (e.g., currency blockage). A decline
in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denomi-
nated relative to the U.S. dollar would reduce the value of the portfolio
security.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts after January 1, 1999 that refer to existing currencies
rather than the euro; the establishment and maintenance of exchange rates
for currencies being converted into the euro; the fluctuation of the euro
relative to non-euro currencies during the transition period from January 1,
1999 to December 31, 2001 and beyond; whether the interest rate, tax and
labor regimes of European countries participating in the euro will converge
over time; and whether the conversion of the currencies of other countries
in the European Union ("EU"), such as the United Kingdom and Denmark, into
the euro and the admission of other non-EU countries such as Poland, Latvia
and Lithuania as members of the EU may have an impact on the euro. These or
other factors, including political and economic risks, could cause market
disruptions, and could adversely affect the value of securities held by the
Underlying Funds.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States.
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APPENDIX A
In addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, such procedures have been unable to keep
pace with the volume of securities transactions, thus making it difficult to
conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less gov-
ernment regulation of foreign markets, companies and securities dealers than
in the United States. Foreign securities markets may have substantially less
volume than U.S. securities markets and securities of many foreign issuers
are less liquid and more volatile than securities of comparable domestic
issuers. Furthermore, with respect to certain foreign countries, there is a
possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding or other taxes on dividend or interest payments
(or, in some cases, capital gains), limitations on the removal of funds or
other assets of the Underlying Funds, and political or social instability or
diplomatic developments which could affect investments in those countries.
Concentration of a Fund's assets in one of a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations involves risks not present in debt
obligations of corporate issuers. The issuer of the debt or the governmental
authorities that control the repayment of the debt may be unable or unwill-
ing to repay principal or interest when due in accordance with the terms of
such debt, and an Underlying Fund may have limited recourse to compel pay-
ment in the event of a default. Periods of economic uncertainty may result
in volatility of market prices of sovereign debt, and in turn the Underlying
Fund's NAV, to a greater extent than the volatility inherent in debt obliga-
tions of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs") and Global Depository
Receipts ("GDRs"). Certain Underlying Funds may also invest in European
Depository Receipts ("EDRs") or other similar instruments representing secu-
rities of foreign issuers. ADRs represent the right to receive securities of
foreign issuers deposited
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<PAGE>
in a domestic bank or a correspondent bank. Prices of ADRs are quoted in
U.S. dollars, and ADRs are traded in the United States. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank. EDRs and GDRs are
not necessarily quoted in the same currency as the underlying security.
Risks of Emerging Countries. Certain Underlying Funds may invest in securi-
ties of issuers located in emerging countries. The risks of foreign invest-
ment are heightened when the issuer is located in an emerging country. The
International Equity, European Equity, International Small Cap, Emerging
Markets Equity and Asia Growth Funds may each invest without limit in the
securities of issuers in emerging countries. Up to 35% of the total assets
of the Emerging Markets Equity Fund may be invested in securities of issuers
in any one emerging country. The Growth and Income, Small Cap Value, Mid Cap
Value, High Yield and CORE International Equity Funds may each invest up to
25%, and the Core Fixed Income, Global Income and Capital Growth Funds may
each invest up to 10%, of their respective total assets in securities of
issuers in emerging countries.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant invest-
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APPENDIX A
ment losses. Investing in emerging countries involves greater risk of loss
due to expropriation, nationalization, confiscation of assets and property
or the imposition of restrictions on foreign investments and on repatriation
of capital invested.
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of such emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
An Underlying Fund's investment in emerging countries may also be subject to
withholding or other taxes, which may be significant and may reduce the
return from an investment in such country to the Underlying Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve an Under-
lying Fund's delivery of securities before receipt of payment for their
sale. In addition, significant delays are common in certain markets in reg-
istering the transfer of securities. Settlement or registration problems may
make it more difficult for an Underlying Fund to value its portfolio securi-
ties and could cause the Underlying Fund to miss attractive investment
opportunities, to have a portion of its assets uninvested or to incur losses
due to the failure of a counterparty to pay for securities the Underlying
Fund has delivered or the Underlying Fund's inability to complete its con-
tractual obligations. The creditworthiness of the local securities firms
used by the Underlying Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries, thus subjecting
the Underlying Fund to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make an Underlying Fund's investments in such countries less liq-
uid and more volatile than investments in countries with more developed
securities markets (such as the United States, Japan and most Western Euro-
pean countries). An Underlying Fund's investments in emerging countries are
subject to the risk that the liquidity of a particular investment, or
investments generally, in such countries will shrink or disappear suddenly
and without warning as a result of adverse economic, market or political
conditions, or adverse investor perceptions, whether or not accurate.
Because of the lack of sufficient market liquidity, an Underlying Fund may
incur losses because it will be required to effect sales at a disadvanta-
geous time
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<PAGE>
and only then at a substantial drop in price. Investments in emerging coun-
tries may be more difficult to price precisely because of their characteris-
tics and lower trading volumes.
An Underlying Fund's use of foreign currency management techniques in emerg-
ing countries may be limited. Due to the limited market for these instru-
ments in emerging countries, the Investment Adviser does not currently
anticipate that a significant portion of the Funds' currency exposure in
emerging countries, if any, will be covered by such instruments.
Risks of Illiquid Securities. The Underlying Funds may invest up to 15% (10%
in the case of the Financial Square Prime Obligations Fund) of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
^Both domestic and foreign securities that are not readily marketable
^Certain municipal leases and participation interests
^Certain stripped mortgage-backed securities
^Repurchase agreements and time deposits with a notice or demand period of
more than seven days
^Certain over-the-counter options
^Certain restricted securities, unless it is determined, based upon a
review of the trading markets for a specific restricted security, that
the restricted security is eligible for resale pursuant to Rule 144A
under the Securities Act of 1933 ("144A Securities") and, therefore, is
liquid
Investing in 144A Securities may decrease the liquidity of an Underlying
Fund's portfolio to the extent that qualified institutional buyers become
for a time uninterested in purchasing these restricted securities. The pur-
chase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant, from the market price
of comparable securities for which a liquid market exists.
Risks of Non-Diversification and Concentration. The Global Income Fund is
registered as a "non-diversified" Fund under the 1940 Act and is, therefore,
more susceptible to adverse developments affecting any single issuer. In
addition, the Global Income Fund, and certain other Underlying Funds, may
invest more than 25% of their total assets in the securities of corporate
and governmental issuers located in a particular foreign country or region.
Concentration of a Fund's investments in such issuers will subject the Fund,
to a greater extent than if investment was more limited, to the risks of
adverse securities markets, exchange rates and social, political or economic
events which may occur in that country or region.
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<PAGE>
APPENDIX A
Temporary Investment Risks. Each Underlying Fund (other than the CORE Funds)
may invest up to 100% of its total assets, and each CORE Fund may invest up
to 35% of its total assets, in short-term debt securities. When an Under-
lying Fund's assets are invested in such instruments, the Underlying Fund
may not be achieving its investment objective.
D. Investment Securities and Techniques
U.S. Government Securities. The Underlying Funds may invest in U.S. Govern-
ment Securities. Generally, these securities include U.S. Treasury obliga-
tions and obligations issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises. U.S. Government Securities also
include Treasury receipts and U.S. Government Securities that have been
stripped by the U.S. Government, where the interest and principal components
of the securities are traded independently. Interests in U.S. Government
Securities may be purchased in the form of custodial receipts.
Mortgage-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may invest in so-called "Mortgage-Backed Securities." These
securities represent direct or indirect participations in, or are collater-
alized by and payable from, mortgage loans secured by real property.
Mortgage-Backed Securities can be backed by either fixed rate mortgage loans
or adjustable rate mortgage loans, and may be issued by either a governmen-
tal or non-governmental entity. Privately issued Mortgage-Backed Securities
are normally structured with one or more types of "credit enhancement." How-
ever, these Mortgage-Backed Securities typically do not have the same credit
standing as U.S. government guaranteed Mortgage-Backed Securities.
Mortgage-Backed Securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs"), real estate mortgage invest-
ment conduit ("REMIC") pass-through or participation certificates and
stripped mortgage-backed securities ("SMBS"). CMOs provide an investor with
a specified interest in the cash flow from a pool of underlying mortgages or
of other Mortgage-Backed Securities. CMOs are issued in multiple classes. In
most cases, payments of principal are applied to the CMO classes in the
order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. A REMIC is a CMO that qualifies for special
tax treatment and invests in certain mortgages principally secured by inter-
ests in real property and other permitted investments. SMBS are derivative
multiple class Mortgage-Backed Securities. The market value of SMBS consist-
ing entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on SMBS that receive all
or most of the interest from mortgage
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<PAGE>
loans are generally higher than prevailing market yields on other Mortgage-
Backed Securities because their cash flow patterns are more volatile and
there is a greater risk that the initial investment will not be fully
recouped.
Asset-Backed Securities. The Underlying Funds (other than the five CORE
Equity Funds) may also invest in asset-backed securities. Certain Funds'
Asset-Backed securities are limited to securities that are issued or guaran-
teed by U.S. government agencies, instrumentalities or sponsored enter-
prises. Asset-backed securities are securities whose principal and interest
payments are collateralized by pools of assets such as auto loans, credit
card receivables, leases, installment contracts and personal property.
Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Accordingly, an Underlying Fund's ability to
maintain positions in such securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject
to generally prevailing interest rates at that time. Asset-backed securities
present credit risks that are not presented by Mortgage-Backed Securities.
This is because asset-backed securities generally do not have the benefit of
a security interest in collateral that is comparable in quality to mortgage
assets. There is the possibility that, in some cases, recoveries on
repossessed collateral may not be available to support payments on these
securities. In the event of a default, an Underlying Fund may suffer a loss
if it cannot sell collateral quickly and receive the amount it is owed.
Municipal Securities. Certain Underlying Funds may make limited investments
in instruments issued by state and local governmental issuers. These securi-
ties may include private activity bonds, municipal leases, certificates of
participation and "auction rate" securities.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. The Underlying Funds may invest in corporate debt obligations, trust
preferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures and other obligations of corporations to
pay interest and repay principal, and include securities issued by banks and
other financial institutions. A trust preferred or capital security is a
long dated bond (for example, 30 years) with preferred features. The pre-
ferred features are that payment of interest can be deferred for a specified
period without initiating a default event. The securities are generally
senior in claim to standard preferred stock but junior to other bondholders.
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<PAGE>
APPENDIX A
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than nonconvertible securities of similar quali-
ty. Convertible securities in which an Underlying Fund invests are subject
to the same rating criteria as its other investments in fixed-income securi-
ties. Convertible securities have both equity and fixed-income risk charac-
teristics. Like all fixed-income securities, the value of convertible secu-
rities is susceptible to the risk of market losses attributable to changes
in interest rates. Generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, to increase as
interest rates decline. However, when the market price of the common stock
underlying a convertible security exceeds the conversion price of the con-
vertible security, the convertible security tends to reflect the market
price of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security, like a fixed-income securi-
ty, tends to trade increasingly on a yield basis, and thus may not decline
in price to the same extent as the underlying common stock.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Each Underlying Fund may invest in zero coupon, deferred interest, pay-in-
kind and capital appreciation bonds. These securities are issued at a dis-
count from their face value because interest payments are typically post-
poned until maturity. Pay-in-kind securities are securities that have
interest payable by the delivery of additional securities.The market prices
of these securities generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality.
Rating Criteria. The rating requirements for each of the Underlying Fixed-
Income Funds are stated above. Except as noted below, the Underlying Equity
Funds (other than the five CORE Equity Funds, which only invest in debt
instruments that are cash equivalents) may invest in debt securities rated
at least investment grade at the time of investment. Investment grade debt
securities are securities rated BBB or higher by Standard & Poor's or Baa or
higher by Moody's. The Growth and Income, Capital Growth, Small Cap Value,
International Equity, Japanese Equity, European Equity, International Small
Cap, Emerging Markets Equity, Asia Growth and Real Estate Securities Funds
may invest up to 10%, 10%, 35%, 35%, 35%, 35%, 35%, 35%, 35% and 20%,
respectively, of their total assets in debt securities which are rated in
the lowest rating categories by Standard & Poor's or Moody's (i.e., BB or
lower by Standard & Poor's or Ba or lower by Moody's), including securities
rated D by Moody's or Standard & Poor's. The Mid Cap Value Fund may invest
up to 10% of its total assets in below investment grade debt securities
rated B or higher by Standard & Poor's or Moody's. Fixed-
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<PAGE>
income securities rated BB or Ba or below (or comparable unrated securities)
are commonly referred to as "junk bonds," are considered predominately spec-
ulative and may be questionable as to principal and interest payments as
described above.
Structured Securities and Inverse Floaters. The Underlying Funds may invest
in structured securities. Structured securities are securities whose value
is determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multi-
ple of changes in the value of the Reference. Consequently, structured secu-
rities may present a greater degree of market risk than other types of
fixed-income securities, and may be more volatile, less liquid and more dif-
ficult to price accurately than less complex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The
higher the degree of leverage of an inverse floater, the greater the vola-
tility of its market value.
Foreign Currency Transactions. The Underlying Funds may, to the extent con-
sistent with its investment policies, purchase or sell foreign currencies on
a cash basis or through forward contracts. A forward contract involves an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. A Fund may engage in foreign currency
transactions for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. In addition, certain
Underlying Funds may also enter into such transactions to seek to increase
total return, which is considered a speculative practice. Some Funds may
also engage in cross-hedging by using forward contracts in a currency dif-
ferent from that in which the hedged security is denominated or quoted if
the investment adviser determines that there is a pattern of correlation
between the two currencies. The Underlying Funds may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of its investment adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date.
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<PAGE>
APPENDIX A
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, an Underlying Fund's value to fluc-
tuate. Currency exchange rates also can be affected unpredictably by the
intervention of U.S. or foreign governments or central banks, or the failure
to intervene, or by currency controls or political developments in the
United States or abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive an Underlying Fund of
unrealized profits, or the benefits of a currency hedge, or could force the
Underlying Fund to cover its purchase or sale commitments, if any, at the
current market price.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Underlying Fund
(other than the CORE U.S. Equity, CORE Large Cap Growth and CORE Large Cap
Value Funds) may write (sell) covered call and put options and purchase put
and call options on any securities in which it may invest or on any securi-
ties index comprised of securities in which it may invest. An Underlying
Fund, may also, to the extent it invests in foreign securities, purchase and
sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of an investment adviser to manage future price fluctua-
tions and the degree of correlation between the options and securities (or
currency) markets. If an investment adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in an Underlying Fund's investment portfolio, the Underlying
Fund may incur losses that it would not otherwise incur. The use of options
can also increase an Underlying Fund's transaction costs. Options written or
purchased by the Underlying Funds may be traded on either U.S. or foreign
exchanges or over-the-counter. Foreign and over-the-counter options will
present greater possibility of loss because of their greater liquidity and
credit risks.
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<PAGE>
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Underlying Funds may engage in
futures transactions on both U.S. and foreign exchanges.
The Underlying Funds may purchase and sell futures contracts, and purchase
and write call and put options on futures contracts, in order to seek to
increase total return or to hedge against changes in interest rates, securi-
ties prices or currency exchange rates, or to otherwise manage their term
structures and durations in accordance with their investment objectives and
policies. The Underlying Funds may also enter into closing purchase and sale
transactions with respect to such contracts and options. An Underlying Fund
will engage in futures and related options transactions for bona fide hedg-
ing purposes as defined in regulations of the Commodity Futures Trading Com-
mission or to seek to increase total return to the extent permitted by such
regulations. The Underlying Funds may not purchase or sell futures contracts
or purchase or sell related options to seek to increase total return, except
for closing purchase or sale transactions, if immediately thereafter the sum
of the amount of initial margin deposits and premiums paid on an Underlying
Fund's outstanding positions in futures and related options entered into for
the purpose of seeking to increase total return would exceed 5% of the mar-
ket value of an Underlying Fund's net assets. Futures contracts and related
options present the following risks:
^While an Underlying Fund may benefit from the use of futures and options on
futures, unanticipated changes in interest rates, securities prices or cur-
rency exchange rates may result in a poorer overall performance than if the
Fund had not entered into any futures contracts or options transactions.
^Because perfect correlation between a futures position and portfolio position
that is intended to be protected is impossible to achieve, the desired pro-
tection may not be obtained and an Underlying Fund may be exposed to addi-
tional risk of loss.
^The loss incurred by an Underlying Fund in entering into futures contracts
and in writing call options on futures is potentially unlimited and may
exceed the amount of the premium received.
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<PAGE>
Appendix A
^Futures markets are highly volatile and the use of futures may increase the
volatility of an Underlying Fund's NAV.
^As a result of the low margin deposits normally required in futures trading,
a relatively small price movement in a futures contract may result in sub-
stantial losses to an Underlying Fund.
^Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
^Foreign exchanges may not provide the same protection as U.S. exchanges.
Preferred Stock, Warrants and Rights. The Underlying Funds may invest in
preferred stock, warrants and rights. Preferred stocks are securities that
represent an ownership interest providing the holder with claims on the
issuer's earnings and assets before common stock owners but after bond own-
ers. Unlike debt securities, the obligations of an issuer of preferred
stock, including dividend and other payment obligations, may not typically
be accelerated by the holders of such preferred stock on the occurrence of
an event of default or other non-compliance by the issuer of the preferred
stock. Warrants and other rights are options to buy a stated number of
shares of common stock at a specified price at any time during the life of
the warrant. The holders of warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
Real Estate Investment Trusts ("REITs"). The Real Estate Securities Fund
expects to invest a substantial portion of its total assets in REITs, which
are pooled investment vehicles that invest primarily in either real estate
or real estate related loans. In addition, other Underlying Equity Funds may
invest in REITs from time to time. The value of a REIT is affected by
changes in the value of the properties owned by the REIT or securing mort-
gage loans held by the REIT. REITs are dependent upon the ability of the
REITs' managers, and are subject to heavy cash flow dependency, default by
borrowers and the qualification of the REITs under applicable regulatory
requirements for favorable federal income tax treatment. REITs are also sub-
ject to risks generally associated with investments in real estate including
possible declines in the value of real estate, general and local economic
conditions, environmental problems and changes in interest rates. To the
extent that assets underlying a REIT are concentrated geographically, by
property type or in certain other respects, these risks may be heightened.
Each Underlying Fund will indirectly bear its proportionate share of any
expenses, including management fees, paid by a REIT in which it invests.
Standard and Poor's Depository Receipts. Each Underlying Equity Fund may,
consistent with its investment policies, purchase Standard & Poor's Deposi-
tory
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<PAGE>
Receipts ("SPDRs"). SPDRs are American Stock Exchange-traded securities that
represent ownership in the SPDR Trust, a trust which has been established to
accumulate and hold a portfolio of common stocks that is intended to track
the price performance and dividend yield of the S&P 500. The SPDR Trust is
sponsored by a subsidiary of the American Stock Exchange. SPDRs may be used
for several reasons, including, but not limited to, facilitating the han-
dling of cash flows or trading or reducing transaction costs. The price
movement of SPDRs may not perfectly parallel the price action of the S&P
500.
World Equity Benchmark Shares. World Equity Benchmark Shares ("WEBS") are
shares of an investment company that invests substantially all of its assets
in securities included in the MSCI indices for specified countries. WEBS are
listed on the American Stock Exchange (the "AMEX"), and were initially
offered to the public in 1996. The market prices of WEBS are expected to
fluctuate in accordance with both changes in the net asset values of their
underlying indices and supply and demand of WEBS on the AMEX. To date, WEBS
have traded at relatively modest discounts and premiums to their net asset
values. However, WEBS have a limited operating history, and information is
lacking regarding the actual performance and trading liquidity of WEBS for
extended periods or over complete market cycles. In addition, there is no
assurance that the requirements of the AMEX necessary to maintain the list-
ing of WEBS will continue to be met or will remain unchanged. In the event
substantial market or other disruptions affecting WEBS should occur in the
future, the liquidity and value of an Underlying Fund's shares could also be
substantially and adversely affected, and the Underlying Fund's ability to
provide investment results approximating the performance of securities in
the EAFE Index could be impaired. If such disruptions were to occur, an
Underlying Fund could be required to reconsider the use of WEBS as part of
its investment strategy.
Other Investment Companies. An Underlying Fund may invest in securities of
other investment companies subject to the limitations prescribed by the
Investment Company Act. These limitations include a prohibition on any Fund
acquiring more than 3% of the voting shares of any other investment company,
and a prohibition on investing more than 5% of an Underlying Fund's total
assets in securities of any one investment company or more than 10% of its
total assets in securities of all investment companies. An Underlying Fund
will indirectly bear its proportionate share of any management fees and
other expenses paid by such other investment companies. Such other invest-
ment companies will have investment objectives, policies and restrictions
substantially similar to those of the acquiring Fund and will be subject to
substantially the same risks.
Equity Swaps. Each Underlying Equity Fund may invest up to 10% of its total
assets in equity swaps. Equity swaps allow the parties to a swap agreement
to
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<PAGE>
APPENDIX A
exchange the dividend income or other components of return on an equity
investment (e.g., a group of equity securities or an index) for a component
of return on another non-equity or equity investment.
An equity swap may be used by an Underlying Fund to invest in a market with-
out owning or taking physical custody of securities in circumstances in
which direct investment may be restricted for legal reasons or is otherwise
impractical. Equity swaps are derivatives and their value can be very vola-
tile. To the extent that an investment adviser does not accurately analyze
and predict the potential relative fluctuation of the components swapped
with another party, an Underlying Fund may suffer a loss. The value of some
components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, an Underlying
Fund may suffer a loss if the counterparty defaults.
When-Issued Securities and Forward Commitments. When-issued securities are
securities that have been authorized, but not yet issued. When-issued secu-
rities are purchased in order to secure what is considered to be an advanta-
geous price and yield to an Underlying Fund at the time of entering into the
transaction. A forward commitment involves the entering into a contract to
purchase or sell securities for a fixed price at a future date beyond the
customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the sold secu-
rities may increase before the settlement date. Although an Underlying Fund
will generally purchase securities on a when-issued or forward commitment
basis with the intention of acquiring securities for its portfolio, an
Underlying Fund may dispose of when-issued securities or forward commitments
before settlement whenever its investment adviser deems it appropriate.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Underlying Fund may enter into repurchase
agreements with dealers in U.S. Government Securities and member banks of
the Federal Reserve System which furnish collateral at least equal in value
or market price to the amount of their repurchase obligation. Some Under-
lying Funds may also enter into repurchase agreements involving certain for-
eign government securities. If the other party or "seller" defaults, an
Underlying Fund might suffer a loss to the extent that the proceeds from the
sale of the underlying securities and other collateral held by the Under-
lying Fund in connection with the repurchase agreements are less than the
repurchase price and the cost of the Underlying Fund associated with delay
and enforcement of the repurchase agreement. In addition, in the event of
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<PAGE>
bankruptcy of the seller, an Underlying Fund could suffer additional losses
if a court determines that the Underlying Fund's interest in the collateral
is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Distri-
butions of the income from repurchase agreements will be taxable to an
Underlying Fund's shareholders. In addition, certain Underlying Funds,
together with other registered investment companies having advisory agree-
ments with the Investment 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.
Lending of Portfolio Securities. Securities lending involves the lending of
securities owned by an Underlying Fund to financial institutions such as
certain broker-dealers. The borrowers are required to secure their loans
continuously with cash, cash equivalents, U.S. Government Securities or let-
ters of credit in an amount at least equal to the market value of the secu-
rities loaned. Cash collateral may be invested in cash equivalents. If an
investment adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
an Underlying Fund (including the loan collateral).
An Underlying Fund may lend its securities to increase its income. An Under-
lying Fund may, however, experience delay in the recovery of its securities
or possible loss if the institution with which it has engaged in a portfolio
loan transaction breaches its agreement with the Underlying Fund.
Short Sales Against-the-Box. Certain Underlying Funds may make short sales
against-the-box. A short sale against-the-box means that at all times when a
short position is open the Underlying Fund will own an equal amount of secu-
rities sold short, or securities convertible into or exchangeable for, with-
out the payment of any further consideration, an equal amount of the securi-
ties of the same issuer as the securities sold short.
Mortgage Dollar Rolls. The Underlying Fixed-Income Funds (except the High
Yield Fund) and the Real Estate Securities Fund may enter into "mortgage
dollar rolls." A mortgage dollar roll involves the sale by an Underlying
Fund of securities for delivery in the current month, simultaneously con-
tracts with the same counterparty to repurchase substantially similar (same
type, coupon and maturity) but not identical securities on a specified
future date. During the roll period, the Underlying Fund loses the right to
receive principal and interest paid on the securities sold. However, the
Underlying Fund benefits to the extent of any difference between (a) the
price received for the securities sold and (b) the lower forward price for
the future purchase and/or fee income plus the interest earned on the
24-NN
<PAGE>
APPENDIX A
cash proceeds of the securities sold. Unless the benefits of a mortgage dol-
lar roll exceed the income, capital appreciation and gain or loss due to
mortgage prepayments that would have been realized on the securities sold as
part of the roll, the use of this technique will diminish the performance of
the Underlying Fund.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
Borrowings and Reverse Repurchase Agreements. The Underlying Funds can bor-
row money from banks and enter into reverse repurchase agreements with banks
and other financial institutions in amounts not exceeding one-third of its
total assets. Reverse repurchase agreements involve the sale of securities
held by an Underlying Fund subject to the Underlying Fund's agreement to
repurchase them at a mutually agreed upon date and price (including inter-
est). These transactions may be entered into as a temporary measure for
emergency purposes or to meet redemption requests. Reverse repurchase agree-
ments may also be entered into when the investment adviser expects that the
interest income to be earned from the investment of the transaction proceeds
will be greater than the related interest expense. Borrowings and reverse
repurchase agreements involve leveraging. If the securities held by an
Underlying Fund decline in value while these transactions are outstanding,
the NAV of the Underlying Fund's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addi-
tion, reverse repurchase agreements involve the risk that any interest
income earned by an Underlying Fund (from the investment of the proceeds)
will be less than the interest expense of the transaction, that the market
value of the securities sold by an Underlying Fund will decline below the
price the Underlying Fund is obligated to pay to repurchase the securities,
and that the securities may not be returned to the Underlying Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. To the extent consistent with their
investment policies, the Underlying Funds may enter into interest rate
swaps, mortgage swaps, credit swaps, currency swaps and interest rate caps,
floors and collars. Interest rate swaps involve the exchange by an Under-
lying Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest
25-NN
<PAGE>
rate swaps in that they represent commitments to pay and receive interest.
The notional principal amount, however, is tied to a reference pool or pools
of mortgages. Credit swaps involve the receipt of floating or fixed rate
payments in exchange for assuming potential credit losses of an underlying
security. Credit swaps give one party to a transaction the right to dispose
of or acquire an asset (or group of assets), or the right to receive or make
a payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor. An interest rate collar is the combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates.
An Underlying Fund may enter into swap transactions for hedging purposes or
to seek to increase total return. The use of interest rate, mortgage, credit
and currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the investment adviser is incorrect in its forecasts of market
value, interest rates and currency exchange rates, the investment perfor-
mance of an Underlying Fund would be less favorable than it would have been
if these investment techniques were not used.
Miscellaneous Techniques
In addition to the techniques and investments described above, certain
Underlying Funds may engage in the following techniques and investments: (i)
yield curve options (Underlying Fixed-Income Funds and Real Estate Securi-
ties Fund only); (ii) loan participations (High Yield Fund only); and (iii)
unseasoned companies.
26-NN
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Port-
folio's financial performance for the past five years (or less if the Port-
folio has been in operation for less than five years). Certain information
reflects financial results for a single Portfolio share. The total returns
in the table represent the rate that an investor would have earned or lost
on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP,
whose report, along with a Portfolio's financial statements, is included in
the Portfolio's annual report (available upon request without charge). Dur-
ing the period shown, the Trust did not offer the Goldman Sachs Conservative
Strategy Portfolio. Accordingly, there are no financial highlights for this
Portfolio.
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Income from
investment operations(e)
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Goldman Sachs Balanced Strategy
Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.25 $0.38
1998 - Class B Shares 10.00 0.19 0.38
1998 - Class C Shares 10.00 0.19 0.39
1998 - Institutional Shares 10.00 0.30 0.39
1998 - Service Shares 10.00 0.25 0.37
- -------------------------------------------------------------------------
Goldman Sachs Growth and Income
Strategy Portfolio for the Period
Ended December 31,(b)
1998 - Class A Shares $10.00 $0.18 $0.47
1998 - Class B Shares 10.00 0.12 0.46
1998 - Class C Shares 10.00 0.12 0.46
1998 - Institutional Shares 10.00 0.20 0.49
1998 - Service Shares 10.00 0.16 0.48
- -------------------------------------------------------------------------
Goldman Sachs Growth Strategy
Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.10 $0.36
1998 - Class B Shares 10.00 0.05 0.35
1998 - Class C Shares 10.00 0.05 0.35
1998 - Institutional Shares 10.00 0.12 0.37
1998 - Service Shares 10.00 0.09 0.35
- -------------------------------------------------------------------------
Goldman Sachs Aggressive Growth
Strategy Portfolio for the Period
Ended December 31,(b)
1998 - Class A Shares $10.00 $0.05 $0.20
1998 - Class B Shares 10.00 0.01 0.18
1998 - Class C Shares 10.00 0.01 0.19
1998 - Institutional Shares 10.00 0.07 0.20
1998 - Service Shares 10.00 0.04 0.21
- -------------------------------------------------------------------------
</TABLE>
1-BB
<PAGE>
<TABLE>
<CAPTION>
Distributions to shareholders
--------------------------------------
In excess Net assets Ratio of
From net of net Net increase Net asset at end of net expenses
investment investment From net in net asset value, end Total period to average
income income realized gain value of period return(a)(d) (in 000s) net assets(c)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.25) $(0.03) $(0.04) $0.31 $10.31 6.38% $ 40,237 0.60%
(0.19) (0.03) (0.04) 0.31 10.31 5.75 33,763 1.30
(0.19) (0.03) (0.04) 0.32 10.32 5.83 24,195 1.30
(0.30) (0.03) (0.04) 0.32 10.32 6.99 205 0.24
(0.25) (0.02) (0.04) 0.31 10.31 6.30 456 0.74
- -----------------------------------------------------------------------------------------------------
$(0.18) $(0.04) $(0.05) $0.38 $10.38 6.55% $181,441 0.60%
(0.12) (0.05) (0.05) 0.36 10.36 5.82 138,914 1.30
(0.12) (0.05) (0.05) 0.36 10.36 5.80 100,711 1.30
(0.20) (0.05) (0.05) 0.39 10.39 6.96 9,030 0.23
(0.16) (0.06) (0.05) 0.37 10.37 6.43 1,354 0.73
- -----------------------------------------------------------------------------------------------------
$(0.10) $(0.02) $(0.05) $0.29 $10.29 4.62% $128,832 0.60%
(0.05) (0.02) (0.05) 0.28 10.28 3.98 109,246 1.30
(0.05) (0.02) (0.05) 0.28 10.28 3.96 63,925 1.30
(0.12) (0.03) (0.05) 0.29 10.29 4.92 2,205 0.23
(0.09) (0.01) (0.05) 0.29 10.29 4.45 378 0.73
- -----------------------------------------------------------------------------------------------------
$(0.05) $ -- $(0.04) $0.16 $10.16 2.57% $ 47,135 0.60%
(0.01) -- (0.04) 0.14 10.14 1.93 41,204 1.30
(0.01) -- (0.04) 0.15 10.15 2.04 21,726 1.30
(0.07) -- (0.04) 0.16 10.16 2.80 124 0.24
(0.04) (0.02) (0.04) 0.15 10.15 2.54 121 0.74
- -----------------------------------------------------------------------------------------------------
</TABLE>
2-BB
<PAGE>
APPENDIX B
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
net investment Ratio of net investment
income expenses to income to Portfolio
to average average net average turnover
net assets(c) assets(c) net assets(c) rate(d)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goldman Sachs Balanced
Strategy Portfolio for
the Period Ended
December 31,(b)
1998 - Class A Shares 3.03% 1.46% 2.17% 50.84%
1998 - Class B Shares 2.38 2.08 1.60 50.84
1998 - Class C Shares 2.34 2.08 1.56 50.84
1998 - Institutional
Shares 3.55 1.02 2.77 50.84
1998 - Service Shares 2.90 1.52 2.12 50.84
- --------------------------------------------------------------------------------------------
Goldman Sachs Growth and
Income Strategy
Portfolio for the
Period Ended December
31,(b)
1998 - Class A Shares 2.37% 1.05% 1.92% 41.91%
1998 - Class B Shares 1.72 1.68 1.34 41.91
1998 - Class C Shares 1.68 1.68 1.30 41.91
1998 - Institutional
Shares 2.97 0.61 2.59 41.91
1998 - Service Shares 2.28 1.11 1.90 41.91
- --------------------------------------------------------------------------------------------
Goldman Sachs Growth
Strategy Portfolio for
the Period Ended
December 31,(b)
1998 - Class A Shares 1.50% 1.15% 0.95% 38.43%
1998 - Class B Shares 0.83 1.78 0.35 38.43
1998 - Class C Shares 0.79 1.78 0.31 38.43
1998 - Institutional
Shares 2.88 0.71 2.40 38.43
1998 - Service Shares 1.63 1.21 1.15 38.43
- --------------------------------------------------------------------------------------------
Goldman Sachs Aggressive
Growth Strategy
Portfolio for the
Period Ended December
31,(b)
1998 - Class A Shares 0.91% 1.42% 0.09% 26.27%
1998 - Class B Shares 0.14 2.05 (0.61) 26.27
1998 - Class C Shares 0.16 2.05 (0.59) 26.27
1998 - Institutional
Shares 8.17 0.99 7.42 26.27
1998 - Service Shares 0.76 1.49 0.01 26.27
- --------------------------------------------------------------------------------------------
</TABLE>
3-BB
<PAGE>
(a) Assumes investment at the net asset value at the beginning of the
period, reinvestment of all dividends and distributions, a complete
redemption of the investment at the net asset value at the end of the
period and no sales or redemption charges. Total return would be reduced
if a sales or redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
4-BB
<PAGE>
Index
1 General Investment Management Approach
3 Fund Investment Objectives and Strategies
3 Goldman Sachs Conservative Strategy Portfolio
4 Goldman Sachs Balanced Strategy Portfolio
5 Goldman Sachs Growth and Income Strategy Portfolio
6 Goldman Sachs Growth Strategy Portfolio
7 Goldman Sachs Aggressive Growth Strategy Portfolio
Principal Investment Strategies
Principal Risks of the Portfolios
Description of the Underlying Funds
Principal Risks of the
Underlying Funds
Portfolio Performance
Portfolio Fees and
Expenses
Service Providers
30 Dividends
32 Shareholder Guide
32 How To Buy Shares
42 How To Sell Shares
Shareholder Services
51 Taxation
A-1 Appendix A:
Additional Information on
the Underlying Funds
B-1 Appendix B:
Financial Highlights
12
<PAGE>
Goldman Sachs Asset Allocation Portfolios Prospectus (Service Shares)
FOR MORE INFORMATION
Annual/Semiannual Report
Additional information about the Portfolios' investments is available in the
Portfolios' annual and semiannual reports to shareholders. In the Portfo-
lios' annual reports, you will find a discussion of the market conditions
and investment strategies that significantly affect the Portfolios' perfor-
mance during the last fiscal year.
Statement of Additional Information
Additional information about the Porfolios and their policies is also avail-
able in the Portfolios' Additional Statement. The Additional Statement is
incorporated by reference into this Prospectus (is legally considered part
of this Prospectus).
The Portfolios' annual and semiannual reports, and the Additional Statement,
are available free upon request by calling Goldman Sachs at 1-800-621-2550
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606
By e-mail - [email protected]
On the Internet - Text-only versions of the Portfolios' documents are
located online and may be downloaded from:
SEC - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus only)
You may review and obtain copies of Portfolio documents by visiting the
SEC's Public Reference Room in Washington, D.C. You may also obtain copies
of Portfolio documents by sending your request and a duplicating fee to the
SEC's Public Reference Section, Washington, D.C. 20549-6009. Information on
the operation of the public reference room may be obtained by calling the
SEC at 1-800-SEC-0330. The Portfolio's investment company registration num-
ber is 811-5349.
[LOGO]
13
<PAGE>
GOLDMAN SACHS MONEY MARKET FUNDS
GOLDMAN SACHS -- INSTITUTIONAL LIQUID ASSETS
FINANCIAL SQUARE FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
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
- --------------------------------------------------------------------------------
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").
<PAGE>
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, 1999 and as may be further
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.
The audited financial statements and related report of Arthur Andersen LLP,
independent public accountants, for each Series contained in each Series' 1998
annual report is incorporated herein by reference in the section "Financial
Statements." No other portions of the Series' Annual Report are incorporated by
reference.
The date of this Additional Statement is May 1, 1999.
<PAGE>
TABLE OF CONTENTS
Page in
Statement of
Additional
Information
-----------
INVESTMENT POLICIES AND PRACTICES OF THE SERIES.. 1
INVESTMENT LIMITATIONS........................... 36
TRUSTEES AND OFFICERS............................ 41
THE ADVISER, DISTRIBUTOR AND TRANSFER AGENT...... 49
PORTFOLIO TRANSACTIONS........................... 57
NET ASSET VALUE.................................. 58
REDEMPTIONS...................................... 60
CALCULATION OF YIELD QUOTATIONS.................. 61
TAX INFORMATION.................................. 69
ORGANIZATION AND CAPITALIZATION.................. 75
CUSTODIAN AND SUBCUSTODIAN....................... 81
INDEPENDENT ACCOUNTANTS.......................... 81
FINANCIAL STATEMENTS............................. 81
OTHER INFORMATION................................ 82
ADMINISTRATION PLANS............................. 83
SERVICE PLANS.................................... 86
DISTRIBUTION AND SERVICE PLANS................... 90
APPENDIX A....................................... A-1
APPENDIX B....................................... B-1
<PAGE>
INVESTMENT POLICIES AND PRACTICES OF THE SERIES
Each Series is a separate pool of assets which pursues its investment
objective through separate investment policies. Each series other than ILA Tax-
Exempt California Portfolio and ILA Tax-Exempt New York Portfolio is a
diversified, open-end management investment Company. The ILA Tax-Exempt
California Portfolio and ILA Tax-Exempt New York Portfolio are non-diversified
open-end management companies. The following discussion elaborates on the
description of each Series' investment policies and practices contained in the
Prospectus:
U.S. GOVERNMENT SECURITIES
Securities guaranteed as to principal and interest by the U.S.
Government, it agencies, authorities or instrumentalities are deemed to include
(a) securities for which the payment of principal and interest is backed by an
irrevocable letter of credit issued by the U.S. Government, its agencies,
authorities or instrumentalities and (b) participations in loans made to foreign
governments or their agencies that are so guaranteed. The secondary market for
certain of these participations is limited. Such participations may therefore
be regarded as illiquid.
Each 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 securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities in the form of custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain 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, including variable amount
master demand notes and asset-backed 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
-1-
<PAGE>
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 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 Money Market Portfolio and FS Money Market Fund and FS Premium
Money Market Funds will invest more than 25% of their total assets in bank
obligations (whether foreign or domestic), including bank commercial paper.
However, if adverse economic conditions prevail in the banking industry (such as
substantial losses on loans, increases in non-performing assets and charge-offs
and declines in total deposits) the Portfolios may, for defensive purposes,
temporarily invest less than 25% of their total assets in bank obligations. As
a result, the Portfolios may be especially affected by favorable and adverse
developments in or related to the banking industry. The activities of U.S.
banks and most foreign banks are subject to comprehensive regulations which, in
the case of U.S. regulations, have undergone substantial changes in the past
decade. The enactment of new legislation or regulations, as well as changes in
interpretation and enforcement of current laws, may affect the manner of
operations and profitability of domestic and foreign banks. Significant
developments in the U.S. banking industry have included increased competition
from other types of financial institutions, increased acquisition activity and
geographic expansion. Banks may be particularly susceptible to certain economic
factors, such as interest rate changes and adverse developments in the market
for real estate. Fiscal and monetary policy and general economic cycles can
affect the availability and cost of funds, loan demand and asset quality and
thereby impact the earnings and financial conditions of banks.
The ILA Prime Obligations Portfolio, ILA Money Market Portfolio, FS
Prime Obligations Fund, FS Premium Fund and FS Money Market Fund may invest in
other short-term obligations (including short-term funding agreements payable in
U.S. dollars and issued or guaranteed by U.S. corporations, foreign corporations
(with respect to the ILA Money Market Portfolio, FS Money Market Fund and FS
Premium Fund) or other entities. A funding agreement is a contract between an
issuer and a purchaser that obligates the issuer to pay a guaranteed rate
-2-
<PAGE>
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 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.
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
-3-
<PAGE>
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 which have more than $1 billion in total assets at the time of
purchase, 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.
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.
-4-
<PAGE>
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 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
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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. To the extent consistent with
its investment objectives and policies, each of the ILA Prime Obligations
Portfolio, Money Market Portfolio, FS Prime Obligations Fund, FS Money Market
Fund and FS Premium Fund may invest in new types of mortgage related securities
and in other asset-backed securities that may be developed in the future.
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 transactions 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 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."
As a matter of fundamental policy, at least 80% of 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's net assets
will ordinarily be invested in municipal obligations, the interest from which is
in the opinion of bond counsel, if any, excluded from gross income for federal
income tax purposes. In addition, as a matter of fundamental policy, at least
65% of each of the ILA Tax-Exempt California Portfolio and ILA Tax- Exempt New
York Portfolio's total assets will be invested in California and New York
municipal obligations, respectively, except in extraordinary circumstances.
Each Tax-Exempt Fund may temporarily invest in taxable money market instruments
or, in the case of the ILA Tax-Exempt California and ILA Tax-Exempt New York
Portfolio's, in municipal obligations that are not California or New York
municipal obligations, respectively, when acceptable California and New York
obligations are not available or when the Adviser believes that the market
conditions dictate a defensive posture. Investments in taxable money market
instruments will be limited to those meeting the quality standards of each Tax-
Exempt Fund. The ILA Prime Obligations Portfolio, ILA Money Market Portfolio,
FS Prime Obligations Fund, FS Money Market Fund and
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FS Premium Fund may also invest in municipal obligations when yields on such
securities are attractive compared to other taxable investments. The ILA Tax-
Exempt California and ILA Tax-Exempt New York Portfolios distributions of
interest from municipal obligations other than California and New York
obligations, respectively, may be subject to California and New York state and
New York city personal income taxes.
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 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.
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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. Each Series (other than the ILA Treasury Obligations
Portfolio, ILA Treasury Instruments Portfolio, ILA Government Portfolio, ILA
Federal Portfolio, FS Treasury Obligations Fund, FS Treasury Instruments Fund,
FS Government and FS Federal Funds) may invest in private activity bonds. The
FS Municipal Fund may invest up to 100% of its assets in private activity bonds.
The ILA Tax-Exempt New York Portfolio will limit its investments in private
activity bonds to not more than 20% of its net assets under normal market
conditions. 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. If such policy should
change in the future, such investments would not exceed 20% of each of the ILA
Tax-Exempt Diversified, ILA Tax-Exempt California Portfolio's and the FS Tax-
Free Funds net assets under normal market conditions.
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
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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 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
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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.
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
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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
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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 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.
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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 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.
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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. 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.
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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%).
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):
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. 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-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
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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.
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
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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 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
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the use of certain cigarette tax funds for health costs. All of these cases are
subject to further proceedings and appeals, and if California eventually loses,
the final remedies may not have to be implemented in one year.
Obligations of Other Issuers
----------------------------
Other Issuers of California Instruments. There are a number of state
---------------------------------------
agencies, instrumentalities and political subdivisions of the State of
California that issue municipal obligations, some of which may be conduit
revenue obligations payable from payments from private borrowers. These
entities are subject to various economic risks and uncertainties, and the credit
quality of the securities issued by them may vary considerably from the credit
quality of obligations backed by the full faith and credit of the State of
California.
State Assistance. Property tax revenues received by local governments
----------------
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
California's General Fund surplus to local agencies, the reallocation of certain
state revenues to local agencies and the assumption of certain governmental
functions by the State of California to assist municipal issuers to raise
revenues. Through 1990-91, local assistance (including public schools)
accounted for around 75% of General Fund spending. To reduce California General
Fund support for school districts, the 1992-93 and 1993-94 Budget Acts caused
local governments to transfer a total of $3.9 billion of property tax revenues
to school districts, representing loss of all the post-Proposition 13 "bailout"
aid. The largest share of these transfers came from counties, and the balance
from cities, special districts and redevelopment agencies. In order to make up
part of this shortfall, the Legislature proposed, and voters approved in 1993,
dedicating 0.5% of the sales tax to counties and cities for public safety
purposes. In addition, the Legislature has changed laws to relieve local
governments of certain mandates, allowing them to reduce costs.
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
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
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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 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
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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 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.
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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 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
- ------------
submit to the State legislature (the "Legislature") a balanced executive budget
which contains a complete plan of expenditures for the ensuing fiscal year and
all moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
The entire plan constitutes the proposed State financial plan for that fiscal
year. The Governor is required to submit to the Legislature quarterly budget
updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
The 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
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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 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
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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 $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.
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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 receipts were projected at $35.09
billion, an increase of $2.05 billion from 1996-97 results. Total
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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.
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
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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 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
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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.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local
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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
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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
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fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that is State-
supported or State-related. 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
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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
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may also be impacted by the fiscal health of its localities, particularly the
City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. 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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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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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
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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 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.
Non-Diversified Status
Since the ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New
York Portfolio are "non-diversified" under the 1940 Act, each is subject only to
their requirements. Under federal tax laws, the ILA Tax-Exempt California
Portfolio and ILA Tax-Exempt New York Portfolio may, with respect to 50% of
their total assets, invest up to 25% of their total assets in the securities of
any issuer (except that this limitation does not apply to U.S. Government
Securities). With respect to the remaining 50% of each Fund's total assets, (1)
the Fund may not invest more than 5% of its total assets in the securities of
any one issuer (other than the U.S. government), and (2) the Fund may acquire
more than 10% of the outstanding voting securities
-35-
<PAGE>
of any one issuer. These tests apply at the end of each quarter of its taxable
year and are subject to certain conditions and limitations under the Code.
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 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
-36-
<PAGE>
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 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.
-37-
<PAGE>
(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.
(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.
- 38 -
<PAGE>
(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.
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'
- 39 -
<PAGE>
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
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.
- 40 -
<PAGE>
TRUSTEES AND OFFICERS
The Trustees are responsible for deciding matters of general policy
and reviewing the actions of the Investment Adviser, distributor and transfer
agent. The officers of the Trust conduct and supervise each Series daily
business operations.
Information pertaining to the Trustees and officers of the Trust is
set forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
NAME, AGE POSITIONS PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH TRUST DURING PAGE 5 YEARS
- ----------- ---------- -----------------------
<S> <C> <C>
Ashok N. Bakhru, 56 Chairman Chairman of the Board and Trustee-
1325 Ave. of Americas & Trustee Goldman Sachs Variable Insurance Trust
New York, NY 10019 (registered investment company) (since
1997); Executive Vice President-Finance
and Administration and 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.
</TABLE>
- 41 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*David B. Ford, 52 Trustee Trustee - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Director,
Commodities Corp. LLC (since April
1997); Managing Director, J. Aron &
Company (since November 1996); Managing
Director, Goldman Sachs & Co. Investment
Banking Division (since November 1996);
Director, CIN Management (investment
adviser) (since August 1996), Chief
Executive Officer & Managing Director
and Director, Goldman Sachs Asset
Management International (since November
1995 and December 1994, respectively);
Co-Head, Goldman Sachs & Co. Asset
Management Division (since November
1995); Co-Head and Director, Goldman
Sachs Funds Management Inc. (since
November 1995 and December 1994,
respectively); Chairman and Director,
Goldman Sachs Asset Management Japan
Limited (since November 1994).
*Douglas C. Grip, 36 Trustee & Managing Director, Goldman Sachs & Co.
One New York Plaza President Asset Management Division (since
New York, NY 10004 November 1997); Trustee and President-
Goldman Sachs Variable Insurance Trust
(registered investment company) (since
1997); President, Goldman Sachs Fund
Group (since April 1996); President,
MFS Retirement Services Inc., of
Massachusetts Financial Services (prior
thereto).
</TABLE>
- 42 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*John P. McNulty, 46 Trustee Trustee - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Managing
Director, Goldman Sachs (since 1996);
General Partner, J. Aron & Company
(since November 1995); Director and
Co-Head, Goldman Sachs Funds Management
Inc. (since November 1995); Director,
Goldman Sachs Asset Management
International (since January 1996);
Director, Global Capital Reinsurance
(since 1989); Director, Commodities
Corp. LLC (since April 1997); Limited
Partner of Goldman, Sachs & Co.
(1994-November 1995).
Mary P. McPherson, 63 Trustee Trustee - Goldman Sachs Variable
The Andrew W. Mellon Insurance Trust (registered investment
Foundation company) (since 1997); Vice President
140 East 62nd Street and Senior Program Officer, The Andrew
New York, NY 10021 W. Mellon Foundation (since October
1997); President Emeritus of Bryn Mawr
College (1978-1997); Director of Josiah
Macy, Jr. Foundation (since 1977);
Director of the Philadelphia
Contributionship (since 1985); Director
of Amherst College (since 1986);
Director of Dayton Hudson Corporation
(1988-1997); Director of the Spencer
Foundation (since 1993); and member of
PNC Advisory Board (since 1993).
</TABLE>
- 43 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Alan A. Shuch, 49 Trustee Trustee - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Limited Partner,
Goldman, Sachs & Co. (since 1994);
Consultant to Goldman Sachs Asset
Management (since 1994); Director, Chief
Operating Officer and Vice President of
Goldman Sachs Funds Management, Inc.
(from November 1993 - November 1994);
President and Chief Operating Officer,
GSAM - Japan Limited (November 1993 -
November 1994); Director, Goldman Sachs
Asset Management International (November
1993 - November 1994); General Partner,
Goldman, Sachs & Co. Investment Banking
(December 1986 - November 1994).
Jackson W. Smart, 68 Trustee Trustee - Goldman Sachs Variable
One Northfield Plaza Insurance Trust (registered investment
Suite 218 company) (since 1997); Chairman,
Northfield, IL 60093 Executive Committee, First Commonwealth,
Inc. (a managed dental care company)
(since January 1996); Chairman and Chief
Executive Officer, MSP Communications
Inc. (a company engaged in radio
broadcasting) (November 1988 - December
1997), Director, Federal Express
Corporation (NYSE) (since 1976),
Director, Evanston Hospital Corporation
(since 1980).
William H. Springer, 68 Trustee Director, Walgreen Co. (a retail drug
701 Morningside Drive store business) (since April 1998);
Lake Forest, IL 60045 Trustee - Goldman Sachs Variable
Insurance Trust (registered investment
company) (since 1997); Director of
Baker, Fentress & Co. (a closed-end,
non-diversified management investment
company) (April 1992 to present);
Trustee, Northern Institutional Funds
(since April 1984).
</TABLE>
- 44 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Richard P. Strubel, 59 Trustee Trustee - Goldman Sachs Variable
37 N. Michigan Ave. Insurance Trust (registered investment
Suite 1405 company) (since 1997); Director of
Chicago, IL 60611 Kaymar Technologies, Inc. (since March
1997); Managing Director, Tandem
Partners, Inc. (since 1990); President
and Chief Executive Officer, Microdot,
Inc. (a diversified manufacturer of
fastening systems and
connectors)(January 1984 to October
1994); Trustee, Northern Institutional
Funds (since December 1982).
*Nancy L. Mucker, 49 Vice Vice President - Goldman Sachs Variable
4900 Sears Tower President Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President,
Goldman Sachs (since April 1985);
Co-Manager of Shareholder Servicing of
GSAM (since November 1989).
*John M. Perlowski, 34 Treasurer Treasurer - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Vice President,
Goldman Sachs & Co. (since July 1995);
Director, Investors Bank and Trust
(November 1993 to July 1995).
*James A. Fitzpatrick, 38 Vice Vice President - Goldman Sachs Variable
4900 Sears Tower President Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President of
Goldman Sachs Asset Management (since
April 1997); Vice President and General
Manager, First Data Corporation -
Investor Services Group (prior thereto).
</TABLE>
- 45 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Jesse Cole, 35 Vice Vice President, GSAM (June 1998 to
4900 Sears Tower President Present); Vice President - Goldman Sachs
Chicago, IL 60606 Variable Insurance Trust (registered
investment company) (since 1998); Vice
President, AIM Management Group, Inc.
(investment advisor) (April 1996-June
1998); Assistant Vice President, The
Northern Trust Company (June 1987-April
1996).
*Philip V. Giuca, Jr., 36 Assistant Assistant Treasurer - Goldman Sachs
10 Hanover Square Treasurer Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Vice
President, Goldman, Sachs & Co. (May
1992-Present); Tax Accountant, Goldman,
Sachs & Co. (December 1990-May 1992).
*Anne Marcel, 40 Vice Vice President, GSAM (June
4900 Sears Tower President 1998-Present); Vice President - Goldman
Chicago, IL 60606 Sachs Variable Insurance Trust
(registered investment company) (since
1998); Vice President, Stein Roe &
Farnham, Inc. (October 1992-June 1998).
*Michael J. Richman, 38 Secretary Secretary - Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); General Counsel
of the Funds Group of Goldman Sachs
Asset Management (since December 1997);
Associate General Counsel of Goldman
Sachs Assets Management (February 1994
to December 1997); Vice President and
Assistant General Counsel of Goldman
Sachs (since June 1992); Counsel to the
Funds Group, GSAM (since June 1992);
Partner, Hale and Dorr (September 1991
to June 1992).
</TABLE>
- 46 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Howard B. Surloff, 33 Assistant Assistant Secretary - Goldman Sachs
85 Broad Street Secretary Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, Goldman Sachs
Asset Management and Associate General
Counsel to the Funds Group (since
December 1997); Assistant General
Counsel and Vice President, Goldman
Sachs & Co. (since November 1993 and May
1994, respectively ); Counsel to the
Funds Group, Goldman Sachs Asset
Management (since November 1993);
Associate of Shereff Friedman, Hoffman &
Goodman (prior thereto).
*Valerie A. Zondorak, 32 Assistant Assistant Secretary - Goldman Sachs
85 Broad Street Secretary Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, Goldman Sachs
Asset Management and Associate General
Counsel to the Funds Group (since
December 1997); Vice President and
Assistant General Counsel, Goldman Sachs
& Co. (since March 1997 and December
1997, respectively); Counsel to the
Funds Group, Goldman Sachs Asset
Management (since March 1997); Associate
of Shereff Friedman, Hoffman & Goodman
(prior thereto).
*Steven E. Hartstein, 35 Assistant Associate, Goldman, Sachs & Co.
85 Broad Street Secretary (December 1998-present); Assistant
New York, NY 10004 Secretary, Goldman Sachs Variable
Insurance Trust (registered investment
company) (since 1997); Legal Products
Analyst, Goldman Sachs & Co. (since June
1993 to December 1998).
</TABLE>
- 47 -
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Page 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Deborah Farrell, 27 Assistant Assistant Secretary - Goldman Sachs
85 Broad Street Secretary Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Legal
Products Analyst, Goldman Sachs & Co.
(January 1996 to December 1998); Legal
Assistant, Goldman Sachs & Co. (since
January 1996 to December 1998);
Executive Secretary, Goldman Sachs & Co.
(January 1994 to January 1996); Legal
Secretary, Cleary Gottlieb, Steen and
Hamilton (September 1990 to January
1994).
*Kaysie P. Uniacke, 37 Assistant Assistant Secretary - Goldman Sachs
One New York Plaza Secretary Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Managing Director, Goldman Sachs Asset
Management (since 1997); Vice President
and Senior Portfolio Manager, Goldman
Sachs Asset Management (since 1988).
*Elizabeth D. Anderson, 29 Assistant Assistant Secretary - Goldman Sachs
One New York Plaza Secretary Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Portfolio Manager, GSAM (since April
1996); Junior Portfolio Manager, Goldman
Sachs Asset Management (1995 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 __________, 1999,
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.
- 48 -
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the fiscal year ended December 31,
1998:
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits From Goldman
Aggregate Accrued as Sachs Trust and the
Compensation Part of Goldman Sachs Fund complex
from the Series' (including the
Name of Trustee Series Expenses Series)*
- --------------- ------ -------- --------
<S> <C> <C> <C>
Ashok N. Bakhru $49,138 $0 $93,750
David B. Ford 0 $0 0
Douglas C. Grip 0 $0 0
Mary P. McPherson 39,400 $0 70,500
John P. McNulty 0 $0 0
Alan A. Shuch 0 $0 0
Jackson W. Smart 37,400 $0 70,500
William H. Springer 37,400 $0 70,500
Richard P. Strubel 37,400 $0 70,500
</TABLE>
- --------------
* The fund complex consists of Goldman Sachs Trust and Goldman Sachs Variable
Insurance Trust. The Goldman Sachs Trust consisted of __ mutual funds,
including the __________ series, on December 31, 1998. Goldman Sachs
Variable Insurance Trust consisted of 8 mutual funds.
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 the operating expenses of the respective Series, excluding
taxes, interest, brokerage and litigation, indemnification and other
extraordinary expenses, on an annualized basis, as described in the Series
Prospectuses.
- 49 -
<PAGE>
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 will 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, 1998.
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,
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, 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 __________, 1999 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,
1999] 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.
- 50 -
<PAGE>
For the fiscal years ended December 31, 1998, December 31, 1997 and
December 31, 1996 the amount of the Management fee incurred by each ILA
Portfolio was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ILA PORTFOLIO 1998 1997 1996
------------- ---- ---- ----
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Obligations Portfolio $3,665,907 $4,412,869 $5,185,990
- --------------------------------------------------------------------------------------------------
Money Market Portfolio 5,096,528 3,744,112 2,955,074
- --------------------------------------------------------------------------------------------------
Treasury Obligations Portfolio 2,662,028 2,682,436 3,157,511
- --------------------------------------------------------------------------------------------------
Treasury Instruments Portfolio 1,719,014 1,250,151 1,555,342
- --------------------------------------------------------------------------------------------------
Government Portfolio 1,703,454 2,258,653 2,509,206
- --------------------------------------------------------------------------------------------------
Federal Portfolio 7,835,799 5,630,323 5,426,430
- --------------------------------------------------------------------------------------------------
Tax-Exempt Diversified Portfolio 4,968,471 4,244,463 3,850,742
- --------------------------------------------------------------------------------------------------
Tax-Exempt California Portfolio 2,294,224 1,803,245 1,410,751
- --------------------------------------------------------------------------------------------------
Tax-Exempt New York Portfolio 412,164 300,711 266,835
- --------------------------------------------------------------------------------------------------
</TABLE>
GSAM agreed not to impose a portion of its advisory fees for the fiscal
years ended [December 31, 1998,] December 31, 1997 and December 31, 1996 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>
- --------------------------------------------------------------------------------------------------
ILA PORTFOLIO 1998 1997 1996
------------- ---- ---- ----
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio $ 224,681 $ 525,057 $ 492,512
- --------------------------------------------------------------------------------------------------
Treasury Instruments Portfolio 781,082 1,551,858 2,073,789
- --------------------------------------------------------------------------------------------------
Federal Portfolio 1,942,882 3,925,458 4,069,823
- --------------------------------------------------------------------------------------------------
Tax-Exempt Diversified Portfolio 1,016,544 1,543,881 1,540,297
- --------------------------------------------------------------------------------------------------
Tax-Exempt New York Portfolio 67,141 93,920 92,366
- --------------------------------------------------------------------------------------------------
</TABLE>
In addition, GSAM assumed certain expenses related to the operations of
each ILA Portfolio during various periods of 1998, 1997 and 1996 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>
- --------------------------------------------------------------------------------------------------
ILA PORTFOLIO 1998 1997 1996
------------- ---- ---- ----
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Obligations Portfolio $ 46,293 $ 160,669 $ 234,432
- --------------------------------------------------------------------------------------------------
Money Market Portfolio 297,382 67,224 243,590
- --------------------------------------------------------------------------------------------------
Treasury Obligations Portfolio 87,462 6,756 212,886
- --------------------------------------------------------------------------------------------------
Treasury Instruments Portfolio 159,394 80,196 220,794
- --------------------------------------------------------------------------------------------------
Government Portfolio 114,600 30,990 231,536
- --------------------------------------------------------------------------------------------------
Federal Portfolio 234,644 44,904 452,463
- --------------------------------------------------------------------------------------------------
Tax-Exempt Diversified Portfolio 0 1,052 24,367
- --------------------------------------------------------------------------------------------------
Tax-Exempt California Portfolio 0 21,406 22,092
- --------------------------------------------------------------------------------------------------
Tax-Exempt New York Portfolio 141,226 25,375 16,029
- --------------------------------------------------------------------------------------------------
</TABLE>
- 51 -
<PAGE>
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 __________, 1999. 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, 1999] 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,
1998, December 31, 1997 and December 31, 1996 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>
1998 1997 1996
---- ---- ----
Financial Square Fund
---------------------
<S> <C> <C> <C>
FS Prime Obligations Fund $9,711,034 $8,706,734 $8,504,328
FS Money Market Fund 10,320,883 8,298,316 5,131,644
FS Treasury Obligations Fund 7,933,124 5,329,826 4,121,944
FS Government Fund 4,643,079 3,562,882 2,179,655
FS Tax-Free Fund 2,406,049 1,405,152 930,176
FS Premium Money Market Fund(1) 619,192 50,146 N/A
FS Treasury Instruments Fund(1) 733,510 383,414 N/A
FS Federal Fund(1) 4,301,134 1,623,443 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:
- 52 -
<PAGE>
1998 1997 1996
---- ---- ----
Financial Square Fund
---------------------
FS Prime Obligations Fund $1,999,543 $1,792,563 $1,750,891
FS Money Market Fund 2,124,889 1,708,477 1,142,133
FS Treasury Obligations Fund 1,633,292 1,097,197 848,635
FS Government Fund 955,928 733,442 448,753
FS Tax-Free Money Market Fund 494,669 289,296 219,242
FS Premium Money Market Fund(1) 224,125 104,092 N/A
FS Treasury Instruments Fund(1) 151,018 80,267 N/A
FS Federal Fund(1) 885,516 344,281 N/A
__________________________
(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 1998, 1997 and 1996 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:
1998 1997 1996
---- ---- ----
Financial Square Fund
---------------------
FS Prime Obligations Fund $957,241 $718,967 $637,605
FS Money Market Fund 412,192 791,686 456,796
FS Treasury Obligations Fund 694,383 574,345 551,885
FS Government Fund 319,735 512,637 352,113
FS Tax-Free Money Market Fund 183,532 166,670 83,097
FS Premium Money Market Fund(1) 310,832 164,216 N/A
FS Treasury Instruments Fund(1) 298,407 162,710 N/A
FS Federal Fund(1) 384,419 567,341 N/A
__________________________
(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
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<PAGE>
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 a 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 discussion 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 Credit Group's research
team continually reviews current information regarding the issuers of municipal
and other tax-exempt securities, with particular focus on long-term
creditworthiness, short-term liquidity, debt service costs, liability
structures, and administrative and economic characteristics.
The Distributor and Transfer Agent
Goldman Sachs acts as principal underwriter and distributor of each
Series' units. Units of the Series are offered and sold on a continuous basis by
Goldman Sachs, acting as agent. The Distribution Agreement between Goldman Sachs
and the Trust was most recently approved by the Trustees on [July 22, 1998.]
Goldman Sachs retained approximately $______ of commissions on redemptions of
ILA Class B shares during 1998. 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 class of each ILA Portfolio. Goldman Sachs currently
imposes no fees under its transfer agency agreement with the Financial Square
Funds.
For the fiscal years ended December 31, 1998, December 31, 1997, and
December 31, 1996 the ILA Portfolios incurred transfer agency fees as follows:
1998 1997 1996
---- ---- ----
Prime Obligations Portfolio $ 438,389 $535,143 $592,685
Money Market Portfolio 608,138 487,902 394,010
Treasury Obligations Portfolio 304,232 306,564 360,858
Treasury Instruments Portfolio 285,734 320,230 414,758
Government Portfolio 194,680 258,132 286,766
Federal Portfolio 1,117,564 1,092,179 1,085,286
Tax-Exempt Diversified Portfolio 684,002 661,525 616,119
Tax-Exempt California Portfolio 262,197 206,085 161,229
-54-
<PAGE>
Tax-Exempt New York Portfolio 54,776 45,100 41,051
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 ________, Goldman Sachs
and its consolidated subsidiaries had assets of approximately $___ billion and
partners' capital of $___ billion. Goldman Sachs became registered as an
investment adviser in 1981. As of ______, Goldman Sachs, together with its
affiliates, acted as investment adviser, administrator or distributor for
approximately $___ billion in total assets.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
-------------------------------------------------------------------------
by Goldman Sachs. The involvement of the Adviser and Goldman Sachs and their
- ----------------
affiliates, in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the 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
-55-
<PAGE>
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 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.
-56-
<PAGE>
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 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
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<PAGE>
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 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, 1998, the Trust acquired and
sold securities of its regular broker/dealers: _______________________________.
As of December 31, 1998, 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): ___________________________________.
As of December 31, 1998, 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): _________.
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,
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<PAGE>
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 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."
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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 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
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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, tax-equivalent yield and tax-equivalent effective
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 and income other than investment income (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)365/7] - 1
The ILA Tax-Exempt Diversified Portfolio, ILA Tax-Exempt California
Portfolio, ILA Tax-Exempt New York Portfolio, FS Federal Fund, FS Tax-Free Fund
and FS Premium Fund may also advertise a tax-equivalent yield and tax-equivalent
effective yield. Tax equivalent yield 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. Tax-equivalent effective yield is computed by
dividing that portion of a Series' effective yield (as computed above) which is
tax-exempt by one minus a
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stated income tax rate and adding the quotient to that portion, if any, of the
effective 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, tax-equivalent yield and tax-equivalent
effective yield of each ILA Portfolio with respect to ILA Units, ILA
Administration Units, ILA Service Units, ILA Class B Units, ILA Class C Units
and Cash Management Shares for the seven-day period ended December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
Effective Tax-Equivalent TAX-EQUIVALENT
Yield Yield Yield EFFECTIVE YIELD
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
ILA PRIME OBLIGATIONS PORTFOLIO:
ILA Units 4.89% 5.01% N/A
ILA Administration Units 4.74% 4.85% N/A
ILA Service Units 4.49% 4.59% N/A
ILA Class B Units 3.89% 3.97% N/A
ILA Class C Units 3.89% 3.97% N/A
Cash Management Shares 4.32% 4.42% N/A
ILA MONEY MARKET PORTFOLIO:
ILA Units 4.85% 4.97% N/A
ILA Administration Units 4.70% 4.81% N/A
ILA Service Units 4.45% 4.55% N/A
Cash Management Shares 4.28% 4.37% N/A
ILA TREASURY OBLIGATIONS PORTFOLIO:
ILA Units 4.47% 4.62% N/A
ILA Administration Units 4.32% 4.41% N/A
ILA Service Units 4.07% 4.15% N/A
ILA TREASURY INSTRUMENTS PORTFOLIO:
ILA Units 4.11% 4.20% N/A
ILA Administration Units 3.97% 4.04% N/A
ILA Service Units 3.72% 3.78% N/A
ILA GOVERNMENT PORTFOLIO:
ILA Units 4.77% 4.88% N/A
ILA Administration Units 4.62% 4.72% N/A
ILA Service Units 4.37% 4.46% N/A
Cash Management Shares 4.20% 4.29% N/A
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
ILA Federal Portfolio:
ILA Units 4.75% 4.86% N/A
ILA Administration Units 4.60% 4.71% N/A
ILA Service Units 4.35% 4.45% N/A
ILA Tax-Exempt Diversified Portfolio:
ILA Units 3.24% 3.29% 5.47% 5.56%
ILA Administration Units 3.09% 3.13% 5.22% 5.29%
ILA Service Units 2.84% 2.88% 4.80% 4.86%
Cash Management Shares 2.67% 2.70% 4.51% 4.56%
ILA Tax-Exempt California Portfolio*
ILA Units 3.10% 3.15% 5.24% 5.32%
ILA Administration Units 2.95% 2.99% 4.98% 5.05%
ILA Service Units** 2.70% 2.74% 4.56% 4.63%
Cash Management Shares 2.53% 2.56% 4.27% 4.32%
ILA Tax-Exempt New York Portfolio***
ILA Units 3.20% 3.25% 5.41% 5.49%
ILA Administration Units 3.05% 3.10% 5.15% 5.24%
ILA Service Units** 2.83% 2.84% 4.78% 4.80%
Cash Management Shares 2.63% 2.67% 4.44% 4.51%
</TABLE>
- -------------------
* Tax-equivalent yields would be 5.79%, 5.51%, 5.04% and 4.72%, for the ILA
Units, ILA Administration Units, ILA Service Units and Cash Management
Shares, respectively, when taking California State taxes into account. Tax-
equivalent effective yields would be 5.88%, 5.58%, 5.11% and 4.78% for the
ILA Units, ILA Administration Units, ILA Service Units and Cash Management
Shares, respectively, when taking California State taxes into account.
** Assuming such Units had been outstanding and were subject to maximum
service fees.
*** Tax equivalent yields would be 5.81%, 5.54%, 5.14% and 4.78% for the ILA
Units, ILA Administration Units, ILA Service Units and Cash Management
Shares, respectively, when taking New York State taxes into account, and
6.11%, 5.82%, 5.40% and 5.02%, respectively, when taking New York City
taxes into account. Tax equivalent effective yields would be 5.90%, 5.63%,
5.16% and 4.85%, respectively, when taking New York State taxes into
account, and 6.21%, 5.92%, 5.42% and 5.10%, respectively, when taking New
York City taxes into account.
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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>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
ILA Prime Obligations Portfolio:
ILA Units 4.89% 5.01% N/A
ILA Administration Units 4.74% 4.85% N/A
ILA Service Units 4.49% 4.59% N/A
ILA Class B Units 3.89% 3.97% N/A
ILA Class C Units 3.89% 3.97% N/A
Cash Management Shares 4.32% 4.42% N/A
ILA Money Market Portfolio:
ILA Units 4.85% 4.97% N/A
ILA Administration Units 4.70% 4.81% N/A
ILA Service Units 4.45% 4.55% N/A
Cash Management Shares 4.28% 4.37% N/A
ILA Treasury Obligations Portfolio:
ILA Units ___% ___% N/A
ILA Administration Units ___% ___% N/A
ILA Service Units ___% ___% N/A
ILA Treasury Instruments Portfolio:
ILA Units ___% ___% N/A
ILA Administration Units ___% ___% N/A
ILA Service Units ___% ___% N/A
ILA Government Portfolio:
ILA Units 4.75% 4.90% N/A
ILA Administration Units 4.60% 4.74% N/A
ILA Service Units 4.35% 4.48% N/A
Cash Management Shares 4.18% 4.31% N/A
ILA Federal Portfolio:
ILA Units 4.75% 4.86% N/A
ILA Administration Units 4.60% 4.74% N/A
ILA Service Units 4.35% 4.45% N/A
ILA Tax-Exempt Diversified Portfolio:
ILA Units 3.24% 3.29% 5.47% 5.56%
ILA Administration Units 3.09% 3.13% 5.22% 5.29%
ILA Service Units 2.84% 2.88% 4.80% 4.86%
Cash Management Shares 2.67% 2.70% 4.51% 4.56%
ILA Tax-Exempt California Portfolio*
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
ILA Units 3.10% 3.15% 5.24% 5.32%
ILA Administration Units 2.95% 2.99% 4.98% 5.05%
ILA Service Units** 2.70% 2.74% 4.56% 4.63%
Cash Management Shares 2.53% 2.56% 4.27% 4.32%
ILA Tax-Exempt New York Portfolio***
ILA Units 3.15% 3.20% 5.32% 5.41%
ILA Administration Units 3.00% 3.05% 5.07% 5.15%
ILA Service Units** 2.78% 2.79% 4.70% 4.71%
Cash Management Shares 2.58% 2.62% 4.36% 4.43%
</TABLE>
- -----------------
* Tax-equivalent yields would be 5.79%, 5.51%, 5.04% and 4.72% for the ILA
Units, ILA Administration Units, ILA Service Units and Cash Management
Shares, respectively, when taking California State taxes into account. Tax-
equivalent effective yields would be 5.88%, 5.58%, 5.11% and 4.78% for the
ILA Units, ILA Administration Units, ILA Service Units and Cash Management
Shares, when taking California State taxes into account.
** Assuming such Units had been outstanding and were subject to maximum
service fees.
*** Tax-equivalent yields would be 5.81%, 5.54%, 5.14% and 4.78% for the ILA
Units, ILA Administration Units, ILA Service Units and Cash Management
Shares, respectively, when taking New York State taxes into account, and
5.90%, 5.63% , 5.16% and 4.85%, respectively, when taking New York City
taxes into account. Tax-equivalent effective yields would be 6.11%, 5.82%,
5.40% and 5.02% for the ILA Units, ILA Administration Units, ILA Service
Units and Cash Management Shares, respectively, when taking New York State
taxes into account, and 6.21%, 5.92%, 5.42% and 5.10%, respectively, when
taking New York City taxes into account.
The yield, effective yield, tax-equivalent yield and tax-equivalent
effective 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, 1998 were as follows:
<TABLE>
<CAPTION>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
FS Prime Obligations Fund:
FST Shares 5.09% 5.22% N/A
FST Administration Shares 4.84% 4.96% N/A
FST Service Shares 4.59% 4.70% N/A
FST Preferred Shares 4.99% 5.12% N/A
FS Money Market Fund:
FST Shares 5.08% 5.22% N/A
FST Administration Shares 4.84% 4.96% N/A
FST Service Shares 4.59% 4.69% N/A
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
FST Preferred Shares 4.98% 5.11% N/A
FS Treasury Obligations Fund:
FST Shares 4.71% 4.82% N/A
FST Administration Shares 4.46% 4.56% N/A
FST Service Shares 4.21% 4.30% N/A
FST Preferred Shares 4.61% 4.71% N/A
FS Treasury Instruments Fund:
FST Shares 4.24% 4.33% N/A
FST Administration Shares 3.99% 4.07% N/A
FST Service Shares 3.74% 3.81% N/A
FST Preferred Shares 4.14% 4.24% N/A
FS Government Fund:
FS Shares 5.00% 5.13% N/A
FST Administration Shares 4.76% 4.87% N/A
FST Service Shares 4.51% 4.61% N/A
FST Preferred Shares 4.90% 5.03% N/A
FS Federal Shares:
FST Shares 4.97% 5.09% 8.40% 8.60%
FST Administration Shares 4.72% 4.83% 7.97% 8.16%
FST Service Shares 4.47% 4.57% 7.55% 7.72%
FST Preferred Shares 4.87% 4.99% 8.23% 8.43%
FST Tax-Free Fund:
FST Shares 3.51% 3.58% 5.93% 6.05%
FST Administration Shares 3.26% 3.32% 5.51% 5.61%
FST Service Shares 3.01% 3.06% 5.08% 5.17%
FST Preferred Shares 3.41% 3.47% 5.76% 5.86%
FS Premium Money Market Fund:
FST Shares 5.08% 5.21% 8.58% 8.80%
FST Administration Shares 4.83% 4.94% 8.16% 8.34%
FST Service Shares 4.58% 4.68% 7.74% 7.91%
FST Preferred Shares 4.98% 5.10% 8.41% 8.61%
FS Municipal Money Market Fund:
FST Shares N/A N/A N/A N/A
FST Administration Shares N/A N/A N/A N/A
FST Service Shares N/A N/A N/A N/A
FST Preferred Shares N/A N/A N/A 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, the tax-equivalent yield and tax-equivalent effective
yield of each Financial Square Fund for the same period would have been as
follows:
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<TABLE>
<CAPTION>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
FS Prime Obligations Fund:
FST Shares 5.06% 5.18% N/A
FST Administration Shares 4.81% 4.92% N/A
FST Service Shares 4.56% 4.66% N/A
FST Preferred Shares 4.96% 5.08% N/A
FS Money Market Fund:
FST Shares 5.06% 5.18% N/A
FST Administration Shares 4.82% 4.92% N/A
FST Service Shares 4.57% 4.65% N/A
FST Preferred Shares 4.96% 5.07% N/A
FS Treasury Obligations Fund:
FST Shares 4.73% 4.84% N/A
FST Administration Shares 4.48% 4.51% N/A
FST Service Shares 4.23% 4.25% N/A
FST Preferred Shares 4.63% 4.66% N/A
FS Treasury Instruments Fund:
FST Shares 4.21% 4.30% N/A
FST Administration Shares 3.96% 4.04% N/A
FST Service Shares 3.71% 3.78% N/A
FST Preferred Shares 4.11% 4.21% N/A
FS Government Fund:
FS Shares 4.97% 5.10% N/A
FST Administration Shares 4.73% 4.84% N/A
FST Service Shares 4.48% 4.58% N/A
FST Preferred Shares 4.87% 5.00% N/A
FS Federal Fund:
FST Shares 4.93% 5.06% 8.33% 8.55%
FST Administration Shares 4.68% 4.80% 7.91% 8.11%
FST Service Shares 4.43% 4.54% 7.48% 7.67%
FST Preferred Shares 4.83% 4.96% 8.16% 8.38%
FST Tax-Free Fund:
FST Shares 3.48% 3.54% 5.88% 5.98%
FST Administration Shares 3.23% 3.28% 5.46% 5.54%
FST Service Shares 2.98% 3.02% 5.03% 5.10%
FST Preferred Shares 3.38% 3.43% 5.71% 5.79%
FS Premium Money Market Fund:
FST Shares 5.01% 5.14% 8.46% 8.68%
FST Administration Shares 4.76% 4.87% 8.04% 8.23%
FST Service Shares 4.51% 4.61% 7.62% 7.89%
</TABLE>
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<TABLE>
<CAPTION>
Effective Tax-Equivalent Tax-Equivalent
Yield Yield Yield Effective Yield
----- ----- ----- ---------------
<S> <C> <C> <C> <C>
FST Preferred Shares 4.91% 5.03% 8.29% 8.50%
FS Municipal Money Market Fund:
FST Shares N/A N/A N/A N/A
FST Administration Shares N/A N/A N/A N/A
FST Service Shares N/A N/A N/A N/A
FST Preferred Shares N/A N/A N/A N/A
</TABLE>
The quotations of tax-equivalent yield set forth above for the seven-day
period ended December 31, 1998 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 and tax-equivalent effective 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 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
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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 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
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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
nondeductible 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-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, 1998, 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 1998-2006
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 11,000 2003-2005
</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
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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.,
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obligations described in Section 103(a) of the Code (not including units of
other regulated investment companies that may pay exempt-interest dividends,
because such units are not treated as tax-exempt obligations for this purpose).
It is expected that each of these five Series will meet this 50% test each year.
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.
Certain series may be subject to foreign taxes on their income (possibly
including, in some cases, capital gains) from securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes in
some cases.
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
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<PAGE>
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 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.
An investment in a Series that pays primarily exempt-interest dividends is
not intended to constitute a balanced investment program. Units of such Series
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts because such plans and accounts are generally
tax-exempt and, therefore, not only would the Unitholder not gain any additional
benefit from the Series' dividends being tax-exempt, but such dividends would be
ultimately taxable to the beneficiaries when distributed. In addition, a Series
that pays primarily exempt-interest dividends may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
"private activity bonds" or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who (i)
regularly uses a part of such facilities in his or her trade or business and
whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenues derived by all users of
such facilities, (ii) occupies more than 5% of the usable area of such
facilities or (iii) are persons for whom such facilities or a part thereof were
specifically constructed, reconstructed or acquired. "Related persons" included
certain related natural persons, affiliated corporations, a partnership and its
partners and an S corporation and its shareholders.
The foregoing discussion relates solely to U.S. federal income tax law as it
applies to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates) subject to tax under such law.
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.
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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.
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.
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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.
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.
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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.
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
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<PAGE>
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
service fees at an annual rate of up to 0.25% of the average daily net assets of
the Prime Obligations Portfolio attributable to ILA Class B and Class C Units.
Cash Management Shares may be purchased for accounts held in the name of an
institution that provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records, processing
orders to purchase, redeem and exchange Cash Management Shares, responding to
customer inquiries and assisting customers with investment procedures. Cash
Management Shares bear the cost of service fees at the annual rate of up to
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. In
addition, each class of ILA units bears its own transfer agency expenses.
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.
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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 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.
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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 to any other series or class. The
Trustees are not currently considering the appointment of Series Trustees for
the Trust.
As of February 11, 1999, the entities noted below may have owned of record or
beneficial by 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 (18.00%); National Financial Services, Co., P.O. Box
3752, Church Street Station, New York, NY 10008 (5.00%); and Whitehall Street
Real Estate LP, c/o Goldman Sachs, & Co., 85 Broad Street, Floor 10, New York,
NY 10004 (10.00%).
As of February 11, 1999, the entities noted below may have owned of record
or beneficial by 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 (15.00%);
Goldman Sachs Funds Group, 6060 Sears Tower, Floor 60, Chicago, IL 60606
(14.00%); and Kamehameha Schools/Bishop Estate, P.O. Box 3466, Honolulu, HI
96801 (12.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficial by 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 (21.00%); Bank One Investment Advisors Corp., Strafe & Co., P.O.
Box 710211, Columbus, OH, 43271-0211 (6.00%); Montgomery Ward Insurance Group,
200 North Martingale Road, Schaumburg, IL 60173 (6.00%); and Rainwater Group,
777 Main Street, Suite 2700, Fort Worth, TX 76102 (19.00%).
As of February 11, 1999, the entities noted below may have owned of record
or beneficial by 5% or more of the outstanding units of the ILA Treasury
Instruments Portfolio were Bank of New York, 1 Wall Street, 5th Floor, New York,
NY 10286-0001 (41.80%); and Hilliard Lyons Trust Co., P.O. Box 32780,
Louisville, KY 40232 (7.00%).
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As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding units of the ILA Government Portfolio
Standish Long/Short Equity Fund LP, One Financial Ctr, Boston, MA 02111
(15.00%); Comerica Bank, Calhoun & Co., P.O. Box 55-519, Detroit, MI 48255-0499
(8.00%); Northern Trust, 50 South LaSalle Street, Chicago, IL 60675 (13.00%);
Goldman Sachs Trust Company, c/o Goldman Sachs, 1 New York Plaza, Floor 48, New
York, N.Y. 10004 (9.00%); and Henry F. Burroughs, 1163 North Hillcrest Road,
Beverly Hills, CA 90210 (6.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 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 (11.00%);
Goldman Sachs Funds Group, 6060 Sears Tower, Floor 60, Chicago, IL 60606
(23.00%); and Edwin W. Hemowy, 2 East 88th Street, New York, NY 10128 (5.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding units of the ILA Federal Portfolio
were Bank of New York, 48 Wall Street, New York, NY 10286 (9.00%); Hilliard
Lyons Trust Co., P.O. Box 32760, Louisville, KY 40232-2760 (7.00%); Goldman
Sachs Funds Group, 6060 Sears Tower, Floor 60, Chicago, IL 60606 (13.00%); and
The Baupost Group, Inc., P.O. Box 389125, Cambridge, MA 02238 (7.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding units of the ILA Tax-Exempt
California Portfolio were Goldman Sachs Funds Group, 6060 Sears Tower, Floor 60,
Chicago, IL 60606 (16.00%); and Mollet Accounts, 35 Liraris Way, Portola
Valley, CA 94026.
As of February 11, 1999, the only holder of record of 5% or more of the
outstanding units of the ILA Tax-Exempt Diversified Portfolio was Goldman Sachs
Funds Group, 6060 Sears Tower, Floor 60, Chicago, IL 60606 (16.00%).
As of February 11, 1999, the entities noted below may have owned of record or
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 (8.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding shares of FS Money Market Fund:
Citicorp Trust, NA as Custodian, 400 Royal Palm Way, 3rd Flr., Palm Beach, FL
33480 (5.00%).
As of February 11, 1999, 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 (24.00%); Mercantile Bank, Nespa for
Arch, P.O. Box 387, St. Louis, MO 63166 (5.00%); and National City Bank, Money
Market 5312, 4100 W. 150th Street, Cleveland, OH 44135 (15.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding shares of FS Government Fund:
Security Trust Company, P.O. Box 1589, San Diego, CA 92112-1589 (8.00%); Chicago
Trust Company, 171 N. Clark St., #5CA, Chicago, IL 60601 (6.00%); and Wachovia
Bank, NA, 301 North Church Street, Winston Salem, NC 27101 (6.00%).
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As of February 11, 1999, the entities noted below may have owned of record or
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 (8.00%); Mercantile
Bank of St. Louis, Mandell & Company, P.O. Box 387 MPO, St. Louis, MO 63101
(10.00%); and Goldman Sachs Funds Group, 6060 Sears Tower, Floor 60, Chicago, IL
60606.
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding shares of FS Federal Fund: Bank of
Tokyo -- Mitsubishi, Corporate Trust Department, 10th Floor, 1251 Avenue of the
Americas, New York, NY 10020 (16.00%); Goldman Sachs Funds Group, 6060 Sears
Tower, Floor 60, Chicago, IL 60606 (16.00%); and Narcal Accounts, c/o Goldman
Sachs, 1 New York Plaza, 40th Floor, New York, NY 10004 (12.00%).
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding shares of FS Treasury Instruments
Fund; Omega Advisors, Inc., 88 Pine Street, Suite 32, New York, NY 10005
(21.00%); and First Priority Funds, 417 North 20th Street, Birmingham, AL 35203
(7.00%). Northern Capital Trust of Fargo, P.O. Box 829, Fargo, ND 58102
(2.00%);
As of February 11, 1999, the entities noted below may have owned of record or
beneficially 5% or more of the outstanding shares of FS Treasury Obligations
Fund: Commerce Bank of Kansas City, NA, P.O. Box 248, Kansas City, MO 64141
(8.00%); Kiewit Diversified Group, Inc., One Thousand Kiewit Plaza, Omaha, NE
68131 (6.00%). Legg Mason Wood Walker, Inc., 111 South Calvert Street, P.O. Box
1476, Baltimore, MD 21203 (7.00%); and PHH Corporation, 307 International
Circle, Hunt Valley, MD 21030 (6.00%).
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.
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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.
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, 1998, 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, 1998 Annual Report to
the shareholders, are attached hereto and incorporated by reference into this
Statement of Additional Information.
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<PAGE>
OTHER INFORMATION
The Adviser, Distributor and/or their affiliates may pay, out of their own
assets, compensation to Authorized Dealers, Service Organizations and financial
intermediaries ("Intermediaries") in connection with the sale, distribution
and/or servicing of shares of the Series. These payments ("Additional Payments")
would be in addition to the payments by the Series described in the Series'
Prospectuses and this Additional Statement for distribution and 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 Intermediary, or may be based on a percentage of the value of
shares sold to, or held by, customers of the Intermediary involved, and may be
different for different Intermediaries. 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. The Adviser, Distributor
and their affiliates may also pay for the travel expenses, meals, lodging and
entertainment of Intermediaries 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.
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<PAGE>
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' 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, 1998, December 31, 1997 and December
31, 1996 the amount of the administration fees paid by each ILA Portfolio under
its ILA Administration Plan to Service Organizations was as follows:
1998 1997 1996
---- ---- ----
ILA Prime Obligations
Portfolio $ 56,195 $ 117,600 $ 65,534
ILA Money Market Portfolio 482,750 510,535 316,155
ILA Treasury Obligations
Portfolio 134,705 311,981 145,201
ILA Treasury Instruments
Portfolio 146,145 296,919 145,441
ILA Government Portfolio 14,657 66,034 63,048
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<PAGE>
ILA Federal Portfolio 779,240 1,119,368 906,321
ILA Tax-Exempt Diversified 34,749
Portfolio 119,510 73,660
ILA Tax-Exempt California 1,702
Portfolio 508 262
ILA Tax-Exempt New York 34,741
Portfolio 46,589 39,843
For the fiscal years ended December 31, 1998, December 31, 1997 and December
31, 1996 the amount of administration fees paid by each Financial Square Fund
under its FST Administration Plan to Service Organizations was as follows:
1998 1997 1996
---- ---- ----
FS Prime Obligations Fund $ 932,405 $ 662,090 $ 527,357
FS Money Market Fund 947,740 780,489 474,043
FS Treasury Obligations Fund 2,373,198 1,741,440 1,100,814
FS Government Fund 845,644 649,313 250,618
FS Tax Free Fund 360,347 241,784 128,721
FS Premium Money Market Fund(1) 20,162 13,845 N/A
FS Treasury Instruments Fund(1) 49,689 3,240 N/A
FS Federal Fund(1) 951,754 353,083 N/A
- ---------------------------
(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, 1998, the FS
Municipal Fund had not commenced operations.]
For the fiscal year ended December 31, 1998, 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:
1998 1997 1996
------- -------- -------
FS Prime Obligations Fund(1) $156,506 $181,303 $42,963
FS Money Market Fund(1) 76,867 55,349 2,874
FS Treasury Obligations Fund(1) 307,604 107,309 15,097
FS Government Fund(1) 96,834 27,961 395
FS Tax Free Fund(1) 93,209 15,965 13,155
FS Premium Money Market Fund(1) 102,701 131 N/A
FS Treasury Instruments Fund(1) 0 1 N/A
FS Federal Fund(1) 122,073 66,047 N/A
- ----------------------------
(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.
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<PAGE>
[As of December 31, 1998, 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 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 _________, 1999. The Administration Plans and
Service Agreements will remain in effect until May 1, 2000 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.
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<PAGE>
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 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
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<PAGE>
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
Administration, Distribution 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.
For the fiscal years ended December 31, 1998, December 31, 1997 and December
31, 1996 the amount of the service fees paid by each ILA Portfolio then in
existence to Service Organizations pursuant to the ILA Service Plan was as
follows:
1998 1997 1996
---------- ---------- --------
ILA Prime Obligations
Portfolio $ 435,823 $ 300,300 $ 494,274
ILA Money Market Portfolio 144,733 40,053 128,313
ILA Treasury Obligations
Portfolio 324,013 361,567 579,790
ILA Treasury Instruments
Portfolio 1,126,342 1,020,955 1,266,586
ILA Government Portfolio 395,588 342,976 352,931
ILA Federal Portfolio 145,279 209,156 562,023
ILA Tax-Exempt Diversified
Portfolio 124,850 102,409 130,158
ILA Tax-Exempt California
Portfolio(1) 0 2 --
ILA Tax-Exempt New York
Portfolio(1) 0 2 --
- -------------------
(1) ILA Service Unit activity commenced operations in 1997.
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<PAGE>
For the fiscal year ended December 31, 1998, the amount of the service fees
paid by the ILA Prime Obligations Portfolio, ILA Money Market Portfolio, ILA
Government Portfolio, ILA Tax-Exempt Diversified Portfolio and ILA Tax-Exempt
New York Portfolio to Service Organizations pursuant to the Cash Management
Shares Service Plan was $ 0, $ 0, $ 0, $ 0, and $ 0, respectively. Cash
Management Shares commenced operations on May 1, 1998.
For the fiscal years ended December 31, 1998, December 31, 1997 and December
31, 1996 the amount of service fees paid by each Financial Square Fund to
Service Organizations pursuant to the FST Service Plan was as follows:
1998 1997 1996
---------- ---------- ----------
FS Prime Obligations
Fund $1,167,952 $ 707,816 $ 541,076
FS Money Market Fund(1) 2,478,988 1,514,944 271,936
FS Treasury Obligations Fund 2,019,235 1,201,356 849,624
FS Government Fund(2) 3,225,643 2,533,854 1,258,434
FS Tax-Free Fund 254,984 166,974 91,599
FS Premium Money Market Fund(3) 49,926 114 N/A
FS Treasury Instruments Fund(4) 97,057 112,501 N/A
FS Federal Fund(5) 1,312,961 482,096 N/A
- --------------------
(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, 1998, 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
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<PAGE>
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 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 ________, 1999. They will remain in effect until May
1, 2000 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
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<PAGE>
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 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 SERVICE PLANS
DISTRIBUTION AND SERVICE PLANS. As described in the Prospectuses, the Trust
has adopted distribution and service 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 "Distribution and Service Plans").
See "Distribution and Service Plans" in the ILA Class B and Class C Units
Prospectus.
The Distribution and Service Plans were most recently approved on __________,
1999 by a majority vote of the Trustees of the Trust, including a majority of
the non-interested Trustees of the Trust who have no direct or indirect
financial interest in the Distribution and Service Plans, cast in person at a
meeting called for the purpose of approving the Distribution and Service Plans.
The compensation payable under the Distribution and Service Plans may not
exceed 0.75% per annum of the average daily net assets attributable to ILA Class
B and Class C Units, respectively, of that ILA Portfolio.
Under the Distribution and Service Plans for ILA Class B and Class C
Shares, Goldman Sachs is also entitled to receive a separate fee for personal
and account maintenance services equal to an annual basis of 0.25% of each
Fund's average daily net assets attributable to ILA Class B or Class C Units.
The Distribution and Service Plans are compensation plans which provide for
the payment of a specified fee without regard to the expenses actually incurred
by Goldman Sachs. The distribution fees received by Goldman Sachs under the
Distribution and Service 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
- 90 -
<PAGE>
sales of ILA Class B Units. Goldman Sachs may also pay up to the entire amount
of its fee under the Class C Distribution and Service Plan to Service
Organizations or other institutions for providing services in connection with
the sale of Class C Units. 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 and Class C Units. If such fees exceed Goldman
Sachs' expenses, Goldman Sachs may realize a profit from these arrangements. For
the fiscal years ended December 31, 1998 and December 31, 1997, the amount of
distribution fees paid by the ILA Prime Obligations Portfolio's Class B Shares
to Goldman Sachs was $____ and $4,635, respectively.
For the fiscal years ended December 31, 1998 and December 31, 1997, the
amount of distribution fees paid by the ILA Prime Obligations Portfolio's Class
C Shares to Goldman Sachs was $____ and $784, respectively.
Under the Distribution and Service Plans, Goldman Sachs, as distributor of the
Portfolio's ILA Class B Units and Class C Units, 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
Distribution and Service Plans and the purposes for which such services were
performed and expenditures were made.
The Distribution and Service Plans will remain in effect from year to year,
provided such continuance 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 Distribution and Service
Plans. The Distribution and Service Plans may not be amended to increase
materially the amount of distribution compensation described therein as to a
particular Portfolio without approval of a majority of the outstanding Class B
or Class C Unitholders, of the affected Portfolio and Unit class. All material
amendments to the Distribution and Service Plans must also be approved by the
Trustees of the Trust in the manner described above. The Distribution and
Service 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 or Class C Units, of the applicable Portfolio. If the Distribution
and Service Plans were terminated by the Trust's Board of Trustees and no
successor plan were adopted, the Portfolios 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. So long as the
Distribution and Service Plans are in effect, the selection and nomination of
non-interested Trustees will 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 and Service Plans will benefit
the applicable Portfolios and their respective Unitholders.
For the fiscal year ended December 31, 1998 and December 31, 1997, the
amount of services fees paid by the ILA Prime Obligations Portfolio's Class B
Shares to Goldman Sachs was $_____ and $1,545, respectively.
For the fiscal years ended December 31, 1998 and December 31, 1997, the amount
of service fees paid by the ILA Prime Obligations Portfolio's Class C Shares to
Goldman Sachs was $_____ and $261, respectively.
- 91 -
<PAGE>
DISTRIBUTION PLAN. As described in the Prospectus, the Trust has adopted a
distribution plan pursuant to Rule 12b-1 under the Investment Company Act 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 Plan" in the Cash Management Shares' Prospectus.
The Distribution Plan was most recently approved on ________, 1999 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 Plan, cast in person
at a meeting called for the purpose of approving the Distribution Plan.
The compensation payable under the Cash Management Shares Distribution Plan
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.] Goldman Sachs may modify or
discontinue such waivers and limitation in the future at its discretion.
Goldman Sachs may pay up to the entire amount of its fee under the
Distribution Plan to Service Organizations or other institutions for providing
services in connection with the sale of 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 Cash Management
Shares. If such fee exceeds its expenses, Goldman Sachs may realize a profit
from these arrangements.
The Distribution Plan is a compensation plan which provides for the payment of
a specified distribution fee without regard to the distribution expenses
actually incurred by Goldman Sachs. If the Distribution Plan was 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.
Under the Cash Management Distribution Plan, Goldman Sachs, as distributor of
the Portfolio's 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
- 92 -
<PAGE>
expended by Goldman Sachs under the Cash Management Distribution Plan and the
purposes for which such services were performed and expenditures were made.
The Distribution Plan 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 Plan 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 Cash Management Unitholders, as applicable, of that Portfolio.
All material amendments to the Distribution Plan 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 Cash
Management Units, as applicable, of the applicable Portfolio. So long as the
Distribution Plan is in effect, the selection and nomination of non-interested
Trustees shall be committed to the discretion of the non-interested Trustees.
The Trustees have determined that in their judgment there is a reasonable
likelihood that the Distribution Plan will benefit the applicable Portfolios and
their respective Unitholders.
For the fiscal year ended December 31, 1998, the amount of distribution fees
paid by 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 to Goldman Sachs
pursuant to the Cash Management Shares Distribution Plan was $______, $______,
$______, $______, $________ and $_______, respectively.
- 93 -
<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
ANNUAL REPORT [LOGO] GOLDMAN
December 31, 1998 SACHS
<PAGE>
- -------------------------------------------------------------------------------
Letter to Unit/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 1998. It was another strong year for the
funds, during which all of the portfolios outperformed or performed in line
with their respective IBC Financial Data, Inc. averages. Net assets in the ILA
Portfolios totaled $10.5 billion as of December 31, 1998.
The Economy In Review
Despite a slight tempering due to soft employment numbers, the U.S. economy
continued to see strong growth for most of 1998. This growth, combined with
continued uncertainty about the impact of Asian instability on the U.S.
economy, kept the Federal Reserve in a wait-and-see mode for the first nine
months of the year.
On September 29th, in the wake of increasing global market turmoil, the
Federal Reserve Board cut the Federal Funds target rate by 25 basis points, to
5.25%. As increasing illiquidity concerns in the market became more severe,
the Fed followed up with two more surprise rate cuts, easing the target rate
and the discount rate by another 50 basis points.
The Fed's moves were a strong signal that the monetary authorities were
prepared to do whatever was necessary to provide liquidity and to support the
economy against the forces that had the potential of a substantial economic
slowdown in 1999.
At period end, while consumer spending remained strong, the manufacturing
side of the economy appeared to weaken because of a trade drag and a slowdown
in capital spending. However, based on signs of non-inflationary growth in the
areas of consumer spending, new home sales and strong third quarter gross
domestic product (GDP), the general consensus is that any further easing by
the Fed will come later, rather than sooner.
Credit Year 1998: A Year of Crisis with a Hopeful Ending
Domestic credit quality continued its strong positive trend for the first
six months of 1998. Mergers and acquisitions were at an all time high. U.S.
banks remained strong, well capitalized and provisioned, with diversified
operations. The stock market continued its climb and American consumers were
spending more than they were earning. The shocks of the Russian default in
August and the near collapse of Long Term Capital Management (LTCM) caused
severe liquidity problems and a difficult trading environment, as well as a
major sell-off in the stock market. Calm was restored by the rescue of LTCM
and the Fed's lowering of interest rates three times in seven weeks. A newly
risk adverse investor moved funds to safer, more liquid credits. The
enthusiasm for globalization was temporarily curbed, as domestic production
was suppressed in response to the Asian crisis and corporate profit gains for
the year were generally mixed.
The international credit environment in 1998 saw the Asian situation explode
into a full-blown global crisis that adversely affected markets around the
world. The default and devaluation of Russia in August came after an already
painful several months of recession and restructuring in Asia. This pain was
exacerbated by Japan's continued slow economic deterioration, which cast a
shadow over the entire region. The unprecedented market volatility that
followed Russia's default took months to dissipate, and only after a more
committed response by the U.S. government to the crisis. By the end of the
year, however, trends were much more positive. The reforming Asian economies
showed notable progress, with signs of a return to economic growth in 1999.
More significant, however, was the successful launch of the euro. Ongoing
policy convergence and political resolution served to create the world's first
regional currency with nary a ripple in the markets. In fact, with the U.S.
economy seemingly impervious to difficulties elsewhere, global markets quickly
rebounded to close the year on a decidedly positive note.
1
<PAGE>
- --------------------------------------------------------------------------------
Letter to Unit/Shareholders (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
Although the U.S. economy remains favorable, the challenges of global
volatility continue to concern us. The Goldman Sachs Credit Department, with
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.
Strategy
Taxable--For most of the period, a "flight to quality" resulting from the
ongoing Asian economic crisis rendered the short end of the yield curve
expensive. In view of this, the Portfolios maintained a neutral stance by
buying on market dips and "aging in" when levels got expensive. However, we
extended the weighted average maturity (WAM) ranges from neutral to slightly
long as the Fed began its series of easings in late September in response to
market liquidity. We continued to maintain a barbell structure by holding
significant liquidity in anticipation of year-end outflows, and targeted longer
dated maturities to enhance performance in a declining rate environment.
Tax-Exempt--Early in the period, given the fact that we no longer foresaw a
near-term Fed easing and in preparation for the seasonally short supply of
municipal issuance in January, we increased the portfolio's WAMs to the 40- to
50-day range. This decision helped keep the portfolios' yields competitive
during this period of high cash inflows and high demand for municipal
securities. In March, we shortened the WAMs of the portfolios to the 30- to 35-
day range, seeking to build liquidity as the April 15th tax deadline
approached. This move helped us to fund tax-time redemptions. In August, when
seasonal issuance was strong and there was less demand in the tax-exempt market
in contrast to the "flight to quality" in the Treasury market, we extended the
portfolios' WAMs to the 40-day range.
At period end, after a brief period during which the portfolios' WAMs were
brought into a neutral range, we extended the WAMs in anticipation of
technically driven lower yields (due to inflows from the reinvestment of
maturity proceeds, coupled with a seasonal scarcity of issuance).
Summary for ILA Portfolios Institutional Units* as of 12/31/98
<TABLE>
<CAPTION>
SEC 1-Month
7-Day SEC 7-Day Simple Weighted Avg.
Current Effective Average Maturity
ILA Portfolios Yield Yield Yield (days)
-------------- ------- --------- ------- -------------
<S> <C> <C> <C> <C>
Money Market.... 4.85% 4.97% 4.81% 46
Prime
Obligations.... 4.89 5.01 4.87 35
Treasury
Instruments.... 4.11 4.20 4.12 53
Government...... 4.77 4.88 4.68 48
Treasury
Obligations.... 4.47 4.57 4.49 32
Federal......... 4.75 4.86 4.73 48
Tax-Exempt
California..... 3.10 3.15 2.67 41
Tax-Exempt
Diversified.... 3.24 3.29 2.88 46
Tax-Exempt New
York........... 3.20 3.25 2.79 44
</TABLE>
*ILA offers four separate classes of units/shares (Institutional,
Administration, Service and Cash Management), each of which is subject to
different fees and expenses that affect performance and entitle
unit/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%. The Cash Management shares pay 0.50%
plus 0.30% from the adviser for a total of up to 0.80%. Furthermore, in
addition to these classes, Prime Obligations offers Class B and Class C units,
which may be subject to contingent deferred sales charges. 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.
Outlook and Strategies for 1999
With the financing pressure of year-end behind institutional investors, we
are looking to extend the portfolios' weighted average maturities somewhat as
we see opportunities on the yield curve. While there are a
2
<PAGE>
- --------------------------------------------------------------------------------
Letter to Unit/Shareholders (continued)
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
variety of opinions as to when the Fed will move, based on current signs of
non-inflationary growth in areas of consumer spending, new home sales and
fourth quarter GDP, most anticipate that easing will come later than sooner.
Goldman Sachs economists' 1999 outlook anticipates a 50 basis point cumulative
ease in the second half of the year.
In closing, we thank you for your support and for making 1998 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 1999.
Money Market Management Team
January 29, 1999
3
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Prime Obligations Portfolio
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper and Corporate Obligations--33.4%
Bank Holding Companies
BankAmerica
$10,000,000 5.16% 01/15/99 $ 9,979,933
25,000,000 5.12 01/25/99 24,914,667
10,000,000 5.04 05/12/99 9,816,600
Business Credit Institutions
CIT Group, Inc.
10,000,000 5.05 03/29/99 9,877,958
General Electric Capital Corp.
15,000,000 5.36 02/16/99 14,897,267
10,000,000 5.02 02/25/99 9,923,306
Commercial Banks
CP Trust Certificates Series 1996-1
29,750,000 4.95 03/30/99 29,750,000
Industrial
Caterpillar Financial Services Corp.
5,800,000 5.35 02/24/99 5,753,455
Receivable/Asset Financings
Corporate Receivables Corp.
15,000,000 5.22 01/13/99 14,973,900
Delaware Funding
25,000,000 5.30 01/13/99 24,955,833
15,047,000 5.22 01/22/99 15,001,182
Edison Asset
10,000,000 5.13 01/29/99 9,960,100
25,000,000 5.14 02/26/99 24,800,111
Receivables Capital Corp.
30,000,000 5.49 01/08/99 29,967,975
Riverwoods Funding Corp.
20,000,000 5.05 02/25/99 19,845,694
Security and Commodity Brokers, Dealers and Services
J.P. Morgan & Co., Inc.
5,000,000 5.12 01/19/99 4,987,200
5,000,000 5.75 03/10/99 5,000,000
5,000,000 5.02 04/21/99 4,923,306
Merrill Lynch & Co., Inc.
5,000,000 5.79 04/28/99 5,000,000
Morgan Stanley Dean Witter & Co.
40,000,000 5.35 02/23/99 39,684,944
Salomon Smith Barney Holdings, Inc.
10,000,000 5.40 01/12/99 9,983,500
5,000,000 5.40 01/19/99 4,986,500
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper and Corporate Obligations (continued)
Utilities
Consolidated Natural Gas
$10,000,000 8.75% 06/01/99 $ 10,126,482
- --------------------------------------------------------------------------------------------------
Total Commercial Paper and Corporate Obligations $339,109,913
- --------------------------------------------------------------------------------------------------
Bank Notes--7.7%
BankBoston, N.A.
$10,000,000 5.76% 03/31/99 $ 10,000,000
10,000,000 5.20 04/01/99 10,000,000
10,000,000 5.74 04/15/99 9,998,908
Bank of New York
8,500,000 5.57 03/17/99 8,498,242
First Tennessee Bank, N.A.
10,000,000 5.65 03/02/99 9,999,211
10,000,000 5.82 04/30/99 9,998,128
PNC Bank, N.A.
5,000,000 5.71 04/26/99 4,999,095
Wachovia Bank, N.A.
15,000,000 5.00 06/02/99 15,000,000
- --------------------------------------------------------------------------------------------------
Total Bank Notes $ 78,493,584
- --------------------------------------------------------------------------------------------------
Taxable Municipal Notes--0.5%
Ocean Spray Cranberries
$5,000,000 5.63% 01/07/99 $ 5,000,000
- --------------------------------------------------------------------------------------------------
Total Taxable Municipal Notes $ 5,000,000
- --------------------------------------------------------------------------------------------------
Variable Rate Obligations(a)--41.3%
Bank One N.A.
$40,000,000 5.48% 01/04/99 $ 39,994,116
Comerica Bank Detroit
15,000,000 5.42 01/19/99 14,995,170
25,000,000 5.11 03/10/99 24,992,473
First National Bank of Chicago
10,000,000 5.42 01/14/99 9,996,811
10,000,000 5.48 01/14/99 9,996,930
First Tennessee Bank, N.A.
10,000,000 5.07 01/25/99 9,998,496
First Union Corp.
10,000,000 5.52 01/25/99 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 Obligations (continued)
Ford Motor Credit Co.
$10,000,000 5.50% 02/22/99 $ 10,004,439
General Electric Capital Corp.
10,000,000 5.32 02/17/99 10,000,000
5,000,000 5.18 03/08/99 5,000,000
IBM Corp.
20,000,000 5.23 02/12/99 19,987,345
J.P. Morgan & Co., Inc.
30,000,000 5.48 01/07/99 29,991,033
Merrill Lynch & Co., Inc.
25,000,000 5.48 01/13/99 24,998,466
10,000,000 5.14 03/16/99 10,000,000
Monumental Life Insurance Co.
20,000,000 5.72 02/01/99 20,000,000
New York Life Insurance Co.
10,000,000 5.31 01/07/99 10,000,000
Norwest Corp.
10,000,000 5.17 03/22/99 9,999,310
Old Kent Bank & Trust Co.
10,000,000 5.10 02/01/99 9,998,405
Pacific Mutual Life Insurance Co.
25,000,000 4.98 02/01/99 25,000,000
PepsiCo, Inc.
30,000,000 5.21 02/19/99 29,978,669
PNC Bank, N.A.
10,000,000 5.50 01/27/99 9,995,747
SMM Trust Series 1998-A
5,000,000 5.32 03/16/99 5,000,000
Southtrust Bank of Alabama, N.A.
25,000,000 5.42 01/14/99 24,992,824
5,000,000 5.08 01/21/99 4,999,262
U.S. Bank, N.A.
10,000,000 5.50 01/08/99 9,998,493
30,000,000 5.43 01/20/99 29,991,935
- --------------------------------------------------------------------------------------------------
Total Variable Rate Obligations $419,909,924
- --------------------------------------------------------------------------------------------------
Certificates of Deposit--2.5%
Mellon Bank, N.A.
$25,000,000 5.00% 02/17/99 $ 25,000,000
- --------------------------------------------------------------------------------------------------
Total Certificates of Deposit $ 25,000,000
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements--14.6%
Joint Repurchase Agreement Account
$123,400,000 4.82% 01/04/99 $ 123,400,000
Joint Repurchase Agreement Account II
25,000,000 4.89 01/04/99 25,000,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreements $ 148,400,000
- ----------------------------------------------------------------------------------------------
Total Investments $1,015,913,421(b)
</TABLE>
- --------------------------------------------------------------------------------
(a) Variable rate security-base index is either U.S. Treasury Bill, LIBOR, one
month commercial paper, Federal Funds, or Prime lending rate.
(b) 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 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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper and Corporate Obligations--35.1%
Agency/Government
Province of Quebec
$15,000,000 5.01% 05/07/99 $ 14,736,975
Bank Holding Companies
Banca CRT Financial Corp.
20,000,000 5.35 02/22/99 19,845,444
Banque Et Caisse Epargne
20,000,000 5.01 03/29/99 19,757,850
C.S. First Boston Corp.
10,000,000 5.33 02/10/99 9,940,778
Deutsche Bank Financial
25,000,000 5.60 01/07/99 24,976,667
IMI Funding Corp.
10,000,000 5.38 02/26/99 9,916,311
Business Credit Institutions
CIT Group, Inc.
10,000,000 5.05 03/29/99 9,877,958
General Electric Capital Corp.
10,000,000 5.36 02/16/99 9,931,511
Chemicals
Henkel Corp.
11,000,000 5.03 03/12/99 10,892,414
Commercial Banks
CP Trust Certificates Series 1996-1
17,000,000 4.95 03/30/99 17,000,000
Motor Vehicles and Equipment
DaimlerChrysler N.A. Holding Corp.
21,849,000 4.98 05/28/99 21,404,701
Receivable/Asset Financings
Asset Portfolio Funding
20,000,000 5.20 03/17/99 19,783,333
Asset Securitization Corp.
25,000,000 5.15 03/12/99 24,749,653
Atlantis One Funding Corp.
28,364,000 5.11 05/13/99 27,832,553
CC USA, Inc.
10,000,000 5.15 01/15/99 9,979,972
Corporate Receivables Corp.
25,000,000 5.25 02/18/99 24,825,000
30,000,000 5.25 02/19/99 29,785,625
</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)
Edison Asset Securitization Corp.
$10,000,000 5.15% 01/13/99 $ 9,982,833
10,000,000 5.13 01/29/99 9,960,100
20,000,000 5.14 02/26/99 19,840,089
10,000,000 5.15 03/22/99 9,885,556
17,884,000 5.18 03/29/99 17,660,122
Eureka Securities
30,000,000 5.35 02/01/99 29,861,792
Four Winds Funding Corp.
20,000,000 5.25 01/14/99 19,962,083
40,000,000 5.65 01/28/99 39,830,500
Riverwoods Funding Corp.
20,000,000 5.05 02/25/99 19,845,694
Rose One Plus(a)
10,000,000 5.31 01/08/99 9,989,675
Windmill Funding Corp.
10,000,000 5.30 01/15/99 9,979,389
25,000,000 5.30 02/08/99 24,860,139
Savings and Loan
Northern Rock PLC
15,000,000 5.12 02/02/99 14,931,733
Security and Commodity Brokers, Dealers and Services
J.P. Morgan Securities, Inc.
10,000,000 5.02 04/21/99 9,846,611
Morgan Stanley Dean Witter & Co.
10,000,000 5.20 03/24/99 9,881,556
Salomon Smith Barney Holdings, Inc.
5,000,000 5.40 01/19/99 4,986,500
25,000,000 5.40 02/23/99 24,801,250
5,000,000 5.20 03/12/99 4,949,444
- --------------------------------------------------------------------------------------------------
Total Commercial Paper and Corporate Obligations $596,291,811
- --------------------------------------------------------------------------------------------------
Bank Notes--1.9%
BankBoston, N.A.
$10,000,000 5.20% 04/01/99 $ 10,000,000
5,000,000 5.11 04/05/99 5,000,000
First Union National Bank
18,000,000 5.12 03/29/99 18,000,000
- --------------------------------------------------------------------------------------------------
Total Bank Notes $ 33,000,000
- --------------------------------------------------------------------------------------------------
</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--1.5%
Mellon Bank, N.A.
$25,000,000 5.00% 02/17/99 $ 25,000,000
- -------------------------------------------------------------------------------------------------
Total Certificates of Deposit $ 25,000,000
- -------------------------------------------------------------------------------------------------
Certificates of Deposit - Yankeedollar--11.4%
Bank Austria, New York
$15,000,000 5.08% 12/30/99 $ 14,998,562
Canadian Imperial Bank of Commerce, New York
15,000,000 5.66 02/26/99 14,998,897
15,000,000 5.06 05/05/99 15,000,000
Commerzbank, New York
9,000,000 5.37 02/24/99 9,001,361
5,000,000 5.65 02/26/99 4,999,632
Credit Agricole Indosuez, New York
10,000,000 5.74 04/26/99 9,998,190
Creditanstalt, New York
10,000,000 5.85 05/03/99 9,998,402
Den Danske Bank Corp., New York
10,000,000 5.75 04/26/99 9,998,492
Deutsche Bank, New York
25,000,000 5.04 05/05/99 25,000,000
National Bank of Canada, New York
10,000,000 5.78 05/19/99 9,997,757
15,000,000 5.76 06/10/99 14,996,223
Societe Generale, New York
15,000,000 5.66 02/26/99 14,999,116
5,000,000 5.71 03/29/99 4,999,543
10,000,000 5.63 04/06/99 9,995,600
Toronto Dominion Bank, New York
5,000,000 5.10 12/29/99 5,000,239
UBS, New York
20,000,000 5.23 01/13/99 20,000,099
- -------------------------------------------------------------------------------------------------
Total Certificates of Deposit - Yankeedollar $193,982,113
- -------------------------------------------------------------------------------------------------
Corporate Bond--1.2%
Dakota Certificates of Standard Credit Card Master Trust
$20,000,000 5.25% 01/14/99 $ 19,962,083
- -------------------------------------------------------------------------------------------------
Total Corporate Bond $ 19,962,083
- -------------------------------------------------------------------------------------------------
Time Deposit--4.4%
National City Bank
$75,000,000 4.94% 01/04/99 $ 75,000,000
- -------------------------------------------------------------------------------------------------
Total Time Deposit $ 75,000,000
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate Obligations(a)--34.4%
Abbey National Treasury Services
$35,000,000 5.07% 01/20/99 $ 34,985,808
Bank of Austria, New York
30,000,000 5.49 01/04/99 29,991,266
Bank of Western Australia Ltd.
5,000,000 5.35 02/19/99 4,999,579
Barclays Bank PLC
30,000,000 5.49 01/04/99 29,990,382
Bayerische Landesbank
25,000,000 5.03 01/22/99 24,989,139
15,000,000 5.49 01/25/99 14,998,473
10,000,000 5.49 01/29/99 9,996,385
C.S. First Boston Corp.
10,000,000 5.20 01/04/99 10,000,000
10,000,000 5.57 02/01/99 10,000,000
Citicorp, Inc.
20,000,000 5.20 03/17/99 20,000,000
Comerica Bank Detroit
15,000,000 5.42 01/19/99 14,995,170
Den Danske Bank Corp.
15,000,000 5.52 01/04/99 14,996,317
5,000,000 5.56 01/25/99 4,999,891
First Tennessee Bank, N.A.
10,000,000 5.07 01/25/99 9,998,496
General Electric Capital Corp.
10,000,000 5.32 02/17/99 10,000,000
Istituto Bancario, New York
15,000,000 5.22 01/14/99 14,997,930
30,000,000 5.12 02/24/99 29,991,930
5,000,000 5.09 03/08/99 4,998,514
J.P. Morgan Securities, Inc.
30,000,000 5.48 01/07/99 29,991,033
Merrill Lynch & Co., Inc.
15,000,000 5.51 01/11/99 15,000,000
11,000,000 5.39 01/22/99 11,001,592
5,000,000 5.53 02/10/99 5,003,586
10,000,000 5.14 03/16/99 10,000,000
Monumental Life Insurance Co.
25,000,000 5.72 02/01/99 25,000,000
Morgan Stanley Dean Witter & Co.
$ 15,000,000 5.30% 01/15/99 14,999,944
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Money Market Portfolio (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate Obligations (continued)
National Rural Utilities Corp.
$20,000,000 5.17% 02/25/99 $ 20,000,000
New York Life Insurance Co.
10,000,000 5.31 01/07/99 10,000,000
Norwest Corp.
10,000,000 5.17 03/22/99 9,999,310
Old Kent Bank & Trust Co.
10,000,000 5.10 02/01/99 9,998,405
PNC Bank, N.A.
25,000,000 5.50 01/04/99 24,990,238
SMM Trust Series 1998-A
8,000,000 5.32 03/16/99 8,000,000
Societe Generale, New York
5,000,000 5.51 01/07/99 4,999,229
5,000,000 5.54 01/26/99 4,998,514
Southtrust Bank of Alabama, N.A.
20,000,000 5.08 01/21/99 19,997,047
Svenska Handelsbanken
45,000,000 5.44 01/04/99 44,989,022
Westpac Banking Corp., New York
20,000,000 5.10 02/03/99 19,994,826
- --------------------------------------------------------------------------------------------------
Total Variable Rate Obligations $583,892,026
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements--9.9%
Joint Repurchase Agreement Account
$ 68,900,000 4.82% 01/04/99 $ 68,900,000
Joint Repurchase Agreement Account II
100,000,000 4.89 01/04/99 100,000,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreements $ 168,900,000
- ----------------------------------------------------------------------------------------------
Total Investments $1,696,028,033(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.
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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations--75.2%
Federal Farm Credit Bank
$12,000,000 5.65% 01/04/99 $ 11,999,858
4,698,000 5.15 01/20/99 4,685,231
7,000,000 4.76(a) 01/18/00 6,987,225
Federal Home Loan Bank
20,000,000 4.75 01/20/99 19,949,861
1,540,000 5.15 02/03/99 1,532,730
3,000,000 5.61 06/18/99 2,999,238
5,000,000 5.52 08/12/99 5,018,270
2,495,000 4.90 12/01/99 2,496,280
25,000,000 4.86(a)(b) 04/11/99 24,982,750
Federal Home Loan Mortgage Corp.
15,000,000 5.41(b) 01/04/99 14,996,259
6,250,000 5.15 01/19/99 6,233,906
35,000,000 5.44(b) 01/26/99 34,998,369
20,000,000 5.15 02/03/99 19,905,583
5,000,000 4.92 03/19/99 4,947,383
15,000,000 4.79 04/09/99 14,804,408
9,000,000 5.60 04/21/99 9,022,468
Federal National Mortgage Association
15,000,000 4.98(b) 01/05/99 14,995,535
5,000,000 5.07 01/08/99 4,995,071
25,000,000 5.33(b) 01/17/99 24,997,473
75,000,000 5.36(b) 01/22/99 74,997,439
9,000,000 5.41 02/23/99 8,997,681
10,000,000 5.53 03/11/99 9,998,563
2,000,000 6.60 06/24/99 2,012,340
2,760,000 6.03 07/07/99 2,770,935
1,450,000 5.92 08/11/99 1,455,868
4,000,000 8.35 11/10/99 4,115,031
13,550,000 5.74 12/23/99 13,669,368
Student Loan Marketing Association
25,000,000 5.45(b) 01/03/99 24,985,042
- -------------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations $373,550,165
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements--31.3%
ABN/AMRO, Inc.(c)
$30,000,000 5.15% 01/04/99 $ 30,000,000
Joint Repurchase Agreement Account(d)
95,400,000 4.82 01/04/99 95,400,000
NationsBanc Montgomery Securities LLC(c)
30,000,000 5.15 01/04/99 30,000,000
- ------------------------------------------------------------------------------------------------
Total Repurchase Agreements $155,400,000
- ------------------------------------------------------------------------------------------------
Total Investments $528,950,165(e)
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) Forward commitments.
(b) Variable rate security-base index is either Federal Funds, Prime lending
rate, LIBOR or three or six month U.S. Treasury Bill.
(c) At December 31, 1998 these agreements were fully collateralized by Federal
Agency obligations
(d) A portion of this security is segregated for forward commitments.
(e) 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 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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Obligations--13.3%
United States Treasury Notes
$15,000,000 6.38% 04/30/99 $ 15,037,410
5,000,000 6.38 05/17/99 5,013,813
5,000,000 6.25 06/01/99 5,013,899
25,000,000 6.00 06/30/99 25,111,348
8,000,000 6.00 08/16/99 8,081,686
8,000,000 7.13 09/30/99 8,126,129
31,000,000 7.50 11/01/99 31,792,767
15,000,000 5.88 11/15/99 15,185,065
- --------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations $113,362,117
- --------------------------------------------------------------------------------------------------
Repurchase Agreements--86.9%
ABN/AMRO, Inc.(a)
$40,000,000 4.92% 01/04/99 $ 40,000,000
Barclays Bank(a)
30,000,000 4.88 01/06/99 30,000,000
Bear Stearns Companies, Inc.(a)
40,000,000 4.60 01/04/99 40,000,000
C.S. First Boston Corp.(a)
30,000,000 4.82 01/04/99 30,000,000
Deutsche Morgan Grenfell(a)
40,000,000 4.88 01/04/99 40,000,000
Goldman, Sachs & Co.(a)
30,000,000 4.96 01/04/99 30,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements (continued)
Joint Repurchase Agreement Account
$294,200,000 4.82% 01/04/99 $294,200,000
J.P. Morgan Securities, Inc.(a)
40,000,000 4.75 01/04/99 40,000,000
Lehman Brothers, Inc.(a)
40,000,000 4.90 01/04/99 40,000,000
Merrill Lynch Government Securities, Inc.(a)
40,000,000 4.65 01/04/99 40,000,000
Morgan Stanley Dean Witter & Co.(a)
35,000,000 5.75 01/04/99 35,000,000
NationsBanc Montgomery Securities LLC(a)
40,000,000 4.75 01/04/99 40,000,000
Salomon Smith Barney, Inc.(a)
40,000,000 4.90 01/04/99 40,000,000
- ---------------------------------------------------------------------------------------------
Total Repurchase Agreements $739,200,000
- ---------------------------------------------------------------------------------------------
Total Investments $852,562,117(b)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) At December 31, 1998 these agreements were fully collateralized by U.S.
Treasury obligations.
(b) 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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Obligations--99.7%
United States Treasury Bills
$ 64,900,000 4.32% 01/07/99 $ 64,853,272
4,800,000 4.03 01/14/99 4,793,015
5,600,000 4.64 01/21/99 5,585,907
11,400,000 4.61 01/21/99 11,371,437
15,700,000 4.49 01/21/99 15,661,688
12,600,000 4.56 01/21/99 12,568,710
2,900,000 4.62 01/21/99 2,892,685
5,800,000 4.51 02/04/99 5,775,295
8,200,000 4.51 02/11/99 8,158,909
15,000,000 4.44 02/11/99 14,925,943
11,000,000 4.40 02/11/99 10,946,256
115,000,000 4.51 03/04/99 114,128,555
35,000,000 4.48 03/04/99 34,736,285
65,000,000 4.41 03/11/99 64,450,588
100,000,000 4.53 04/01/99 98,895,000
50,000,000 4.48 04/01/99 49,453,750
41,700,000 4.34 04/22/99 41,142,627
United States Treasury Notes
108,700,000 5.88 01/31/99 108,773,665
175,000,000 5.50 02/28/99 175,222,522
- -------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations $844,336,109
- -------------------------------------------------------------------------------------------------
Total Investments $844,336,109(a)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent either the stated coupon rate or annualized yield on
date of purchase for discounted notes.
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.
11
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Federal Portfolio
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations--107.9%
Federal Farm Credit Bank
$ 85,000,000 5.00%(a) 01/01/99 $ 84,976,237
40,000,000 5.34(a) 01/01/99 39,983,688
35,000,000 5.41(a) 01/01/99 35,000,000
25,000,000 5.35(a) 01/01/99 24,995,886
210,000,000 4.94(a)(b) 01/04/99 210,000,000
75,000,000 5.09(a) 01/04/99 75,000,000
3,100,000 5.05 01/12/99 3,095,217
50,000,000 5.37(a) 01/13/99 50,000,000
37,555,000 5.09 01/14/99 37,485,972
18,269,000 5.05 01/15/99 18,233,122
40,300,000 5.07 01/15/99 40,220,542
125,000,000 5.34(a) 01/15/99 124,982,484
60,000,000 5.37(a) 01/15/99 60,000,000
62,000,000 4.76(c) 01/18/00 61,942,475
36,000,000 5.06 01/22/99 35,893,740
90,000,000 5.36(a) 01/23/99 89,960,517
10,000,000 5.01 02/01/99 9,956,858
10,000,000 4.98 02/08/99 9,947,433
9,000,000 5.14 02/10/99 8,948,600
25,000,000 4.98 02/12/99 24,854,750
40,000,000 5.38 03/02/99 39,988,855
10,000,000 4.81 05/17/99 9,818,289
50,000,000 5.50 09/01/99 50,091,696
10,000,000 4.75 12/01/99 9,988,305
Federal Home Loan Bank
15,000,000 4.30 01/04/99 14,994,625
40,600,000 4.75 01/04/99 40,583,929
75,000,000 4.80(a) 01/04/99 74,956,021
63,124,000 5.04 01/04/99 63,097,500
3,600,000 5.08 01/04/99 3,598,476
23,035,000 5.03 01/06/99 23,018,907
93,900,000 5.04 01/06/99 93,834,270
34,375,000 4.75 01/08/99 34,343,251
12,113,000 4.76 01/08/99 12,101,789
36,987,000 4.84 01/08/99 36,952,191
100,000,000 5.38(a) 01/08/99 99,965,753
100,000,000 5.34(a) 01/11/99 99,992,308
19,800,000 5.06 01/13/99 19,766,604
27,000,000 4.73(b) 01/15/99 26,950,335
40,000,000 4.75(b) 01/15/99 39,926,111
14,300,000 5.06(b) 01/15/99 14,271,861
37,600,000 4.75 01/20/99 37,505,739
50,000,000 5.12 01/20/99 49,864,889
8,600,000 4.79 01/22/99 8,575,970
12,200,000 4.82 01/27/99 12,157,530
18,550,000 5.05 02/05/99 18,458,925
69,678,000 5.05 02/10/99 69,287,029
50,000,000 5.00 03/03/99 49,576,813
35,000,000 4.96 03/08/99 34,681,733
40,000,000 5.60 03/10/99 39,999,702
</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)
$ 100,300,000 4.95% 03/17/99 $ 99,265,656
50,000,000 4.96 03/17/99 49,483,333
149,000,000 4.95 03/19/99 147,422,463
14,000,000 4.95 03/24/99 13,842,150
50,000,000 4.76 04/14/99 49,319,056
25,000,000 4.77 04/14/99 24,658,813
12,000,000 4.82 04/28/99 11,812,020
7,985,000 4.84 05/05/99 7,851,881
20,000,000 5.61 06/18/99 19,994,919
125,000,000 4.86(a)(c) 01/11/00 124,913,750
Student Loan Marketing Association
100,000,000 5.45(a) 01/03/99 99,940,164
105,000,000 4.99(a)(b) 01/05/99 104,989,903
50,000,000 5.13(a) 01/05/99 49,992,952
75,000,000 5.37(a) 01/15/99 75,000,000
72,000,000 4.99(b) 01/19/99 71,820,360
50,000,000 4.73 01/27/99 49,829,194
75,000,000 5.01 02/11/99 74,572,062
50,000,000 5.00(a) 03/15/99 49,973,993
20,000,000 5.63 06/02/99 19,995,969
10,135,000 5.63 06/30/99 10,132,786
60,000,000 5.23(a)(c) 01/11/00 59,970,600
Tennessee Valley Authority
40,000,000 4.98 02/22/99 39,712,267
10,000,000 8.38 10/01/99 10,253,761
- ----------------------------------------------------------------------------------
Total U.S. Government Agency Obligations $3,438,574,979
- ----------------------------------------------------------------------------------
Total Investments $3,438,574,979(d)
- ----------------------------------------------------------------------------------
</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) A portion of these securities are segregated for forward commitments.
(c) Forward commitments.
(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 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 , 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alabama--3.0%
City of Mobile Industrial Development PCRB for Alabama Power Series 1993 A
(A-1/VMIG1)
$ 7,000,000 3.95% 01/07/99 $ 7,000,000
Columbia Town IDRB for Alabama Power Co. Series 1996 A (A-1/VMIG1)
10,700,000 5.00 01/04/99 10,700,000
Homewood City Educational Building Authority Educational Facilities RB for
Samford University Series 1996 (Bank of Nova Scotia) (A-1+/VMIG1)
24,100,000 5.00 01/04/99 24,100,000
Montgomery City Special Care RB Series 1994 A (Amsouth Bank) (VMIG1)
6,620,000 3.95 01/07/99 6,620,000
- -------------------------------------------------------------------------------------------------
$48,420,000
- -------------------------------------------------------------------------------------------------
Alaska--0.3%
City of Valdez Marine Terminal Refunding RB for Exxon Pipeline Company
Series 1993 C (A-1+/VMIG1)
$ 5,600,000 5.10% 01/04/99 $ 5,600,000
- -------------------------------------------------------------------------------------------------
Arkansas--0.6%
Union County PCRB for Great Lakes Chemical Series 1988 (A-1)(a)
$ 9,000,000 4.11% 01/07/99 $ 9,000,000
- -------------------------------------------------------------------------------------------------
California--0.3%
City of Long Beach TRANS Series 1998-1999 (SP-1+)
$ 3,400,000 4.00% 10/05/99 $ 3,421,009
City of Newport Beach Floating/Fixed Rate Health Facility RB for Hoag
Memorial Series 1992 (A-1+C/VMIG1)
700,000 5.10 01/04/99 700,000
- -------------------------------------------------------------------------------------------------
$ 4,121,009
- -------------------------------------------------------------------------------------------------
Colorado--1.0%
Jefferson County School District TANS Series 1998 (MIG1/SP-1+)
$15,910,000 4.00% 06/30/99 $15,975,320
- -------------------------------------------------------------------------------------------------
Florida--2.7%
Florida Local Government Financing Commission Pooled CP Notes Series A
(First Union National Bank) (A-1/P-1)
$ 8,035,000 3.00% 03/26/99 $ 8,035,000
Florida Pooled CP Notes Series A (First Union National Bank) (A-1/P-1)
25,000,000 3.00 03/15/99 25,000,000
Putnam County IDA Floating/Fixed Rate PCRB for Seminole Electric Series
1984 H (NRU LOC) (A-1+/P-1)
10,785,000 4.05 01/07/99 10,785,000
- -------------------------------------------------------------------------------------------------
$43,820,000
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia--14.5%
Albany Dougherty Payroll IDA PCRB for Georgia Power First Series 1991
(VMIG1)
$2,120,000 4.00% 01/07/99 $ 2,120,000
Albany Dougherty PCRB for Philip Morris Companies Inc. Series 1992 (A-
1/P-1)
17,000,000 4.30 01/07/99 17,000,000
Atlanta Water & Sewer RB Series 1997 Eagle Tax-Exempt Trust Series
971003 Class A COPS (FGIC) (A-1+C)
10,500,000 4.15 01/07/99 10,500,000
Burke County Development Authority PCRB for Georgia Power First Series
1992 (VMIG1)
12,800,000 4.00 01/07/99 12,800,000
Burke County IDA Adjustable Tender PCRB for Oglethorpe Power Corp.
Series 1993 A (FGIC) (A-1+/VMIG1)
4,100,000 3.85 01/07/99 4,100,000
25,220,000(b) 3.80 01/16/99 25,220,000
Cobb County Development Authority PCRB for Georgia Power First Series
1991 (VMIG1)
8,330,000 4.00 01/07/99 8,330,000
Cobb County IDA RB for Institute of Nuclear Power Operations Project
Series 1998 (Suntrust Bank) (AA3)
5,525,000 4.00 01/07/99 5,525,000
Columbus Hospital Authority Adjustable Rate Revenue Certificates for
St. Frances Hospital Project Series 1994 (Suntrust Bank) (VMIG1)
6,950,000 4.00 01/07/99 6,950,000
Dekalb County IDRB for Siemens Energy & Automation, Inc./Siemens Series
1994 (P-1)
3,750,000 4.15 01/07/99 3,750,000
Dekalb County Hospital Authority Revenue Anticipation Certificates for
Dekalb Medical Center Series 1993 B (Suntrust Bank) (VMIG1)
4,900,000 4.00 01/07/99 4,900,000
Effingham County PCRB for Savannah Electric & Power Company Series 1997
(A-1/VMIG1)
3,700,000 5.10 01/04/99 3,700,000
Floyd County PCRB for Georgia Power Co. Series 1996 (A-1/VMIG1)
2,080,000 5.10 01/04/99 2,080,000
Fulco Hospital Authority Revenue Anticipation Certificates for Piedmont
Hospital Series 1992 (Suntrust Bank) (A-1+)
7,800,000 4.00% 01/07/99 7,800,000
Georgia Muncipal Electric and Gas Subordinated Bonds for General
Resolution Projects (C.S. First Boston/Morgan Guaranty/Bayerische
Landesbank Girozentrale/Wachovia Bank/ABN/AMRO Bank, N.V. LOC) (A-
1+/VMIG1)(b)
28,235,000 3.90 01/07/99 28,235,000
</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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Georgia (continued)
Georgia Municipal Electric and Gas Subordinated Bonds for General
Resolution Projects Series 1985 C (Bayerische Landesbank Girozentrale LOC)
(A-1+/VMIG1)
$ 5,000,000 4.15% 01/07/99 $ 5,000,000
Georgia Municipal Electric and Gas Project One Subordinated Bonds Series
1994 D (ABN/AMRO Bank, N.V.) (A-1+/VMIG1)
19,450,000 4.15 01/07/99 19,450,000
Georgia Municipal Electric and Gas Project One Subordinated Bonds Series
1994 E (ABN/AMRO Bank, N.V.) (A-1+/VMIG1)
21,300,000 3.80 01/07/99 21,300,000
Georgia Municipal Gas Authority RB for Agency Project Series B (C.S. First
Boston/Morgan Guaranty/Bayerische Landesbank Girozentrale/Wachovia
Bank/ABN/AMRO Bank, N.V.) (A-1+)
6,000,000 4.15 01/07/99 6,000,000
Georgia Municipal Gas Authority RB for Gas Portfolio II Project Series B
(C.S. First Boston/Morgan Guaranty/Bayerische Landesbank
Girozentrale/Wachovia Bank N.A.) (A-1+)
10,845,000 3.90 01/07/99 10,845,000
Georgia Municipal Gas Authority RB Series A (C.S. First Boston/Morgan
Guaranty/Bayerische Landesbank Girozentrale/Wachovia Bank N.A./ABN AMRO
Bank N.V.) (A-1+)
7,000,000 4.15 01/07/99 7,000,000
Henry County Georgia IDA RB for Georgia-Pacific Series 1993 (Suntrust Bank)
(AA3)
4,000,000 4.00 01/07/99 4,000,000
Monroe County IDA PCRB for Georgia Power Co. Plant Scherer Project First
Series 1997 (A-1/VMIG1)
5,000,000 5.10 01/04/99 5,000,000
Savannah Economic Development Authority PCRB for Savannah Electric & Power
First Series 1993 (A-1/VMIG1)
4,085,000 4.00 01/07/99 4,085,000
State of Georgia GO Bonds Puttable Floating Option Tax-Exempt Receipts
Series 1991 C PA-246 (A-1+C)
10,205,000 4.10 01/07/99 10,205,000
- --------------------------------------------------------------------------------------------------
$235,895,000
- --------------------------------------------------------------------------------------------------
Idaho--1.2%
State of Idaho TANS Series 1998 (VMIG1/SP-1+)
$20,000,000 4.50% 06/30/99 $ 20,085,648
- --------------------------------------------------------------------------------------------------
Illinois--7.3%
Chicago City RB for Chicago Midway Airport Series 1996 A Societe Generale
Trustor Municipal Securities Trust Receipts (MBIA) (A-1+C)
$12,000,000 4.10% 01/07/99 $ 12,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Illinois (continued)
City of Belleville IDA Refunding RB for Weyerhaeuser Project Series 1993
(A-1)
$ 1,800,000 4.10% 01/07/99 $ 1,800,000
Cook County GO Variable Rate Demand Bonds Series 1996
(A-1+/VMIG1)
24,000,000 4.10 01/07/99 24,000,000
Illinois Health Facilities Authority VRDN Adjustable RB for Evanston
Northwestern Health Care Corp. Series 1998 (A-1+/VMIG1)
7,500,000 3.70 06/01/99 7,500,000
Illinois Health Facilities Authority VRDN for Elmhurst Memorial Health
System Series 1998 A (VMIG1)
19,300,000 5.15 01/04/99 19,300,000
Illinois Health Facilities Authority VRDN for Elmhurst Memorial Health
Systems Series 1993 B (VMIG1)
22,000,000 5.15 01/04/99 22,000,000
Illinois Health Facilities Authority VRDN for Northwest Community Hospital
Series 1997 (A-1+/VMIG1)
2,600,000 4.00 01/07/99 2,600,000
Illinois Health Facilities Authority VRDN for The Revolving Fund Pooled
Finance Program Series 1985 C (The First National Bank of Chicago) (A-
1+/VMIG1)
16,575,000 4.10 01/07/99 16,575,000
Illinois Health Facilities Authority VRDN RB for Northwest Community
Hospital Series 1995 (A-1+/VMIG1)
1,700,000 4.00 01/07/99 1,700,000
Illinois Health Facility Authority VRDN for The Revolving Fund Pooled
Finance Program Series 1985 D (The First National Bank of Chicago)
(A-1+/VMIG1)
8,300,000 4.10 01/07/99 8,300,000
Village of Sauget VRDN PCRB for Monsanto Series 1992 (P-1)
3,300,000 4.15 01/07/99 3,300,000
- --------------------------------------------------------------------------------------------------
$119,075,000
- --------------------------------------------------------------------------------------------------
Indiana--4.0%
Fort Wayne City Hospital Authority VRDN for Parkview Memorial Hospital
Series 1985 D (Bank of America National Trust & Savings Association)
(VMIG1)
$ 1,180,000 3.90% 01/07/99 $ 1,180,000
Fort Wayne City Hospital Authority VRDN for Parkview Memorial Hospital
Series 1989 B (Bank of America National Trust & Savings Association)
(VMIG1)
15,700,000 3.90 01/07/99 15,700,000
Fort Wayne City Hospital Authority VRDN RB for Parkview Memorial Hospital
Series 1985 C (Bank of America National Trust & Savings Association)
(VMIG1)
7,655,000 3.90 01/07/99 7,655,000
</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>
Indiana (continued)
Indiana Health Facility Authority Variable Rate Hospital RB for
Daughters of Charity National Health System Series 1997 E (A-1+/VMIG1)
$14,730,000(b) 3.80% 01/07/99 $14,730,000
Indiana Hospital Equipment Financing Authority VRDN Series 1985 A
(MBIA) (A-1/VMIG1)
5,000,000 4.00 01/07/99 5,000,000
Princeton City PCRB for PSI Energy Inc. Project Series 1996 (CIBC LOC)
(A-1+/VMIG1)
15,000,000 5.15 01/04/99 15,000,000
Warrick County PCRB for ALCOA Series 1992 (A-1)
5,000,000 4.15 01/07/99 5,000,000
- -----------------------------------------------------------------------------------------------
$64,265,000
- -----------------------------------------------------------------------------------------------
Iowa--2.4%
Chillicothe City PCRB for Midamerican Energy Co./Midwest Power Systems
Series 1993 A (A-1/VMIG1)
$ 900,000 4.20% 01/07/99 $ 900,000
Louisa County PCRB for Iowa-Illinois Gas & Electric Co./Midamerican
Energy Co. Series 1986 A (A-1)
15,400,000 4.20 01/07/99 15,400,000
Muscatine County VRDN PCRB for Monsanto Series 1992 (P-1)
1,000,000 4.15 01/07/99 1,000,000
Salix City PCRB for Midamerican Energy Co./Midwest Power Systems Series
1993 (A-1/VMIG1)
21,795,000 4.20 01/07/99 21,795,000
- -----------------------------------------------------------------------------------------------
$39,095,000
- -----------------------------------------------------------------------------------------------
Kentucky--1.3%
Calvert City Pollution Control for Air Products and Chemicals Series
1993 B (A-1)
$ 1,000,000 4.10% 01/07/99 $ 1,000,000
Kentucky Economic Development Financing Authority Adjustable Rate
Hospital Facilities RB for The Health Alliance of Greater Cincinnati
Series 1997 D (MBIA) (A-1+/VMIG1)
5,000,000 4.00 01/07/99 5,000,000
Kentucky Turnpike Authority Resource Recovery Road Refunding RB Series
1987 A Trust Receipts, Series 1997 Fr/ri-17 (Financial Security
Assurance Inc.) (A-1+/VMIG1)
3,950,000 4.10 01/07/99 3,950,000
Trimble County PCRB for Louisville Gas And Electric Company Series 1996
A (A-1/VMIG1)
11,000,000 3.10 03/15/99 11,000,000
- -----------------------------------------------------------------------------------------------
$20,950,000
- -----------------------------------------------------------------------------------------------
Louisiana--3.1%
Ascension Parish PCRB for Shell Oil Co. Series 1996 (A-1+/VMIG1)(a)
$ 9,500,000 3.80% 01/07/99 $ 9,500,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Louisiana (continued)
Ascension Parish PCRB for Vulcan Materials Co. Series 1996
(A-1+/VMIG1)
$ 8,200,000 4.30% 01/07/99 $ 8,200,000
Iberville Parish PCRB for Air Products and Chemicals Series 1992 (A-1)
6,200,000 4.10 01/07/99 6,200,000
Plaquemines Port Harbor & District Marine Terminal Series 1985 B for
Electro-Coal Transfer Corp. (A-1+/P-1)
6,050,000 3.00 05/20/99 6,050,000
South Louisiana Port Commission RB for Occidental Petroleum Corp. Series
1996 (Wachovia Bank N.A.) (P-1)
11,800,000 3.85 01/07/99 11,800,000
St. James Parish PCRB for Occidental Petroleum Corp. Series 1996 (Wachovia
Bank N.A.) (P-1)
8,000,000 3.85 01/07/99 8,000,000
- -------------------------------------------------------------------------------------------------
$49,750,000
- -------------------------------------------------------------------------------------------------
Maryland--0.8%
Washington Suburban Sanitary District GO VRDN Series 1998
(A-1+/VMIG1)(a)
$13,000,000 4.05% 01/07/99 $13,000,000
- -------------------------------------------------------------------------------------------------
Massachusetts--4.4%
Commonwealth of Massachusetts Eagle Tax-Exempt Trust Series 97C2101 Class
A COPS (MBIA) (A-1+C)
$10,195,000 4.15% 01/07/99 $10,195,000
Commonwealth of Massachusetts GO Refunding Bonds Series 1998 A (A-
1+/VMIG1)
22,000,000 3.90 01/07/99 22,000,000
Massachusetts Health & Education Facility Authority for Harvard University
Series A Eagle Tax-Exempt Trust Series 972104 Class A COPS (A-1+C)
12,500,000 4.15 01/07/99 12,500,000
Massachusetts Health & Education Facility Authority RB for Harvard
University Series I (A-1+/VMIG1)
27,265,000 3.95 01/07/99 27,265,000
- -------------------------------------------------------------------------------------------------
$71,960,000
- -------------------------------------------------------------------------------------------------
Michigan--2.2%
Michigan State Building Authority CP Notes Series 2 (CIBC) (A-1+/P-1)
$17,500,000 3.30% 02/09/99 $17,500,000
Michigan State Trunk Line Fund Series 1998 A-Eagle Tax-Exempt Trust Series
982202 Class A Certificates (A-1+C)
18,000,000 4.13 01/07/99 18,000,000
- -------------------------------------------------------------------------------------------------
$35,500,000
- -------------------------------------------------------------------------------------------------
</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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minnesota--1.2%
Becker PCRB for Northern States Power Co.--Sherburne County Generating
Station Unit 3 Project Series 1992-A (A-1+/P-1)
$ 8,000,000 3.05% 03/10/99 $ 8,000,000
Minnesota Higher Education Facility Authority VRDN for Carleton College
Series 3-L2 (VMIG1)
4,175,000 3.85 01/07/99 4,175,000
White Bear Lake Refunding IDRB for Weyerhaeuser Project Series 1993 (A-1)
6,800,000 4.10 01/07/99 6,800,000
- -------------------------------------------------------------------------------------------------
$18,975,000
- -------------------------------------------------------------------------------------------------
Mississippi--0.6%
Canton IDRB for Levi Strauss & Co. Series 1995 (Bank of America National
Trust & Savings Association) (A-1+)
$10,000,000 4.00% 01/07/99 $10,000,000
- -------------------------------------------------------------------------------------------------
Missouri--0.5%
Missouri Environmental Improvement & Energy VRDN PCRB for Monsanto Series
1993 (P-1)
$ 5,000,000 4.10% 01/07/99 $ 5,000,000
Missouri Refunding RB for Washington University Series 1984
(A-1+/VMIG1)
3,750,000 4.10 01/07/99 3,750,000
- -------------------------------------------------------------------------------------------------
$ 8,750,000
- -------------------------------------------------------------------------------------------------
Nevada--2.8%
Clark County Refunding RB for Nevada Airport System Series 1993 A (MBIA)
(A-1+/VMIG1)
$45,970,000 3.85% 01/07/99 $45,970,000
- -------------------------------------------------------------------------------------------------
New Jersey--3.1%
State of New Jersey TRANS Series 1999 A (A-1+/P-1)
$ 5,000,000 3.35% 03/11/99 $ 5,000,000
13,000,000 2.95 03/17/99 13,000,000
25,000,000 3.00 03/31/99 25,000,000
7,500,000 3.35 04/06/99 7,500,000
- -------------------------------------------------------------------------------------------------
$50,500,000
- -------------------------------------------------------------------------------------------------
New Mexico--0.6%
State of New Mexico TRANS Series 1998 (VMIG1/SP-1+)
$10,200,000 4.25% 06/30/99 $10,231,561
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York--3.8%
Long Island Power Authority Electric System Subordinated RB Series 1
(Bayerische Landesbank Girozentrale/Westdeutsche Landesbank Girozentrale)
(A-1+/VMIG1)
$ 9,000,000 4.15% 01/07/99 $ 9,000,000
Long Island Power Authority Electric System Subordinated RB Series 4
(Bayerische Landesbank Girozentrale/Westdeutsche Landesbank Girozentrale)
(A-1+/VMIG1)
24,800,000 2.85 03/18/99 24,800,000
New York City GO Bonds Fiscal 1995 Series B-5 (MBIA) (A-1+/VMIG1)
4,100,000 5.15 01/04/99 4,100,000
New York City GO Puttable Tax-Exempt Receipts Series 1995 D (MBIA) (VMIG1)
10,700,000 4.25 01/07/99 10,700,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Series 1994 B (UBS AG) (A-1+/ VMIG1)
2,500,000 5.05 01/04/99 2,500,000
New York State Environmental Facility Corp. Floating Rate Trust Receipts
Series 1997 (A-1+C/VMIG1)
10,425,000 4.10 01/07/99 10,425,000
- -------------------------------------------------------------------------------------------------
$61,525,000
- -------------------------------------------------------------------------------------------------
North Carolina--3.1%
City of Greensboro COPS Series 1998 (A-1+/VMIG1)
$ 5,000,000 4.10% 01/07/99 $ 5,000,000
North Carolina State Public School Building Bonds Series 1998 A Puttable
Floating Option Tax-Exempt Receipts Series PA 283 (A-1+)
8,800,000 4.10 01/07/99 8,800,000
Rockingham County Refunding PCRB for Philip Morris Project Series 1992 (A-
1/P-1)
3,960,000 4.10 01/07/99 3,960,000
Wake County Industrial Facilities & Pollution Control Financing Authority
PCRB for Carolina Power & Light Series 1990 B (The Bank of New York) (A-
1+/P-1)
7,200,000 3.15 03/11/99 7,200,000
10,000,000 2.90 03/25/99 10,000,000
15,000,000 2.90 03/26/99 15,000,000
- -------------------------------------------------------------------------------------------------
$49,960,000
- -------------------------------------------------------------------------------------------------
Ohio--1.9%
Hamilton County Adjustable Rate Hospital Facilities RB for The Health
Alliance of Greater Cincinnati Series 1997 B (MBIA) (A-1+/VMIG1)(a)
$30,775,000 4.00% 01/07/99 $30,775,000
- -------------------------------------------------------------------------------------------------
</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>
Oklahoma--0.6%
Muskogee Industrial Trust Pollution Control for Oklahoma Gas and Electric
Company Project Series 1997 A (A-1+/VMIG1)
$10,000,000 4.05% 01/07/99 $10,000,000
- -------------------------------------------------------------------------------------------------
Oregon--0.4%
Lane County PCRB for Weyerhaeuser Company Series 1994 (A-1)(a)
$ 6,500,000 4.10% 01/07/99 $ 6,500,000
- -------------------------------------------------------------------------------------------------
Pennsylvania--2.0%
Commonwealth of Pennsylvania GO Bonds First Series 1994 Eagle Tax-Exempt
Trust 943804 Class A COPS (AMBAC) (A-1 C)
$14,400,000 4.15% 01/07/99 $14,400,000
Delaware County IDA PCRB For BP Oil Inc. Project Series 1985 (A-1+/P-1)
700,000 5.00 01/04/99 700,000
Philadelphia City TRANS Series A 1998-1999 (VMIG1/SP-1+)
17,625,000 4.25 06/30/99 17,676,510
- -------------------------------------------------------------------------------------------------
$32,776,510
- -------------------------------------------------------------------------------------------------
South Carolina--0.6%
York County Floating/Fixed Rate PCRB Pooled Series 1984-North Carolina
Electric Membership Corp. VRDN (NRU) (A-1+/VMIG1)
$ 8,625,000 4.05% 01/07/99 $ 8,625,000
York County Floating/Fixed Rate PCRB Series 1984 N (NRU)
(A-1+/VMIG1)
1,100,000 4.05 01/07/99 1,100,000
- -------------------------------------------------------------------------------------------------
$ 9,725,000
- -------------------------------------------------------------------------------------------------
South Dakota--0.6%
South Dakota Housing Development Authority Puttable Floating Option Tax-
Exempt Receipts Series PT-73 Homeownership Mortgage Bonds Series 1996 A
(A-1+C)
$ 9,200,000 4.10% 01/07/99 $ 9,200,000
- -------------------------------------------------------------------------------------------------
Tennessee--0.1%
Bradley County VRDN for Olin Corp. Series 1993 C (Wachovia Bank N.A.) (A-
1+)
$ 1,000,000 5.10% 01/04/99 $ 1,000,000
- -------------------------------------------------------------------------------------------------
Texas--19.9%
Brazos Harbor Industrial Development Corp. Variable Rate for Monsanto
Company (P-1)
$ 3,500,000 4.15% 01/07/99 $ 3,500,000
Brazos River Authority PCRB for Monsanto Co. Series 1994 (P-1)
5,100,000 4.15 01/07/99 5,100,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas (continued)
Brazos River Authority VRDN for Monsanto Co. (P-1)
$ 5,300,000 4.15% 01/07/99 $ 5,300,000
City of Belton Industrial Development Corp. Refunding RB for the Butt
Grocery Series 1993 (Chase Bank of Texas, N.A.) (P-1)
2,875,000 4.00 01/07/99 2,875,000
City of Dallas Waterworks and Sewer System Refunding RB Series 1998, PT-
1114 (Financial Security Assurance, Inc.) (A-1+)
14,540,000 4.10 01/07/99 14,540,000
City of Houston GO CP Notes Series A (A-1+/P-1)
20,000,000 2.95 04/07/99 20,000,000
City of San Antonio Electric & Gas System Revenue RB Series 1997 SG 104,
SG 105 (A-1+C)
36,800,000 4.10 01/07/99 36,800,000
Coastal Bend Health Facilities Development Corp. Incarnate Word Health
System RB Series 1998 B (AMBAC) (VMIG1)
10,000,000 4.05 01/07/99 10,000,000
Harris County Health Facilities Development Corp. Health Care System
United Priced Demand Adjustable RB for School of the Incarnate Word
Series 1997 A (A-1+C/VMIG1)
10,000,000 3.00 04/07/99 10,000,000
Harris County Health Facilities Development Corp. Hospital RB for The
Methodist Hospital Series 1997 (A-1+)
8,100,000 5.00 01/04/99 8,100,000
Harris County Health Facilities Development Corp. RB for Memorial Hospital
System Series 1997 B (MBIA) (A-1+/VMIG1)
7,700,000 3.90 01/07/99 7,700,000
Harris County Health Facilities Development Corp. RB for Methodist
Hospital Series 1994 (A-1+)
14,600,000 5.00 01/04/99 14,600,000
Harris County Health Facilities Development Corp. Unit Priced Demand
Adjustable RB for St. Luke's Episcopal Hospital Series 1997 A (A-1+)
17,160,000 4.85 01/04/99 17,160,000
Harris County Toll Road Adjustable/Fixed Rate Subordinated Lien RB Series
1994 F (A-1+/VMIG1)
9,400,000 3.95% 01/07/99 9,400,000
Harris County Toll Road VRDN Series 1994 C (A-1+/VMIG1)
13,400,000 3.95 01/07/99 13,400,000
Red River Authority Texas PCRB for Southwestern Public Service Company
Series 1991 (A-1/VMIG1)
24,900,000 4.30 01/07/99 24,900,000
San Antonio Electric & Gas System CP Notes Series A (A-1+/P-1)
23,000,000 3.05 03/16/99 23,000,000
15,000,000 3.00 04/08/99 15,000,000
</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, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas (continued)
State of Texas TRANS CP Notes Series 1997 B (A-1+/P-1)
$16,000,000 2.95% 07/28/99 $ 16,000,000
16,000,000 2.95 08/23/99 16,000,000
State of Texas TRANS Series 1998 (SP1+/VMIG1)
50,000,000 4.50 08/31/99 50,439,902
- --------------------------------------------------------------------------------------------------
$323,814,902
- --------------------------------------------------------------------------------------------------
Utah--0.8%
Central Utah Water Conservancy District GO Limited Tax Refunding Bonds
Variable Rate Tender Option Bonds Series 1998 F (AMBAC) (A-1+/VMIG1)
$ 9,000,000 3.95% 01/07/99 $ 9,000,000
Utah State Board of Regents Auxiliary and Campus Facilities System RB
Series 1997 A (A-1+/VMIG1)
3,390,000 3.75 01/07/99 3,390,000
- --------------------------------------------------------------------------------------------------
$ 12,390,000
- --------------------------------------------------------------------------------------------------
Virginia--3.8%
Chesapeake IDA PCRB for Virginia Electric & Power Company Series 1985 (A-
1/VMIG1)
$22,000,000 3.10% 01/15/99 $ 22,000,000
Chesterfield County IDA PCRB for Virginia Electric & Power Series 1987 A
(A-1/VMIG1)
5,000,000 3.10 01/15/99 5,000,000
Louisa County PCRB for Virginia Electric & Power Series 1984 (A-1/VMIG1)
4,000,000 3.15 01/22/99 4,000,000
4,000,000 3.15 01/25/99 4,000,000
Roanoke City IDA VRDN for Carilion Health System Series A (A-1/VMIG1)
4,800,000 5.00 01/04/99 4,800,000
Roanoke City VRDN for Carilion Health System Hospital Series B (A-1/VMIG1)
5,300,000 5.00 01/04/99 5,300,000
Spotsylvania County IDRB for Carlisle Corp. Series 1993 (Suntrust Bank)
(AA3)
6,500,000 4.00 01/07/99 6,500,000
York County IDA PCRB for Virginia Electric & Power Series 1985 (A-1/VMIG1)
9,400,000 3.00 02/01/99 9,400,000
- --------------------------------------------------------------------------------------------------
$ 61,000,000
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington--2.5%
King County Limited Tax GO Bonds Series 1994 A Eagle Tax-Exempt Trust
Series 97C 4701 Class A Certificates (A-1+C)
$10,000,000 4.13% 01/07/99 $ 10,000,000
King County Sewer Revenue BANS CP Series A (A-1/P-1)
9,200,000 3.05 03/11/99 9,200,000
7,500,000 3.05 03/19/99 7,500,000
Port of Grays Harbor Industrial Development Corp. for Weyerhaeuser
Project Series 1993 (A-1)(a)
5,850,000 4.10 01/07/99 5,850,000
Port of Grays Harbor Refunding IDA for Weyerhaeuser Project Series 1992
(A-1)
1,000,000 4.10 01/07/99 1,000,000
Union Gap City Refunding IDA for Weyerhaeuser Project Series 1992 (A-1)
1,600,000 4.10 01/07/99 1,600,000
Washington Public Power Supply System Refunding Electric RB Series
1993-1A-2 (Bank of America National Trust & Savings Association) (A-
1+/VMIG1)
5,800,000 3.95 01/07/99 5,800,000
- ---------------------------------------------------------------------------------------------
$ 40,950,000
- ---------------------------------------------------------------------------------------------
Wisconsin--5.1%
City of Milwaukee Short-Term School Order Notes Series 1998 B
(SP1+/VMIG1)
$48,500,000 4.25% 08/26/99 $ 48,719,616
Milwaukee Metropolitan Sewage District GO Capital Purpose Bonds Series
1992 A Eagle Tax-Exempt Trust Series 944905 (A-1+C)
15,085,000 4.15 01/07/99 15,085,000
State of Wisconsin Operating Notes Series 1998 (VMIG1/SP-1+)
12,500,000 4.50 06/15/99 12,578,766
Wisconsin Health & Educational Facilities Authority VRDN for Wheaton
Franciscan Services Series 1997 (Toronto Dominion Bank) (A-1+/VMIG1)
7,000,000 4.00 01/07/99 7,000,000
- ---------------------------------------------------------------------------------------------
$ 83,383,382
- ---------------------------------------------------------------------------------------------
Wyoming--0.9%
Sweetwater PCRB for PacifiCorp Project Series 1990 A (C.S. First Boston
LOC) (VMIG1)
$14,500,000 3.85% 01/07/99 $ 14,500,000
- ---------------------------------------------------------------------------------------------
Total Investments $1,688,438,332(c)
- ---------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
- --------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) A portion of these securities are segregated for forward commitments.
(b)Forward commitments.
(c) 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 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.
19
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Tax-Exempt California Portfolio
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California--92.4%
Alameda-Contra Costa Schools Financing Authority VRDN Cops for Capital
Improvement Financing Project Series F (KBC Bank, N.V.)
(A-1+)
$ 5,565,000 3.75% 01/07/99 $ 5,565,000
California Health Facilities Authority Insured Variable Rate Hospital RB
for Adventist Health System/West Series 1998 A (MBIA)
(A-1+/VMIG1)
6,700,000 5.00 01/04/99 6,700,000
California Health Facility Financing Authority RB Series 1990 A (Rabobank
Nederland Coop Centrale Raiffeisen-Boerenleenbank) (VMIG1)
1,800,000 3.60 01/07/99 1,800,000
California Pollution Control Financing Authority Adjustable TRB for
Southern California Edison Series 1986 A (A-1/VMIG1)
4,600,000 5.20 01/04/99 4,600,000
California Pollution Control Financing Authority Adjustable TRB for
Southern California Edison Series 1986 B (A-1/VMIG1)
3,700,000 5.20 01/04/99 3,700,000
California Pollution Control Financing Authority Adjustable TRB for
Southern California Edison Series 1986 C (A-1/VMIG1)
300,000 5.20 01/04/99 300,000
California Pollution Control Financing Authority PCRB for Pacific Gas &
Electric Company Series 1996 E (Morgan Guaranty Trust Company of New York)
(A-1+)
5,200,000 2.90 03/10/99 5,200,000
California Pollution Control Financing Authority PCRB for Pacific Gas &
Electric Company Series 1996 F (Banque Nationale de Paris, S.A.) (A-1)
5,650,000 5.00 01/04/99 5,650,000
California Pollution Control Financing Authority PCRB for Pacific Gas &
Electric Company Series 1997 A (Toronto Dominion Bank)
(A-1+)
7,100,000 5.00 01/04/99 7,100,000
Chula Vista IDRB for San Diego Gas & Electric Company Series 1996 A (A-
1/VMIG1)
13,400,000 5.00 01/04/99 13,400,000
City of Fresno VRDN MF Hsg. Refunding RB for Heron Pointe & Stone Series
1996 A (Wells Fargo Bank, N.A.) (VMIG1)
3,315,000 3.75 01/07/99 3,315,000
City of Huntington Beach Monthly Floating Rate Demand MF Hsg. RB Series
1985 A (Bank of America National Trust & Savings Association) (VMIG1)
7,400,000 4.00 02/01/99 7,400,000
City of Long Beach TRANS Series 1998-1999 (SP1+)
1,700,000 4.00 10/05/99 1,710,505
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California (continued)
City of Los Angeles TRANS Series 1998 (SP1+/VMIG1)
$10,000,000 4.00% 06/30/99 $ 10,020,473
City of Los Angeles Wastewater System CP Revenue Notes (Morgan Guaranty
Trust Company of New York/UBS AG) (A-1/P-1)
7,000,000 2.80 03/15/99 7,000,000
5,500,000 2.80 03/16/99 5,500,000
City of Newport Beach Floating/Fixed Rate Health Facility RB for Hoag
Memorial Series 1992 (A-1+C/VMIG1)
6,500,000 5.10 01/04/99 6,500,000
City of Newport Beach VRDN RB for Hoag Memorial Presbyterian Hospital
Series 1996 A (A-1+C/VMIG1)
7,500,000 5.10 01/04/99 7,500,000
City of Newport Beach VRDN RB for Hoag Memorial Presbyterian Hospital
Series 1996 C (A-1+C/VMIG1)
1,500,000 5.10 01/04/99 1,500,000
City of San Diego Certificates of Undivided Interest in The Water Utility
Fund Series 1998 (FGIC) (A-1+C)
15,685,000 3.88 01/07/99 15,685,000
Contra Costa Water District Tax-Exempt CP Notes Series A (A-1+/P-1)
5,200,000 2.85 03/10/99 5,200,000
County of Los Angeles Pension Obligation Refunding RB Series 1996 A (AMBAC)
(A-1+/VMIG1)
9,000,000 3.70 01/07/99 9,000,000
County of Los Angeles Pension Obligation Refunding RB Series 1996 B (AMBAC)
(A-1+/VMIG1)
3,700,000 3.70 01/07/99 3,700,000
County of Los Angeles Pension Obligation Refunding RB Series 1996 C (AMBAC)
(A-1+/VMIG1)
1,800,000 3.70 01/07/99 1,800,000
East Bay Municipal Utility District Water & Waste Water CP Notes
(A-1+/P-1)
7,800,000 2.95 03/17/99 7,800,000
Fremont City Pursuant to a Lease with Fremont Public Financing Authority
VRDN COPS for Family Resource Center Financing Project Series 1998 (KBC
Bank, N.V.) (A-1+)
2,000,000 3.75 01/07/99 2,000,000
Fremont VRDN MF Hsg. RB for Creekside Village Apartments Series 1985 D (KBC
Bank, N.V.) (A-1+/VMIG1)
14,400,000 3.70 01/07/99 14,400,000
Kern High School District TRANS Series 1998 (SP1+)
18,000,000 4.00 08/26/99 18,059,771
Kings County Housing Authority VRDN MF Hsg. Refunding RB for Edgewater
Series 1996 A (Wells Fargo Bank, N.A.) (VMIG1)
6,555,000 3.75 01/07/99 6,555,000
</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>
California (continued)
Long Beach City Housing Authority VRDN MF Hsg. RB for Channel Point
Apartments Series 1998 A (FNMA) (A-1)
$ 6,250,000 3.80% 01/07/99 $ 6,250,000
Los Angeles County Housing Authority Variable Rate MF Hsg. Refunding RB for
Malibu Meadows II Project Series 1998 B (FNMA) (A-1+)
3,200,000 3.80 01/07/99 3,200,000
Los Angeles County Housing Authority Variable Rate MF Hsg. Refunding RB for
Malibu Meadows II Project Series 1998 C (FNMA) (A-1+)
14,249,000 3.80 01/07/99 14,249,000
Los Angeles County Metro TRANS Authority 2nd Sub Sales Tax Revenue CP Notes
Series A (National Westminster Bank PLC/Bayerische Hypotheken Vereinsbank
AG/CIBC) (A-1+/P-1)
3,000,000 2.75 03/10/99 3,000,000
10,000,000 3.10 04/12/99 10,000,000
Los Angeles County TRANS Series 1998-99 A (SP1+/VMIG1)
16,980,000 4.50 06/30/99 17,076,161
Los Angeles Unified School District Variable Rate COPS for Belmont Learning
Complex Series 1997 A (Commerzbank AG) (VMIG1)
26,890,000 3.80 01/07/99 26,890,000
MSR Public Power Agency Subordinate Lien RB for San Juan Project Series
1997 D (MBIA) (A-1+/VMIG1)
19,000,000 3.90 01/07/99 19,000,000
Oakland Joint Powers Financing Authority Lease RB Series 1998 A-2
(Financial Security Assurance, Inc.) (A-1+/VMIG1)
2,000,000 3.65 01/07/99 2,000,000
Orange County Apartment Development Refunding RB for Larkspur Canyon
Apartments Series 1997 A (FNMA) (A-1+)
7,635,000 3.85 01/07/99 7,635,000
Orange County VRDN Apartment Development RB for Seaside Meadow Series 1984
C (KBC Bank, N.V.) (A-1/VMIG1)
24,000,000 3.70 01/07/99 24,000,000
Palo Alto Unified School District Municipal Securities Trust Receipts
Series 1997 SGA 53 (A-1+)
9,830,000 4.00 01/07/99 9,830,000
Sacramento County COPS for Administration Center and Courthouse Project
Series 1990 (UBS AG) (A-1+/VMIG1)
19,430,000 3.70 01/07/99 19,430,000
Sacramento County Housing Authority MF Hsg. Refunding RB for Stone Creek
Apartments (FNMA) (A-1+)
8,450,000 3.80 01/07/99 8,450,000
San Diego City Housing Authority MF Hsg. RB for LA Cima Apartments Series
1985, Issue K (Citibank, N.A.) (VMIG1)
12,725,000 3.65 01/07/99 12,725,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California (continued)
San Diego City Housing Authority MF Hsg. RB for Nobel Court Series 1985,
Issue L (Citibank, N.A.) (VMIG1)
$11,355,000 3.65% 01/07/99 $ 11,355,000
San Diego City Housing Authority VRDN MF Hsg. Refunding RB for Carmel Del
Mar Apartments Project Series 1993, Issue E (Commerzbank AG) (A-1+)
6,000,000 3.85 01/07/99 6,000,000
San Diego County VRDN MF Hsg. RB for Country Hills-Phase I Series 1985 C
(FNMA) (A-1+)
9,900,000 3.55 01/07/99 9,900,000
San Diego County Water Authority CP Notes Series 1 (A-1/P-1)
4,500,000 3.10 04/12/99 4,500,000
San Francisco City & County Housing Authority VRDN MF Hsg. RB Series 1985 D
(A-1+)
6,800,000 3.70 01/07/99 6,800,000
South Coast Local Education Agencies Pooled TRANS Program Series 1998 A
(SP1+/VMIG1)
15,000,000 4.50 06/30/99 15,066,972
Southern California Metropolitan Water District CP Notes Series A
(A-1+/P-1)
7,400,000 2.85 03/15/99 7,400,000
Southern California Metropolitan Water District Water RB Series 1997 B (A-
1+/VMIG1)
9,000,000 3.65 01/07/99 9,000,000
Southern California Metropolitan Water District Water RB Series 1997 C (A-
1+/VMIG2)
9,700,000 3.65 01/07/99 9,700,000
Southern California Public Power Authority Power Project RB Series 1996 B
(AMBAC) (A-1+/VMIG1)
8,000,000 3.65 01/07/99 8,000,000
Southern California Public Power Authority Power Project Subordinate
Refunding RB for Palo Verde Series 1997 A (Financial Security Assurance,
Inc.) (Aaa/AAA)
2,915,000 4.50 07/01/99 2,927,944
Southern California Public Power Authority Subordinate Refunding RB for
Transportation Project Series 1991 (AMBAC) (A-1+/VMIG1)
14,700,000 3.65 01/07/99 14,700,000
State of California GO Puttable Floating Option Tax-Exempt Receipts Series
PA-238 (MBIA) (A-1+C)
10,000,000 3.93 01/07/99 10,000,000
State of California GO Puttable Floating Option Tax-Exempt Receipts Series
PT-1001 (FGIC) (A-1+C)
18,870,000 3.88 01/07/99 18,870,000
State of California GO TECP Notes (A-1/P-1)
7,500,000 2.85 03/11/99 7,500,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
21
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Tax-Exempt California Portfolio (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
California (continued)
State of California Municipal Securities Trust Receipt Series 1997 SGA
55 (FGIC) (A-1+)
$12,700,000 4.03% 01/07/99 $ 12,700,000
State of California RANS Series 1998-99 (SP1+/VMIG1)
5,000,000 4.00 06/30/99 5,020,447
Triunfo Sanitation District VRDN Refunding RB Series 1994 (Banque
Nationale de Paris, S.A.) (A-1)
3,600,000 3.70 01/07/99 3,600,000
University of California CP Notes Series A (A-1+/P-1)
5,000,000 2.85 05/03/99 5,000,000
- ------------------------------------------------------------------------------------------------
$540,436,273
- ------------------------------------------------------------------------------------------------
Puerto Rico--7.3%
Puerto Rico Government Development Bank TECP Program (A-1+)
$ 4,443,000 2.90% 02/18/99 $ 4,443,000
13,000,000 2.85 04/06/99 13,000,000
5,000,000 2.85 05/03/99 5,000,000
Puerto Rico Government Development Bank VRDN Series 1985 (MBIA LOC) (A-
1+/VMIG1)
7,700,000 3.60 01/07/99 7,700,000
Puerto Rico Highway & Transportation Authority Transportation RB Series
A (AMBAC) (A-1+)
12,280,000 3.80 01/07/99 12,280,000
- ------------------------------------------------------------------------------------------------
$ 42,423,000
- ------------------------------------------------------------------------------------------------
Total Investments $582,859,273(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 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.
22
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Tax-Exempt New York Portfolio
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York--91.7%
City of Yonkers Civic Facility IDA RB for Consumers Series 1991 (Credit
Local de France) (VMIG1)
$2,500,000 4.00% 01/07/99 $ 2,500,000
City of Yonkers Civic Facility IDA RB Series 1991 (Credit Local de France)
(VMIG1)
2,738,000 4.00 01/07/99 2,738,000
City of Yonkers GO Serial Bonds Series 1996 C (AMBAC) (Aaa/AAA)
2,460,000 5.00 08/01/99 2,488,646
Great Neck North Water Authority Water System RB Series 1993 A (FGIC) (A-
1+/VMIG1)
4,900,000 4.00 01/07/99 4,900,000
Long Island Power Authority Electric System Subordinated RB Series 4
(Bayerische Landesbank Girozentrale/Westdeutsche Landesbank Girozentrale)
(A-1+/VMIG1)
3,400,000 3.05 03/09/99 3,400,000
Long Island Power Authority Electric System Subordinated RB Series 6
(Morgan Guaranty Trust Company of New York/ABN/AMRO
Bank, N.V.) (A-1+/VMIG1)
3,500,000 4.85 01/04/99 3,500,000
Massapequa Union Free School District TANS Series 1998-99 (MIG1)
3,700,000 4.00 06/30/99 3,707,577
Municipal Assistance Corp. for the City of New York
Series G (Aa2/AA)
3,000,000 5.00 07/01/99 3,018,779
Municipal Assistance Corp. for the City of New York Series K, Subseries K-
1 (Westdeutsche Landesbank Girozentrale)
(A-1+/VMIG1)
3,000,000 3.80 01/07/99 3,000,000
New York & New Jersey Port Authority Floating Rate Trust Receipts 108th
Series (Financial Security Assurance Inc.) (A-1(C)/VMIG1)
6,000,000 4.15 01/07/99 6,000,000
New York City GO Bonds Fiscal 1995 Series B-5 (MBIA) (A-1+/VMIG1)
1,800,000 5.15 01/04/99 1,800,000
New York City GO Puttable Tax-Exempt Receipts Series 1995 D (MBIA) (VMIG1)
600,000 4.25 01/07/99 600,000
New York City GO Refunded Bonds Series 1991 F
(U.S. Treasury Bond) (AAA)
2,835,000 8.10 11/15/99 2,959,431
New York City Health & Hospitals Corp. Health System Bonds Series 1997 A
(Morgan Guaranty Trust) (A-1+/VMIG1)
1,300,000 3.90 01/07/99 1,300,000
New York City Health & Hospitals Corp. Health System Bonds Series 1997 B
(CIBC) (A-1+/VMIG1)
4,700,000 3.95 01/07/99 4,700,000
New York City IDA Civic Facility RB for National Audubon Society Inc.
Series 1989 (Credit Local de France) (A-1+)
3,700,000 5.00 01/04/99 3,700,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York (continued)
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)
$6,000,000 5.00% 01/04/99 $ 6,000,000
New York City Transitional Finance Authority Future Tax Secured Bonds
Series 1999 A, Subseries A-1 (A-1+/VMIG1)
5,000,000 4.05 01/07/99 5,000,000
New York City Transitional Finance Authority Future Tax Secured Bonds
Series 1999 A, Subseries A-2 (A-1+/VMIG1)
1,000,000 3.90 01/07/99 1,000,000
New York City Trust for Cultural Resources Multi-Mode Bonds for Solomon
Guggenheim Foundation Series 1990 B (Westdeutsche Landesbank
Girozentrale) (A-1+/VMIG1)
1,400,000 5.00 01/04/99 1,400,000
New York Local Government Assistance Corp. Variable Rate Bond Series 1995
B (Bank of Nova Scotia) (A-1+/VMIG1)
4,600,000 3.85 01/04/99 4,600,000
New York State Dormitory Authority RB for State University Educational
Facilities Series 1989 A (U.S. Treasury Bond) (Aaa/AAA)
3,000,000 7.13 05/15/99 3,105,176
New York State Dormitory Authority RB Series for Cornell University Series
1990 B (A-1+/VMIG1)
3,200,000 5.00 01/04/99 3,200,000
New York State Dormitory Authority Variable Rate Interest Bond for
Metropolitan Museum of Art (A-1+/VMIG1)
3,260,000 3.85 01/07/99 3,260,000
New York State Energy Research & Development Authority PCRB for Central
Hudson Gas & Electric Series 1985 B
(Deutsche Bank AG) (P-1)
2,300,000 4.00 01/07/99 2,300,000
New York State Energy Research & Development Authority Gas Facility RB for
Brooklyn Union Gas Series 1997 A-1 (MBIA) (A-1+/VMIG1)
5,850,000 4.00 01/07/99 5,850,000
New York State Energy Research & Development Authority Gas Facility RB for
Brooklyn Union Gas Series 1997 A-2 (MBIA) (A-1+/VMIG1)
1,800,000 3.80 01/07/99 1,800,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Corp. Series 1985 A (Morgan Guaranty Trust Company
of New York) (A-1+)
3,000,000 3.58 03/15/99 3,000,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Corp. Series 1985 D (UBS AG)
(A-1+/Aaa)
4,000,000 3.00 12/01/99 4,000,000
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
ILA Tax-Exempt New York Portfolio (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<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 New York
State Electric & Gas Corp. Series D-2 (First National Bank of Chicago)
(VMIG1)
$ 200,000 5.10% 01/04/99 $ 200,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Series 1994 B (UBS AG) (A-1+/VMIG1)
500,000 5.05 01/04/99 500,000
New York State Energy Research & Development Authority PCRB for New York
State Electric & Gas Series 1994 D-1 (First National Bank of Chicago)
(VMIG1)
500,000 4.80 01/04/99 500,000
New York State Energy Research & Development VRDN for Orange & Rockland
Utilities Series 1995 A (AMBAC) (A-1+/VMIG1)
400,000 3.80 01/07/99 400,000
New York State Enviromental Facility Corp. RB Eagle Tax-Exempt Trust Series
1994 D, Class A Cops (A-1+C)
6,050,000 4.13 01/07/99 6,050,000
New York State Environmental Quality Variable Interest Rate GO Bonds Series
1997 A (Bayerische Landesbank Girozentrale/Landesbank Hessen-Thueringen
Girozentrale) (A-1+/VMIG1)
2,000,000 3.05 03/10/99 2,000,000
New York State Housing Finance Agency RB for 750 Sixth Ave Housing Series
1998 A (VMIG1)
2,000,000 4.00 01/07/99 2,000,000
New York State Housing Finance Agency RB for Liberty View Apartments Housing
Series 1997 A (FNMA) (A-1+)
6,000,000 3.75 01/07/99 6,000,000
New York State Housing Finance Agency RB for Tribeca Park Housing Series
1997 A (Bayerische Hypotheken Vereinsbank AG) (VMIG1)
12,000,000 3.90 01/07/99 12,000,000
Oswego County IDA PCRB Series 1992 for Philip Morris Companies (A-1/P-1)
1,000,000 4.25 01/07/99 1,000,000
Rensselaer County IDA RB for Rensselaer Polytechnic Institute Civic Facility
Series 1997 A (VMIG1)
4,440,000 3.85 01/07/99 4,440,000
Syracuse University IDA RB for Syracuse University Eggers Hall Series 1993
(Morgan Guaranty Trust Co. of New York) (A-1+/VMIG1)
1,700,000 5.00 01/04/99 1,700,000
Westchester County GO Serial Bonds Series 1990 A (Aaa/AAA)
500,000 6.70 02/01/99 501,231
- ---------------------------------------------------------------------------------------------------
$132,118,840
- ---------------------------------------------------------------------------------------------------
Puerto Rico--8.0%
Puerto Rico Government Development Bank Tax-Exempt CP
Program (A-1+)
$ 4,000,000 2.85% 04/06/99 $ 4,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Puerto Rico (continued)
Puerto Rico Government Development Bank VRDN Series 1985
(MBIA LOC) (A-1+/VMIG1)
$3,100,000 3.60% 01/07/99 $ 3,100,000
Puerto Rico Highway & Transportation Authority RB Series A (AMBAC)
(A-1+)
4,400,000 3.80 01/07/99 4,400,000
- ------------------------------------------------------------------------------------------------
$ 11,500,000
- ------------------------------------------------------------------------------------------------
Total Investments $143,618,840(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 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.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
---------------------------------------
Investment Abbreviations:
<TABLE>
<C> <S>
AMBAC --Insured by American Municipal Bond Assurance Corp.
COPS --Certificates of Participation
CP --Commercial Paper
FGIC --Insured by Financial Guaranty Insurance Co.
FNMA --Federal National Mortgage Association
GO --General Obligation
IDA --Industrial Development Authority
IDRB --Industrial Development Revenue Bond
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
NRU --National Rural Utilities Cooperation Finance Corp.
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
VRDN --Variable Rate Demand Note
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio Portfolio Portfolio
-------------------------------------
<S> <C> <C> <C>
Assets:
Investment in securities, at value
based on amortized cost $1,015,913,421 $1,696,028,033 $528,950,165
Cash 129,674 166,937 247,528
Receivables:
Interest 5,052,970 9,222,686 1,572,450
Reimbursement from adviser -- 161,074 17,129
Other assets 104,032 89,080 41,016
- -------------------------------------------------------------------------------
Total assets 1,021,200,097 1,705,667,810 530,828,288
- -------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased -- -- 31,969,975
Income distribution 4,161,925 7,761,480 1,946,315
Amounts owed to affiliates 344,185 633,841 165,633
Accrued expenses and other liabili-
ties 136,197 277,698 77,077
- -------------------------------------------------------------------------------
Total liabilities 4,642,307 8,673,019 34,159,000
- -------------------------------------------------------------------------------
Net Assets:
Paid-in capital 1,016,557,790 1,696,994,791 496,650,373
Accumulated undistributed net in-
vestment income -- -- 18,915
Accumulated net realized gain
(loss) on investment transactions -- -- --
- -------------------------------------------------------------------------------
Net assets $1,016,557,790 $1,696,994,791 $496,669,288
- -------------------------------------------------------------------------------
Net asset value, offering and re-
demption price per unit/share
(net assets/units or shares out-
standing) $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------
Units/Shares outstanding:
ILA units 837,185,408 1,350,316,356 383,209,380
ILA Administration units 38,835,536 314,327,442 7,682,007
ILA Service units 119,308,922 32,349,450 105,720,727
ILA B units 14,411,968 -- --
ILA C units 6,814,413 -- --
Cash Management shares 1,543 1,543 1,541
- -------------------------------------------------------------------------------
Total units/shares of beneficial
interest outstanding, $.001 par
value (unlimited number of units
authorized) 1,016,557,790 1,696,994,791 496,613,655
- -------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral part of these financial
statements.
26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury 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>
$852,562,117 $844,336,109 $3,438,574,979 $1,688,438,332 $582,859,273 $143,618,840
42,012 100,056 219,046 1,292,207 1,275,515 116,630
1,528,046 5,916,348 10,357,392 9,729,680 2,574,156 771,565
25,446 22,322 138,824 -- -- 59,995
468 -- 3,166 139,437 43,540 --
- -------------------------------------------------------------------------------------
854,158,089 850,374,835 3,449,293,407 1,699,599,656 586,752,484 144,567,030
- -------------------------------------------------------------------------------------
-- -- 246,826,825 68,185,000 -- --
3,304,041 2,610,700 13,034,311 4,163,622 1,394,394 337,806
289,225 258,299 1,082,345 571,500 205,324 47,515
116,124 216,418 353,888 33,405 21,572 48,605
- -------------------------------------------------------------------------------------
3,709,390 3,085,417 261,297,369 72,953,527 1,621,290 433,926
- -------------------------------------------------------------------------------------
850,448,699 847,286,786 3,187,992,819 1,626,430,582 585,120,699 144,136,145
-- -- 3,219 362,642 10,495 1,632
-- 2,632 -- (147,095) -- (4,673)
- -------------------------------------------------------------------------------------
$850,448,699 $847,289,418 $3,187,996,038 $1,626,646,129 $585,131,194 $144,133,104
- -------------------------------------------------------------------------------------
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------------
734,456,625 341,470,687 2,625,682,181 1,562,378,412 584,534,942 122,551,094
80,532,554 131,681,160 508,323,031 26,510,013 512,198 21,581,978
35,459,520 374,134,939 53,990,685 37,847,328 1,546 1,550
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- 1,524 1,521 1,523
- -------------------------------------------------------------------------------------
850,448,699 847,286,786 3,187,995,897 1,626,737,277 585,050,207 144,136,145
- -------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
27
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio Portfolio Portfolio
---------------------------------
<S> <C> <C> <C>
Investment Income:
Interest income $58,784,401 $84,777,665 $26,843,383
- ------------------------------------------------------------------------------
Expenses:
Management fees 3,665,907 5,321,209 1,703,454
Distribution and service fees(a) 103,117 -- --
Transfer agent fees 438,389 608,138 194,680
Custodian fees 179,071 252,149 93,072
Registration fees 109,624 289,700 125,001
Professional fees 40,829 40,825 40,614
Trustee fees 17,957 18,351 14,045
Administration unit fees 56,195 482,750 14,657
Service unit fees 435,823 144,733 395,588
Other 80,440 39,665 24,470
- ------------------------------------------------------------------------------
Total expenses 5,127,352 7,197,520 2,605,581
Less--expenses reimbursed and fees
waived by Goldman Sachs (46,293) (522,063) (114,600)
- ------------------------------------------------------------------------------
Net expenses 5,081,059 6,675,457 2,490,981
- ------------------------------------------------------------------------------
Net investment income 53,703,342 78,102,208 24,352,402
- ------------------------------------------------------------------------------
Net realized gain on investment trans-
actions 27,766 6,924 --
- ------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $53,731,108 $78,109,132 $24,352,402
- ------------------------------------------------------------------------------
</TABLE>
(a)Class B and Class C for ILA Prime Obligations Portfolio had distribution and
service fees of $59,917 and $43,200, respectively.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury 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>
$41,058,564 $36,324,314 $152,216,875 $59,331,309 $21,019,743 $4,564,301
- ----------------------------------------------------------------------------
2,662,028 2,500,096 9,778,681 5,985,015 2,294,224 479,305
-- -- -- -- -- --
304,232 285,734 1,117,564 684,002 262,197 54,776
148,190 141,522 408,178 109,401 55,798 25,630
94,795 106,115 255,144 107,423 26,421 77,959
40,689 40,668 58,651 35,643 40,619 40,480
15,878 15,296 28,730 16,487 4,752 10,896
134,705 146,145 779,240 34,749 1,702 34,741
324,013 1,126,342 145,279 124,850 -- --
27,473 15,511 83,737 51,652 24,700 17,466
- ----------------------------------------------------------------------------
3,752,003 4,377,429 12,655,204 7,149,222 2,710,413 741,253
(87,462) (940,476) (2,177,526) (1,016,544) -- (208,367)
- ----------------------------------------------------------------------------
3,664,541 3,436,953 10,477,678 6,132,678 2,710,413 532,886
- ----------------------------------------------------------------------------
37,394,023 32,887,361 141,739,197 53,198,631 18,309,330 4,031,415
- ----------------------------------------------------------------------------
242,821 324,555 15,167 2,502 99,181 1,846
- ----------------------------------------------------------------------------
$37,636,844 $33,211,916 $141,754,364 $53,201,133 $18,408,511 $4,033,261
- ----------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
29
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio(a) Portfolio(a) Portfolio(a)
----------------------------------------
<S> <C> <C> <C>
From operations:
Net investment income $ 53,703,342 $ 78,102,208 $ 24,352,402
Net realized gain on
investment transactions 27,766 6,924 --
- --------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations 53,731,108 78,109,132 24,352,402
- --------------------------------------------------------------------------------
Distributions to
unit/shareholders from:
Net investment income
ILA units (46,200,440) (60,149,271) (19,247,644)
ILA Administration units (1,890,467) (16,225,977) (483,492)
ILA Service units (5,216,323) (1,733,835) (4,621,219)
ILA B units (243,815) -- --
ILA C units (178,389) -- --
ILA Cash Management shares (49) (49) (47)
- --------------------------------------------------------------------------------
Total distributions to
unit/shareholders (53,729,483) (78,109,132) (24,352,402)
- --------------------------------------------------------------------------------
From unit/share
transactions (at $1.00 per
unit/share):
Proceeds from sales of
units/shares 8,542,913,228 11,101,396,894 2,593,217,390
Reinvestment of dividends
and distributions 39,783,380 67,128,955 15,532,324
Cost of units/shares
repurchased (8,542,482,500) (10,605,623,755) (2,666,528,542)
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit/share
transactions 40,214,108 562,902,094 (57,778,828)
- --------------------------------------------------------------------------------
Total increase (decrease) 40,215,733 562,902,094 (57,778,828)
Net assets:
Beginning of year 976,342,057 1,134,092,697 554,448,116
- --------------------------------------------------------------------------------
End of year $ 1,016,557,790 $ 1,696,994,791 $ 496,669,288
- --------------------------------------------------------------------------------
Accumulated undistributed
net investment income -- -- $ 18,915
- --------------------------------------------------------------------------------
</TABLE>
(a)Cash Management share activity commenced May 1, 1998.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax- Tax- Tax-
Treasury Treasury Exempt Exempt Exempt
Obligations Instruments Federal Diversified California New York
Portfolio Portfolio Portfolio Portfolio (a) Portfolio (a) Portfolio (a)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 37,394,023 $ 32,887,361 $ 141,739,197 $ 53,198,631 $ 18,309,330 $ 4,031,415
242,821 324,555 15,167 2,502 99,181 1,846
- ------------------------------------------------------------------------------------------------------
37,636,844 33,211,916 141,754,364 53,201,133 18,408,511 4,033,261
- ------------------------------------------------------------------------------------------------------
(29,331,672) (16,191,465) (114,206,301) (51,660,082) (18,277,052) (3,371,684)
(4,475,011) (4,556,321) (25,838,728) (689,810) (32,215) (659,667)
(3,830,207) (12,465,963) (1,709,577) (848,712) (38) (40)
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- (27) (25) (26)
- ------------------------------------------------------------------------------------------------------
(37,636,890) (33,213,749) (141,754,606) (53,198,631) (18,309,330) (4,031,417)
- ------------------------------------------------------------------------------------------------------
5,414,225,682 3,212,265,317 15,359,171,878 11,082,316,241 3,338,558,136 947,508,619
17,325,155 14,415,252 114,243,618 47,224,255 17,860,837 3,885,716
(5,399,775,367) (3,103,700,860) (14,900,519,079) (11,040,862,707) (3,362,752,135) (942,145,315)
- ------------------------------------------------------------------------------------------------------
31,775,470 122,979,709 572,896,417 88,677,789 (6,333,162) 9,249,020
- ------------------------------------------------------------------------------------------------------
31,775,424 122,977,876 572,896,175 88,680,291 (6,233,981) 9,250,864
818,673,275 724,311,542 2,615,099,863 1,537,965,838 591,365,175 134,882,240
- ------------------------------------------------------------------------------------------------------
$ 850,448,699 $ 847,289,418 $ 3,187,996,038 $ 1,626,646,129 $ 585,131,194 $ 144,133,104
- ------------------------------------------------------------------------------------------------------
-- -- $ 3,219 $ 362,642 $ 10,495 $ 1,632
- ------------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
31
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Money
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 transactions 7,264 7,828 39,273
- --------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 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
investment 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)
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from unit transactions (287,234,835) 144,893,199 (270,469,945)
- --------------------------------------------------------------------------------
Total increase (decrease) (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
- --------------------------------------------------------------------------------
</TABLE>
(a)ILA Prime Obligations Portfolio C unit activity commenced August 15, 1997.
(b)ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New York Portfolio
Service unit activity commenced September 15, 1997.
---------------------------------------
- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax- Tax- Tax-
Treasury Treasury 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
- -----------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
33
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1998
- --------------------------------------- ---------------------------------------
1. Organization
The Goldman Sachs Trust (the "Trust") is a Delaware business trust registered
under the Investment Company Act of 1940 (as amended) as an open-end management
investment company. The Trust includes the Goldman Sachs--Institutional Liquid
Assets Portfolios, collectively "ILA". 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 the following
classes:
<TABLE>
<CAPTION>
ILA ILA
ILA ILA Class Class Cash
ILA Administra- Service B C Management
Portfolio Units tion Units Units Units Units Shares
<S> <C> <C> <C> <C> <C> <C>
Prime
Obligations x x x x x x
- ------------------------------------------------------------------------------------
Money Market x x x x
- ------------------------------------------------------------------------------------
Government x x x x
- ------------------------------------------------------------------------------------
Treasury
Obligations x x x
- ------------------------------------------------------------------------------------
Treasury
Instruments x x x
- ------------------------------------------------------------------------------------
Federal x x x
- ------------------------------------------------------------------------------------
Tax-Exempt
Diversified x x x x
- ------------------------------------------------------------------------------------
Tax-Exempt
California x x x x
- ------------------------------------------------------------------------------------
Tax-Exempt
New York x x x x
</TABLE>
The investment objective of the portfolios is to maximize current income to the
extent consistent with the preservation of capital and maintenance of
liquidity. The Tax-Exempt Diversified, Tax-Exempt California and Tax-Exempt New
York Portfolios also seek to provide shareholders with a high level of income
exempt from federal income tax. In addition, the Tax-Exempt California and Tax-
Exempt New York Portfolios seek to provide shareholders with income exempt from
California state and New York state and city personal income taxes,
respectively.
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 unit/shareholders for financial
reporting purposes is determined in accordance with federal income tax rules.
Therefore, the source of the portfolios' 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, 1998 (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 $144,593 2001 to 2005
Tax-Exempt New York 4,673 1999 to 2004
</TABLE>
---------------------------------------
- ---------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
2. Significant Accounting Policies (continued)
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 generally allocated to the portfolios based on the nature
of the expense.
Unitholders of ILA Administration, ILA Service, ILA B, ILA C and Cash
Management share classes bear all expenses and fees paid to service and
distribution organizations for their services with respect to such classes as
well as other expenses (subject to expense limitations) which are directly
attributable to such classes. Effective September 1, 1998, each class of
units/shares of the Portfolios now separately bears its respective class-
specific transfer agency fees.
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser (the
"Adviser") pursuant to an Investment Management Agreement (the "Agreement").
Under the Agreement, GSAM, subject to the general supervision by the Trust's
Board of Trustees, manages the portfolios and administers each portfolio's
business affairs, including providing facilities. 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, 1998, 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 acts as ILA's distributor under a Distribution Agreement for
which it receives no compensation except for a portion of the ILA Prime
Obligations Class B and Class C contingent deferred sales charges. Goldman
Sachs has advised the Portfolio that it retained approximately $2,000 for the
period ended December 31, 1998.
GSAM had voluntarily agreed to reduce or limit the total operating expenses of
each Portfolio (excluding distribution and service fees, administration and
service plan fees, taxes, interest, brokerage commissions, litigation,
indemnification and other extraordinary expenses) on an annualized basis to
approximately .43% of the average net assets of each portfolio.
For the year ended December 31, 1998, the Adviser waived certain fees and
expenses such that annualized "Management Fees", "Other Expenses (including
transfer agent fees)" and "Total Operating Expenses" (as defined above)
actually incurred by the portfolios based on average net assets were as
follows:
<TABLE>
<CAPTION>
Management Other Total Operating
Portfolio Fees (%) Expenses (%) Expenses (%)
<S> <C> <C> <C>
Prime
Obligations .35 .08 .43
- --------------------------------------------------------
Money Market .34 .06 .40
- --------------------------------------------------------
Government .35 .08 .43
- --------------------------------------------------------
Treasury
Obligations .35 .07 .42
- --------------------------------------------------------
Treasury
Instruments .24 .06 .30
- --------------------------------------------------------
Federal .28 .06 .34
- --------------------------------------------------------
Tax-Exempt
Diversified .29 .06 .35
- --------------------------------------------------------
Tax-Exempt
California .35 .06 .41
- --------------------------------------------------------
Tax-Exempt
New York .30 .06 .36
</TABLE>
The ILA Class B Units, ILA Class C Units and Cash Management Shares have each
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, of up to .75% of the average
daily net assets attributable to ILA Class B Units and ILA Class C Units and
..50% of the average daily net assets attributable to Cash Management Shares.
For the period ended December 31, 1998, GSAM has voluntarily agreed to
---------------------------------------
- ---------------------------------------
35
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
3. Agreements (continued)
waive a portion of the Cash Management Shares Distribution Fees.
The ILA Class B Units and ILA Class C Units of Prime Obligations Portfolio had
also adopted an Authorized Dealer Service Plan (the "Dealer Service Plan")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. ILA Class B Units and ILA
Class C Units pay a fee under this Dealer Service Plan equal, on an annual
basis, to .25% of ILA Class B and Class C units' average daily net assets.
Effective September 1, 1998, the Distribution Plans and Dealer Service Plans
were combined into Distribution and Service Plans. Under the Distribution and
Service Plans, Goldman Sachs and/or Authorized Dealers are entitled to a
monthly fee from each Portfolio for distribution services equal to, on an
annual basis, 1.00% of the average daily net assets attributable to Class B and
Class C units and 50% of the average daily net assets attributable to Cash
Management shares.
Goldman Sachs also serves as the Transfer Agent and is entitled to a fee
calculated daily and payable monthly at an annual rate of .04% of the average
daily net assets of each class.
The chart below outlines the fee waivers and expense reimbursements for the
year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Management
Fees Expense
Portfolio Waived Reimbursements Total
<S> <C> <C> <C>
Prime Obligations $ -- $46 $46
- ------------------------------------------------------------------------------------------
Money Market 225 297 522
- ------------------------------------------------------------------------------------------
Government -- 115 115
- ------------------------------------------------------------------------------------------
Treasury Obligations -- 87 87
- ------------------------------------------------------------------------------------------
Treasury Instruments 781 159 940
- ------------------------------------------------------------------------------------------
Federal 1,943 235 2,178
- ------------------------------------------------------------------------------------------
Tax-Exempt Diversified 1,017 -- 1,017
- ------------------------------------------------------------------------------------------
Tax-Exempt California -- -- --
- ------------------------------------------------------------------------------------------
Tax-Exempt New York 67 141 208
</TABLE>
At December 31, 1998, the amount owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Distribution Transfer
Portfolio Management and Service Agent Total
<S> <C> <C> <C> <C>
Prime Obligations 306 18 20 344
- --------------------------------------------------------------
Money Market 570 -- 64 634
- --------------------------------------------------------------
Government 149 -- 17 166
- --------------------------------------------------------------
Treasury Obligations 259 -- 30 289
- --------------------------------------------------------------
Treasury Instruments 232 -- 26 258
- --------------------------------------------------------------
Federal 971 -- 111 1,082
- --------------------------------------------------------------
Tax-Exempt Diversified 513 -- 59 572
- --------------------------------------------------------------
Tax-Exempt California 184 -- 21 205
- --------------------------------------------------------------
Tax-Exempt
New York 43 -- 5 48
</TABLE>
4. Administration, Service and Cash Management Plans
ILA has adopted Administration and Service Plans. These plans allow for ILA
Administration Units, ILA Service Units and Cash Management Shares,
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, Service and Cash
Management Shares Plans provide for compensation to the service organizations
in an amount up to .15%, .40% and .50% (on an annualized basis), respectively,
of the average daily net asset value of the respective units/shares.
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, 1998, ILA did not have any borrowings under this facility.
---------------------------------------
- ---------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
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.
At December 31, 1998, the Prime Obligations, Money Market, Government and
Treasury Obligations Portfolios had investments in the following joint
repurchase account of $123,400,000, $68,900,000, $95,400,000 and $294,200,000
in principal amount, respectively. At December 31, 1998, the repurchase
agreements held in this joint account were fully collateralized by U.S.
Treasury obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Account
Donaldson, Lufkin & Jenrette, Inc.
$1,285,000,000 4.95% 01/04/1999 $1,285,000,000
Goldman, Sachs & Co.
500,000,000 4.75 01/04/1999 500,000,000
SBC Warburg Dillon Read Corp.
500,000,000 4.70 01/04/1999 500,000,000
1,098,400,000 4.75 01/04/1999 1,098,400,000
- -----------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $3,383,400,000
- -----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the Prime Obligations and Money Market Portfolios had
also invested in the following joint repurchase account II, which equaled
$25,000,000 and $100,000,000 in principal amount, respectively.
At December 31, 1998, the repurchase agreements held in this joint account were
fully collateralized by Federal Agency obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Account II
ABN/AMRO, Inc.
$120,000,000 5.15% 01/04/1999 $ 120,000,000
Deutsche Bank
77,300,000 5.07 01/04/1999 77,300,000
Donaldson, Lufkin & Jenrette, Inc.
150,000,000 4.95 01/04/1999 150,000,000
J.P. Morgan Securities, Inc.
700,000,000 4.75 01/04/1999 700,000,000
Morgan Stanley & Co.
200,000,000 4.95 01/04/1999 200,000,000
NationsBanc Montgomery Securities LLC
125,000,000 5.15 01/04/1999 125,000,000
- ---------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account II $1,372,300,000
- ---------------------------------------------------------------------------------------------
</TABLE>
8. 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 annual limitations which include the following:
25% of eligible security transactions, as defined, and 10% of repurchase
agreement transactions.
9. Certain Reclassifications
In accordance with Statement of Position 93-2, Money Market and Treasury
Obligations Portfolios have reclassified $14,714 and $4,679, respectively, from
accumulated undistributed net investment income to accumulated net realized
loss. The Government Portfolio has reclassified $36,718 and $16,075 to paid-in
capital and accumulated undistributed net investment income, respectively, from
accumulated net realized gain. The Federal Portfolio has reclassified $3,078
and $141 from paid-in capital and accumulated net realized gain, respectively
to accumulated undistributed net investment income. Tax-Exempt Diversified has
reclassified $39,803 from paid-in capital to accumulated net realized loss. The
Tax- Exempt California Portfolio has reclassified $70,492 from accumulated net
realized gain to paid-in capital. These reclassifications have no impact on the
net asset value of the Portfolio and are designed to present the Portfolio's
capital accounts on a tax basis.
---------------------------------------
- ---------------------------------------
37
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
December 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
10. Summary of Unit/Share Transactions (at $1.00 per unit/share)
Unit activity for the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
ILA units:
Units sold 6,177,432,624 7,328,543,666 2,248,582,578
Reinvestment of dividends
and distributions 33,879,763 50,879,300 11,318,661
Units repurchased (6,240,532,870) (6,835,202,589) (2,337,115,041)
-------------------------------------
(29,220,483) 544,220,377 (77,213,802)
- -----------------------------------------------------------------------------
ILA Administration units:
Units sold 406,909,760 3,620,680,668 27,916,421
Reinvestment of dividends
and distributions 1,717,460 15,903,189 267,130
Units repurchased (397,939,174) (3,629,736,620) (30,683,670)
-------------------------------------
10,688,046 6,847,237 (2,500,119)
- -----------------------------------------------------------------------------
ILA Service units:
Units sold 1,818,720,552 152,171,059 316,716,890
Reinvestment of dividends
and distributions 3,921,578 346,424 3,946,493
Units repurchased (1,781,652,723) (140,684,546) (298,729,831)
-------------------------------------
40,989,407 11,832,937 21,933,552
- -----------------------------------------------------------------------------
ILA Class B units:
Units sold 29,480,688 -- --
Reinvestment of dividends
and distributions 179,458 -- --
Units repurchased (16,822,007) -- --
-------------------------------------
12,838,139 -- --
- -----------------------------------------------------------------------------
ILA Class C units:
Units sold 110,368,103 -- --
Reinvestment of dividends
and distributions 85,079 -- --
Units repurchased (105,535,726) -- --
-------------------------------------
4,917,456 -- --
- -----------------------------------------------------------------------------
Cash Management shares:(a)
Shares sold 1,501 1,501 1,501
Reinvestment of dividends
and distributions 42 42 40
Shares repurchased -- -- --
-------------------------------------
1,543 1,543 1,541
- -----------------------------------------------------------------------------
Net increase (decrease) in
units/shares 40,214,108 562,902,094 (57,778,828)
- -----------------------------------------------------------------------------
</TABLE>
(a) Cash Management shares activity commenced May 1, 1998.
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury 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>
4,007,287,255 1,803,189,385 11,530,501,990 10,877,493,043 3,322,147,594 649,511,937
16,031,743 13,367,625 98,365,419 46,502,366 17,860,780 3,220,163
(3,879,141,368) (1,805,323,856) (11,053,721,006) (10,841,198,835) (3,346,494,972) (633,071,531)
- --------------------------------------------------------------------------------------------------
144,177,630 11,233,154 575,146,403 82,796,574 (6,486,598) 19,660,569
- --------------------------------------------------------------------------------------------------
734,426,070 445,049,864 3,555,390,187 119,262,415 16,409,041 297,995,181
560,922 997,460 15,683,011 98,573 -- 665,491
(778,684,770) (413,030,451) (3,592,776,813) (120,818,081) (16,257,163) (309,073,784)
- --------------------------------------------------------------------------------------------------
(43,697,778) 33,016,873 (21,703,615) (1,457,093) 151,878 (10,413,112)
- --------------------------------------------------------------------------------------------------
672,512,357 964,026,068 273,279,701 85,559,282 -- --
732,490 50,167 195,188 623,293 37 40
(741,949,229) (885,346,553) (254,021,260) (78,845,791) -- --
- --------------------------------------------------------------------------------------------------
(68,704,382) 78,729,682 19,453,629 7,336,784 37 40
- --------------------------------------------------------------------------------------------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------
-- -- -- 1,501 1,501 1,501
-- -- -- 23 20 22
-- -- -- -- -- --
- --------------------------------------------------------------------------------------------------
-- -- -- 1,524 1,521 1,523
- --------------------------------------------------------------------------------------------------
31,775,470 122,979,709 572,896,417 88,677,789 (6,333,162) 9,249,020
- --------------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
39
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
December 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
10. Summary of Unit Transactions (at $1.00 per unit) (continued)
Unit activity for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Prime Money
Obligations Market Government
Portfolio(a) Portfolio Portfolio
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ILA Units:
Units sold 6,992,549,668 6,229,278,910 3,133,684,985
Reinvestment of dividends 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 dividends 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 dividends 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)
- ------------------------------------------------------------------------------
ILA Class B Units:
Units sold 6,341,071 -- --
Reinvestment of dividends and
distributions 19,157 -- --
Units repurchased (5,132,727) -- --
--------------------------------------
1,227,501 -- --
- ------------------------------------------------------------------------------
ILA Class C Units:
Units sold 2,580,301 -- --
Reinvestment of dividends and
distributions 966 -- --
Units repurchased (684,310) -- --
--------------------------------------
1,896,957 -- --
- ------------------------------------------------------------------------------
Net increase (decrease) in
units (287,234,835) 144,893,199 (270,469,945)
- ------------------------------------------------------------------------------
</TABLE>
(a) ILA Prime Obligations Portfolio Class C unit activity commenced August 15,
1997.
(b) ILA Tax-Exempt California Portfolio and ILA Tax-Exempt New York Portfolio
Service unit activity commenced September 15, 1997.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury Tax-Exempt Tax-Exempt Tax-Exempt
Obligations Instruments Federal Diversified California New York
Portfolio Portfolio Portfolio Portfolio Portfolio(b) Portfolio(b)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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>
---------------------------------------
- ---------------------------------------
41
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Unit/Share Outstanding Throughout Each Period
Prime Obligations Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end of expenses to income to
beginning investment to unit/ end Total period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.05 $(0.05) $1.00 5.32% $837,185 0.43% 5.19%
1998-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.16 38,836 0.58 5.05
1998-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.90 119,309 0.83 4.79
1998-ILA B
units........... 1.00 0.04 (0.04) 1.00 4.27 14,412 1.43 4.07
1998-ILA C
units........... 1.00 0.04 (0.04) 1.00 4.27 6,814 1.43 4.13
1998-Cash
Management
shares
(commenced May
1).............. 1.00 0.03 (0.03) 1.00 4.69(c) 2 0.93(c) 4.81(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.05 (0.05) 1.00 5.38 866,445 0.42 5.24
1997-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.22 28,110 0.57 5.11
1997-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.96 78,316 0.82 4.85
1997-ILA B
units........... 1.00 0.04 (0.04) 1.00 4.33 1,574 1.42 4.33
1997-ILA C units
(commenced
August 15)...... 1.00 0.04 (0.04) 1.00 4.41(c) 1,897 1.42(c) 4.39(c)
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.05 (0.05) 1.00 5.22 1,154,787 0.41 5.11
1996-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.06 23,738 0.56 4.97
1996-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.80 84,707 0.81 4.74
1996-ILA B units
(commenced May
8).............. 1.00 0.03 (0.03) 1.00 3.97(c) 346 1.41(c) 4.09(c)
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.06 (0.06) 1.00 5.79 1,261,251 0.41 5.66
1995-ILA
Administration
units........... 1.00 0.06 (0.06) 1.00 5.63 63,018 0.56 5.51
1995-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.37 227,233 0.81 5.22
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.04 (0.04) 1.00 4.07 1,963,846 0.40 3.94
1994-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.91 149,234 0.55 3.79
1994-ILA Service
units........... 1.00 0.04 (0.04) 1.00 3.66 170,453 0.80 3.65
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.43% 5.19%
1998-ILA
Administration
units........... 0.58 5.05
1998-ILA Service
units........... 0.83 4.79
1998-ILA B
units........... 1.43 4.07
1998-ILA C
units........... 1.43 4.13
1998-Cash
Management
shares
(commenced May
1).............. 1.43(c) 4.31(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.43 5.23
1997-ILA
Administration
units........... 0.58 5.10
1997-ILA Service
units........... 0.83 4.84
1997-ILA B
units........... 1.43 4.32
1997-ILA C units
(commenced
August 15)...... 1.43(c) 4.38(c)
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.43 5.09
1996-ILA
Administration
units........... 0.58 4.95
1996-ILA Service
units........... 0.83 4.72
1996-ILA B units
(commenced May
8).............. 1.43(c) 4.07(c)
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.43 5.64
1995-ILA
Administration
units........... 0.58 5.49
1995-ILA Service
units........... 0.83 5.20
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.42 3.92
1994-ILA
Administration
units........... 0.57 3.77
1994-ILA Service
units........... 0.82 3.63
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
(c) Annualized.
- ------------------------------------------------------
42
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Money Market Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to unit/ end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.05 $(0.05) $1.00 5.33% $1,350,317 0.40% 5.17%
1998-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.17 314,327 0.55 5.04
1998-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.91 32,349 0.80 4.79
1998-Cash
Management
shares
(commenced May 1).. 1.00 0.03 (0.03) 1.00 4.69(c) 2 0.90(c) 4.80(c)
- -----------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.05 (0.05) 1.00 5.43 806,096 0.37 5.31
1997-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.28 307,480 0.52 5.15
1997-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.01 20,517 0.77 4.90
- -----------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.05 (0.05) 1.00 5.27 703,097 0.36 5.15
1996-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.12 257,258 0.51 5.00
1996-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.86 28,845 0.76 4.75
- -----------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.06 (0.06) 1.00 5.85 574,155 0.36 5.71
1995-ILA
Administration
units........... 1.00 0.06 (0.06) 1.00 5.69 164,422 0.51 5.55
1995-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.43 23,080 0.76 5.29
- -----------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.04 (0.04) 1.00 4.13 559,470 0.35 4.01
1994-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.98 145,867 0.50 3.88
1994-ILA Service
units........... 1.00 0.04 (0.04) 1.00 3.72 21,862 0.75 3.61
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.43% 5.14%
1998-ILA
Administration
units........... 0.58 5.01
1998-ILA Service
units........... 0.83 4.76
1998-Cash
Management
shares
(commenced May 1).. 1.43(c) 4.27(c)
- -----------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.42 5.26
1997-ILA
Administration
units........... 0.57 5.10
1997-ILA Service
units........... 0.82 4.85
- -----------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.43 5.08
1996-ILA
Administration
units........... 0.58 4.93
1996-ILA Service
units........... 0.83 4.68
- -----------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.42 5.65
1995-ILA
Administration
units........... 0.57 5.49
1995-ILA Service
units........... 0.82 5.23
- -----------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.43 3.93
1994-ILA
Administration
units........... 0.58 3.80
1994-ILA Service
units........... 0.83 3.53
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
(c) Annualized.
- ------------------------------------------------------
43
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Government Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to unit/ end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.05 $(0.05) $1.00 5.21% $383,243 0.43% 5.09%
1998-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.05 7,692 0.58 4.94
1998-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.79 105,732 0.83 4.67
1998-Cash
Management
shares
(commenced May
1).............. 1.00 0.03 (0.03) 1.00 4.57(c) 2 0.93(c) 4.60(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.05 (0.05) 1.00 5.31 460,457 0.42 5.16
1997-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.15 10,192 0.57 4.98
1997-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.89 83,799 0.82 4.78
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.05 (0.05) 1.00 5.15 694,651 0.41 5.04
1996-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 4.99 36,055 0.56 4.89
1996-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.73 94,228 0.81 4.63
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.06 (0.06) 1.00 5.77 570,469 0.41 5.62
1995-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.62 47,558 0.56 5.49
1995-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.35 85,401 0.81 5.19
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.04 (0.04) 1.00 3.94 881,520 0.40 3.78
1994-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.79 95,483 0.55 3.62
1994-ILA Service
units........... 1.00 0.04 (0.04) 1.00 3.53 156,930 0.80 3.50
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.45% 5.07%
1998-ILA
Administration
units........... 0.60 4.92
1998-ILA Service
units........... 0.85 4.65
1998-Cash
Management
shares
(commenced May
1).............. 1.45(c) 4.08(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.42 5.16
1997-ILA
Administration
units........... 0.57 4.98
1997-ILA Service
units........... 0.82 4.78
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.44 5.01
1996-ILA
Administration
units........... 0.59 4.86
1996-ILA Service
units........... 0.84 4.60
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.43 5.60
1995-ILA
Administration
units........... 0.58 5.47
1995-ILA Service
units........... 0.83 5.17
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.44 3.74
1994-ILA
Administration
units........... 0.59 3.58
1994-ILA Service
units........... 0.84 3.46
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
(c) Annualized.
- ------------------------------------------------------
44
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Treasury Obligations Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) unitholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 0.05 $(0.05) $1.00 5.15% $ 734,553 0.42% 4.96%
1998-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 4.99 80,464 0.57 4.88
1998-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.73 35,432 0.82 4.67
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.05 (0.05) 1.00 5.26 590,381 0.42 5.12
1997-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.10 124,159 0.57 4.99
1997-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.84 104,133 0.82 4.73
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.05 (0.05) 1.00 5.11 574,734 0.41 4.98
1996-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 4.95 108,850 0.56 4.83
1996-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.69 123,483 0.81 4.59
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.06 (0.06) 1.00 5.73 711,209 0.41 5.51
1995-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.57 92,643 0.56 5.37
1995-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.31 119,692 0.81 5.11
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.04 (0.04) 1.00 3.91 713,816 0.40 3.77
1994-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.75 97,626 0.55 3.68
1994-ILA Service
units........... 1.00 0.03 (0.03) 1.00 3.49 108,972 0.80 3.40
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.43% 4.95%
1998-ILA
Administration
units........... 0.58 4.87
1998-ILA Service
units........... 0.83 4.66
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.42 5.12
1997-ILA
Administration
units........... 0.57 4.99
1997-ILA Service
units........... 0.82 4.73
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.43 4.96
1996-ILA
Administration
units........... 0.58 4.81
1996-ILA Service
units........... 0.83 4.57
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.43 5.49
1995-ILA
Administration
units........... 0.58 5.35
1995-ILA Service
units........... 0.83 5.09
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.44 3.73
1994-ILA
Administration
units........... 0.59 3.64
1994-ILA Service
units........... 0.84 3.35
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
- ------------------------------------------------------
45
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Treasury Instruments Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) unitholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years
Ended December
31,
- --------------
1998-ILA units.. $1.00 $0.05 $(0.05) $1.00 4.96% $341,476 0.30% 4.83%
1998-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 4.80 131,685 0.45 4.68
1998-ILA Service
units........... 1.00 0.04 (0.04) 1.00 4.54 374,128 0.70 4.43
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.05 (0.05) 1.00 5.17 330,241 0.22 5.02
1997-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.01 98,667 0.37 4.88
1997-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.75 295,404 0.62 4.63
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.05 (0.05) 1.00 5.10 708,999 0.21 4.96
1996-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 4.95 137,706 0.36 4.82
1996-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.68 383,901 0.61 4.56
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.06 (0.06) 1.00 5.70 586,294 0.21 5.50
1995-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.54 68,713 0.36 5.34
1995-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.28 123,254 0.61 5.00
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.04 (0.04) 1.00 4.01 547,351 0.20 3.96
1994-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.85 64,388 0.35 3.97
1994-ILA Service
units........... 1.00 0.04 (0.04) 1.00 3.59 74,451 0.60 3.72
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-------------------------
<S> <C> <C>
For the Years
Ended December
31,
- --------------
1998-ILA units.. 0.43% 4.70%
1998-ILA
Administration
units........... 0.58 4.55
1998-ILA Service
units........... 0.83 4.30
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.42 4.82
1997-ILA
Administration
units........... 0.57 4.68
1997-ILA Service
units........... 0.82 4.43
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.43 4.74
1996-ILA
Administration
units........... 0.58 4.60
1996-ILA Service
units........... 0.83 4.34
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.44 5.27
1995-ILA
Administration
units........... 0.59 5.11
1995-ILA Service
units........... 0.84 4.77
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.43 3.73
1994-ILA
Administration
units........... 0.58 3.74
1994-ILA Service
units........... 0.83 3.49
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
- ------------------------------------------------------
46
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit Outstanding Throughout Each Period
Federal Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) unitholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.05 $(0.05) $1.00 5.25% $2,625,705 0.34% 5.10%
1998-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.09 508,297 0.49 4.97
1998-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.83 53,994 0.74 4.71
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.05 (0.05) 1.00 5.40 2,050,559 0.27 5.26
1997-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.24 530,001 0.42 5.11
1997-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.98 34,540 0.67 4.83
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.05 (0.05) 1.00 5.24 2,303,677 0.26 5.13
1996-ILA
Administration
units........... 1.00 0.05 (0.05) 1.00 5.09 794,537 0.41 4.98
1996-ILA Service
units........... 1.00 0.05 (0.05) 1.00 4.83 192,416 0.66 4.73
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.06 (0.06) 1.00 5.83 1,731,935 0.26 5.69
1995-ILA
Administration
units........... 1.00 0.06 (0.06) 1.00 5.67 516,917 0.41 5.50
1995-ILA Service
units........... 1.00 0.05 (0.05) 1.00 5.41 102,576 0.66 5.22
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.04 (0.04) 1.00 4.11 1,625,567 0.25 4.07
1994-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.95 329,896 0.40 3.88
1994-ILA Service
units........... 1.00 0.04 (0.04) 1.00 3.69 15,539 0.65 3.92
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.42% 5.02%
1998-ILA
Administration
units........... 0.57 4.89
1998-ILA Service
units........... 0.82 4.63
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.41 5.12
1997-ILA
Administration
units........... 0.56 4.97
1997-ILA Service
units........... 0.81 4.69
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.43 4.96
1996-ILA
Administration
units........... 0.58 4.81
1996-ILA Service
units........... 0.83 4.56
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.42 5.53
1995-ILA
Administration
units........... 0.57 5.34
1995-ILA Service
units........... 0.82 5.06
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.42 3.90
1994-ILA
Administration
units........... 0.57 3.71
1994-ILA Service
units........... 0.82 3.75
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
- ------------------------------------------------------
47
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Tax-Exempt Diversified Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end of expenses to income to
beginning investment to unit/ end Total period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.03 $(0.03) $1.00 3.17% $1,562,285 0.35% 3.12%
1998-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.02 26,509 0.50 2.98
1998-ILA Service
units........... 1.00 0.03 (0.03) 1.00 2.76 37,850 0.75 2.72
1998-Cash
Management
shares
(commenced May
1).............. 1.00 0.02 (0.02) 1.00 2.61(c) 2 0.85(c) 2.66(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.03 (0.03) 1.00 3.39 1,479,486 0.32 3.33
1997-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.23 27,967 0.47 3.16
1997-ILA Service
units........... 1.00 0.03 (0.03) 1.00 2.97 30,513 0.72 2.97
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.03 (0.03) 1.00 3.25 1,514,443 0.31 3.20
1996-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.09 59,097 0.46 3.06
1996-ILA Service
units........... 1.00 0.03 (0.03) 1.00 2.84 28,921 0.71 2.79
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.04 (0.04) 1.00 3.72 1,342,585 0.31 3.65
1995-ILA
Administration
units........... 1.00 0.04 (0.04) 1.00 3.57 48,773 0.46 3.51
1995-ILA Service
units........... 1.00 0.03 (0.03) 1.00 3.31 49,647 0.71 3.24
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.03 (0.03) 1.00 2.71 1,434,965 0.30 2.64
1994-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 2.55 97,778 0.45 2.50
1994-ILA Service
units........... 1.00 0.02 (0.02) 1.00 2.30 36,492 0.70 2.20
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.41% 3.06%
1998-ILA
Administration
units........... 0.56 2.92
1998-ILA Service
units........... 0.81 2.66
1998-Cash
Management
shares
(commenced May
1).............. 1.41(c) 2.10(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.41 3.24
1997-ILA
Administration
units........... 0.56 3.07
1997-ILA Service
units........... 0.81 2.88
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.41 3.10
1996-ILA
Administration
units........... 0.56 2.96
1996-ILA Service
units........... 0.81 2.69
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.42 3.54
1995-ILA
Administration
units........... 0.57 3.40
1995-ILA Service
units........... 0.82 3.13
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.41 2.53
1994-ILA
Administration
units........... 0.56 2.39
1994-ILA Service
units........... 0.81 2.09
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
(c) Annualized.
- ------------------------------------------------------
48
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Tax-Exempt California Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distribution value at end of expenses to income to
beginning investment to unit/ end Total period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.03 $(0.03) $1.00 2.84% $584,615 0.41% 2.79%
1998-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 2.68 512 0.56 2.84
1998-ILA Service
units........... 1.00 0.02 (0.02) 1.00 2.43 2 0.81 2.48
1998-Cash
Management
shares
(commenced May
1).............. 1.00 0.02 (0.02) 1.00 2.25(c) 2 0.91(c) 2.37(c)
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.03 (0.03) 1.00 3.15 591,003 0.42 3.10
1997-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.00 360 0.57 2.98
1997-ILA Service
units (Re-
commenced
September 1).... 1.00 0.01 (0.01) 1.00 2.87(c) 2 0.82(c) 2.90(c)
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.03 (0.03) 1.00 3.03 440,476 0.41 2.99
1996-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 2.88 142 0.56 2.84
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.03 (0.03) 1.00 3.55 346,728 0.41 3.49
1995-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.40 61 0.56 3.32
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.03 (0.03) 1.00 2.53 227,399 0.40 2.50
1994-ILA
Administration
units........... 1.00 0.02 (0.02) 1.00 2.37 790 0.55 2.33
<CAPTION>
Ratios assuming no waiver
of fees and no expense
limitations
-------------------------
Ratio of net
Ratio of net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.41% 2.79%
1998-ILA
Administration
units........... 0.56 2.84
1998-ILA Service
units........... 0.81 2.48
1998-Cash
Management
shares
(commenced May
1).............. 1.41(c) 1.87(c)
- -------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.42 3.10
1997-ILA
Administration
units........... 0.57 2.98
1997-ILA Service
units (Re-
commenced
September 1).... 0.82(c) 2.90(c)
- -------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.42 2.98
1996-ILA
Administration
units........... 0.57 2.83
- -------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.41 3.49
1995-ILA
Administration
units........... 0.56 3.32
- -------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.41 2.49
1994-ILA
Administration
units........... 0.56 2.32
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
(c) Annualized.
- ------------------------------------------------------
49
<PAGE>
Goldman Sachs Trust--Institutional Liquid Assets Portfolios
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Unit/Share Outstanding Throughout Each Period
Tax-Exempt New York Portfolio
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to unit/ end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. $1.00 $0.03 $(0.03) $1.00 3.02% $122,550 0.36% 2.96%
1998-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 2.87 21,580 0.51 2.85
1998-ILA Service
units........... 1.00 0.03 (0.03) 1.00 2.61 2 0.76 2.61
1998-Cash
Management
shares
(commenced May
1).............. 1.00 0.02 (0.02) 1.00 2.46(c) 1 0.86(c) 2.56(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 1.00 0.03 (0.03) 1.00 3.29 102,887 0.33 3.24
1997-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.14 31,993 0.48 3.09
1997-ILA Service
units (commenced
September 15)... 1.00 0.01 (0.01) 1.00 3.02(c) 2 0.73(c) 3.04(c)
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 1.00 0.03 (0.03) 1.00 3.05 70,175 0.32 3.01
1996-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 2.90 44,319 0.47 2.88
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 1.00 0.03 (0.03) 1.00 3.51 90,537 0.30 3.44
1995-ILA
Administration
units........... 1.00 0.03 (0.03) 1.00 3.35 26,724 0.45 3.28
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 1.00 0.03 (0.03) 1.00 2.56 84,517 0.24 2.62
1994-ILA
Administration
units........... 1.00 0.02 (0.02) 1.00 2.41 38,970 0.39 2.47
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
-------------------------
Ratio of Ratio of net
net investment
expenses to income to
average net average net
assets assets
-----------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-ILA units.. 0.51% 2.81%
1998-ILA
Administration
units........... 0.66 2.70
1998-ILA Service
units........... 0.91 2.46
1998-Cash
Management
shares
(commenced May
1).............. 1.51(c) 1.91(c)
- --------------------------------------------------------------------------------------------------------------
1997-ILA units.. 0.43 3.14
1997-ILA
Administration
units........... 0.58 2.99
1997-ILA Service
units (commenced
September 15)... 0.83(c) 2.94(c)
- --------------------------------------------------------------------------------------------------------------
1996-ILA units.. 0.43 2.90
1996-ILA
Administration
units........... 0.58 2.77
- --------------------------------------------------------------------------------------------------------------
1995-ILA units.. 0.44 3.30
1995-ILA
Administration
units........... 0.59 3.14
- --------------------------------------------------------------------------------------------------------------
1994-ILA units.. 0.47 2.39
1994-ILA
Administration
units........... 0.62 2.24
</TABLE>
- ----
(a) Calculated based on the average units outstanding methodology.
(b) 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.
(c) Annualized.
- ------------------------------------------------------
50
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------- ---------------------------------------
To the Unit/Shareholders and Board of Trustees of the Goldman Sachs Trust--
Institutional Liquid Assets Portfolios:
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, 1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting Goldman Sachs Trust--
Institutional Liquid Assets as of December 31, 1998, 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, 1999
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
Portfolio'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
Jesse H. Cole, Vice President
James A. Fitzpatrick, Vice President
Anne E. Marcel, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Philip V. Giuca, Jr., Assistant Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Goldman Sachs Funds
One New York Plaza, 41st Floor
New York, NY 10004
[LOGO] GOLDMAN
SACHS
<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
ANNUAL REPORT [LOGO] Goldman
December 31, 1998 Sachs
<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 Money Market
Trust/Financial Square Funds in 1998. It was another strong year for the funds,
during which all of them outperformed their respective IBC Financial Data, Inc.
averages. Net assets in the Financial Square Funds totaled $27.5 billion as of
December 31, 1998.
The Economy In Review
Despite a slight tempering due to soft employment numbers, the U.S. economy
continued to see strong growth for most of 1998. This growth, combined with
continued uncertainty about the impact of Asian instability on the U.S.
economy, kept the Federal Reserve in a wait-and-see mode for the first nine
months of the year.
On September 29th, in the wake of increasing global market turmoil, the
Federal Reserve Board cut the federal fund's target rate by 25 basis points, to
5.25%. As increasing illiquidity concerns in the market became more severe, the
Fed followed up with two more surprise rate cuts, easing the target rate and
the discount rate by another 50 basis points.
The Fed's moves were a strong signal that the monetary authorities were
prepared to do whatever was necessary to provide liquidity and to support the
economy against the potential of a substantial economic slowdown in 1999.
At period end, while consumer spending remained strong, the manufacturing
side of the economy appeared to weaken because of a trade drag and a slowdown
in capital spending. However, based on signs of non-inflationary growth in the
areas of consumer spending, new home sales and strong third quarter gross
domestic product (GDP), the general consensus is that any further easing by the
Fed will come later, rather than sooner.
Credit Year 1998: A Year of Crisis With a Hopeful Ending
Domestic credit quality continued its strong positive trend for the first six
months of 1998. Mergers and acquisitions were at an all time high. U.S. banks
remained strong, well capitalized and provisioned, with diversified operations.
The stock market continued its climb and American consumers were spending more
than they were earning. The shocks of the Russian default in August and the
near collapse of Long Term Capital Management (LTCM) caused severe liquidity
problems and a difficult trading environment, as well as a major sell-off in
the stock market. Calm was restored by the rescue of LTCM and the Fed's
lowering of interest rates three times in seven weeks. A newly risk averse
investor moved funds to safer, more liquid credits. The enthusiasm for
globalization was temporarily curbed, as domestic production was suppressed in
response to the Asian crisis and corporate profit gains for the year were
generally mixed.
The international credit environment in 1998 saw the Asian situation explode
into a full-blown global crisis that adversely affected markets around the
world. The default and devaluation of Russia in August came after an already
painful several months of recession and restructuring in Asia. This pain was
exacerbated by Japan's continued slow economic deterioration, which cast a
shadow over the entire region. The unprecedented market volatility that
followed Russia's default took months to dissipate, and only after a more
committed response by the U.S. government to the crisis. By the end of the
year, however, trends were much more positive. The reforming Asian economies
showed notable progress, with signs of a return to economic growth in 1999.
More significant, however, was the successful launch of the euro. Ongoing
policy convergence and political resolution served to create the world's first
regional currency with nary a ripple in the markets. In fact, with the U.S.
economy seemingly impervious to difficulties elsewhere, global markets quickly
rebounded to close the year on a decidedly positive note.
---------------------------------------
- ---------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
Although the U.S. economy remains favorable, the challenges of global
volatility continue to concern us. The Goldman Sachs Credit Department, with
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.
Strategy
Taxable. For most of the period, a "flight to quality" resulting from the
ongoing Asian economic crisis rendered the short end of the yield curve
expensive. In view of this, the Funds maintained a neutral stance by buying on
market dips and "aging in" when levels got expensive. However, we extended the
weighted average maturity (WAM) ranges from neutral to slightly long as the Fed
began its series of easings in late September in response to market liquidity.
We continued to maintain a barbell structure by holding significant liquidity
in anticipation of year-end outflows, and targeted longer dated maturities to
enhance performance in a declining rate environment.
Tax-Exempt. Early in the period, given the fact that we no longer foresaw a
near-term Fed easing and in preparation for the seasonally short supply of
municipal issuance in January, we increased the funds' WAMs to the 40- to 50-
day range. This decision helped keep the funds' yields competitive during this
period of high cash inflows and high demand for municipal securities. In March,
we shortened the WAMs of the funds to the 30- to 35-day range, seeking to build
liquidity as the April 15th tax deadline approached. This move helped us to
fund tax-time redemptions. In August, when seasonal issuance was strong and
there was less demand in the tax-exempt market in contrast to the "flight to
quality" in the Treasury market, we extended the funds' WAMs to the 40-day
range.
At period end, after a brief period during which the funds' WAMs were brought
into a neutral range, we extended the WAMs in anticipation of technically
driven lower yields (due to inflows from the reinvestment of maturity proceeds,
coupled with a seasonal scarcity of issuance).
Summary for Financial Square Funds Institutional Shares* as of 12/31/98
<TABLE>
<CAPTION>
SEC SEC 1-Mo.
7-Day 7-Day Simple Weighted Avg.
Financial Square Current Effective Average Maturity
Funds Yield Yield Yield (days)
---------------- ------- --------- ------- -------------
<S> <C> <C> <C> <C>
Prime
Obligations.... 5.09% 5.22% 5.04% 39
Money Market.... 5.09 5.22 5.04 51
Premium Money Market.. 5.08 5.21 5.05 31
Treasury
Obligations.... 4.77 4.82 4.74 43
Treasury
Instruments.... 4.26 4.33 4.26 31
Government...... 5.01 5.13 4.92 46
Federal......... 4.97 5.09 4.95 46
Tax-Free Money Market.. 3.51 3.58 3.12 45
</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%. If these fees were reflected in the
above performance, 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.
Outlook and Strategies for 1999
With the financing pressure of year-end behind institutional investors, we
are looking to extend the funds' weighted average maturities somewhat as we see
opportunities on the yield curve. While there are a
---------------------------------------
- ---------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
Letter to Shareholders (continued)
- --------------------------------------- ---------------------------------------
variety of opinions as to when the Fed will move, based on current signs of
non-inflationary growth in areas of consumer spending, new home sales and
fourth quarter GDP, most economists anticipate that easing will come later
rather than sooner. Goldman Sachs economists' 1999 outlook anticipates a 50
basis point cumulative ease in the second half of the year.
In closing, we thank you for your support and for making 1998 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 productive year in 1999.
Goldman Sachs Money Market Management Team
January 29, 1999
---------------------------------------
- ---------------------------------------
3
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Prime Obligations Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Commercial Paper and Corporate Obligations--39.3%
Agricultural Services
Cargill, Inc.
$ 25,000,000 5.04% 04/14/99 $ 24,639,500
Bank Holding Companies
BankAmerica Corp.
50,000,000 5.16 01/15/99 49,899,667
40,000,000 5.17 01/22/99 39,879,367
50,000,000 5.12 01/25/99 49,829,333
25,000,000 5.04 05/12/99 24,541,500
Business Credit Institutions
CIT Group Holdings, Inc.
50,000,000 5.05 03/30/99 49,382,778
17,000,000 6.38 05/21/99 17,077,237
Ford Motor Credit Corp.
17,500,000 5.37 02/19/99 17,372,090
100,000,000 4.90 05/24/99 98,054,803
General Electric Capital Corp.
75,000,000 5.36 02/16/99 74,486,333
100,000,000 5.35 03/09/99 99,004,306
10,000,000 4.94 04/23/99 9,846,311
Commercial Banks
CP Trust Certificates Series 1996-1
72,250,000 4.95 03/30/99 72,250,000
Consumer Products
Eastman Kodak Corp.
25,000,000 5.20 02/01/99 24,888,056
25,000,000 5.20 02/03/99 24,880,833
25,000,000 5.20 02/04/99 24,877,222
25,000,000 5.20 02/05/99 24,873,611
Information Management
First Data Corp.
25,000,000 5.37 02/02/99 24,880,667
Receivable/Asset Financing
Asset Portfolio Funding
75,000,000 5.01 02/23/99 74,446,813
48,302,000 5.20 05/13/99 47,381,042
Ciesco, Inc.
100,000,000 5.30 02/05/99 99,484,722
Corporate Receivables Corp.
85,000,000 5.22 01/13/99 84,852,100
40,000,000 5.50 01/12/99 39,932,778
Dakota Certificates of Standard Credit Card Master Trust
80,000,000 5.25 01/14/99 79,848,333
25,000,000 5.25 01/20/99 24,930,729
50,000,000 5.27 02/17/99 49,655,986
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Commercial Paper and Corporate Obligations (continued)
Receivable/Asset Financing (continued)
Dakota Certificates of Standard Credit Card Master Trust (continued)
$ 25,000,000 5.30% 02/17/99 $ 24,827,014
25,000,000 5.22 03/04/99 24,775,250
Delaware Funding Corp.
75,000,000 5.30 01/13/99 74,867,500
23,805,000 5.15 01/15/99 23,757,324
Edison Asset Securitization Corp.
25,000,000 5.13 01/29/99 24,900,250
28,969,000 5.33 02/12/99 28,788,861
100,000,000 5.14 02/26/99 99,200,443
35,000,000 5.19 03/12/99 34,646,792
25,000,000 4.90 03/30/99 24,700,556
25,000,000 5.10 04/30/99 24,578,542
Falcon Asset Securitization Corp.
40,000,000 5.15 01/15/99 39,919,889
25,000,000 5.15 01/20/99 24,932,049
28,935,000 5.29 02/04/99 28,790,438
17,650,000 5.25 02/09/99 17,549,616
66,925,000 5.11 03/22/99 66,165,029
International Securitization Corp.
12,310,000 5.13 03/12/99 12,187,208
Park Avenue Receivables Corp.
16,539,000 5.75 01/22/99 16,483,525
Prudential Financing Corp.
30,000,000 5.39 01/25/99 29,892,200
Receivables Capital Corp.
26,178,000 5.50 01/04/99 26,166,002
50,153,000 5.15 01/21/99 50,009,507
Riverwoods Funding Corp.
50,000,000 5.05 02/25/99 49,614,236
Variable Funding Capital Corp.
25,000,000 5.21 01/05/99 24,985,528
25,000,000 5.26 01/22/99 24,923,292
WCP Funding Corp.
75,000,000 5.53 01/15/99 74,838,708
21,694,000 5.40 01/27/99 21,609,393
50,000,000 5.27 02/17/99 49,655,986
Security and Commodity Brokers, Dealers and Services
J.P. Morgan Securities, Inc.
60,000,000 5.12 01/19/99 59,846,400
30,000,000 5.08 02/26/99 29,762,933
50,000,000 5.75 03/10/99 50,000,000
Morgan Stanley Dean Witter & Co.
60,000,000 5.38 02/19/99 59,560,633
25,000,000 5.35 02/23/99 24,803,090
10,000,000 5.20 03/24/99 9,881,556
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Prime Obligations Fund (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<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)
Salomon Smith Barney Holdings, Inc.
$ 50,000,000 5.40% 01/12/99 $ 49,917,500
30,000,000 5.40 01/19/99 29,919,000
50,000,000 5.40 02/23/99 49,602,500
50,000,000 5.20 03/12/99 49,494,444
- ------------------------------------------------------------------------------------------------
Total Commercial Paper and Corporate Obligations $2,606,749,311
- ------------------------------------------------------------------------------------------------
Bank Notes--6.4%
BankBoston, N.A.
$ 40,000,000 5.20% 04/01/99 $ 40,000,000
50,000,000 5.74 04/15/99 49,994,542
20,000,000 5.15 05/04/99 20,000,000
First Tennessee Bank, N.A.
40,000,000 5.65 03/02/99 39,996,844
50,000,000 5.82 04/30/99 49,990,641
First Union National Bank
75,000,000 5.12 03/29/99 75,000,000
50,000,000 5.06 05/19/99 50,000,000
NationsBank Corp.
25,000,000 4.96 11/18/99 24,995,756
Norwest Financial
11,000,000 6.68 09/15/99 11,113,844
PNC Bank, N.A.
35,000,000 5.71 04/26/99 34,993,664
Wachovia Bank
25,000,000 4.98 05/25/99 25,000,000
- ------------------------------------------------------------------------------------------------
Total Bank Notes $ 421,085,291
- ------------------------------------------------------------------------------------------------
Certificates of Deposit--7.6%
American Express Centurion Bank
$ 50,000,000 5.26% 01/12/99 $ 50,000,000
Bank of America NT & SA
55,250,000 5.63 02/26/99 55,245,125
Chase Manhattan Bank
100,000,000 5.06 05/12/99 100,007,399
Crestar Bank
100,000,000 5.42 01/07/99 100,000,000
Mellon Bank, N.A.
100,000,000 5.00 02/17/99 100,000,000
Old Kent Bank & Trust Co.
100,000,000 5.06 05/10/99 100,000,000
- ------------------------------------------------------------------------------------------------
Total Certificates of Deposit $ 505,252,524
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Taxable Municipal Notes--0.2%
Ocean Spray Cranberries, Inc.
$ 15,000,000 5.63% 01/07/99 $ 15,000,000
- -----------------------------------------------------------------------------------------------
Total Taxable Municipal Notes $ 15,000,000
- -----------------------------------------------------------------------------------------------
Variable Rate Obligations(a)--32.2%
Allmerica Funding
$ 25,000,000 5.45% 02/08/99 $ 25,000,000
American Express Centurion Bank
50,000,000 5.52 01/25/99 50,000,000
Bank One, N.A.
160,000,000 5.49 01/04/99 159,976,463
Caterpillar Financial Services Corp.
50,000,000 5.62 01/26/99 50,005,314
Comerica Bank Detroit
50,000,000 5.42 01/19/99 49,983,898
150,000,000 5.11 03/10/99 149,954,840
First National Bank of Chicago
40,000,000 5.48 01/04/99 39,987,720
40,000,000 5.42 01/14/99 39,987,244
First Tennessee Bank, N.A.
30,000,000 5.07 01/25/99 29,995,489
First Union Corp.
40,000,000 5.52 01/25/99 40,000,000
25,000,000 5.57 01/28/99 25,000,000
First U.S.A. Bank
10,000,000 5.62 01/20/99 10,029,496
15,000,000 5.52 02/01/99 15,004,382
General Electric Capital Corp.
20,000,000 5.32 02/17/99 20,000,000
45,000,000 5.18 03/08/99 45,000,000
General Motors Acceptance Corp.
25,000,000 5.36 03/01/99 25,007,694
IBM Corp.
50,000,000 5.23 02/12/99 49,968,362
J.P. Morgan Securities, Inc.
30,000,000 5.21 01/04/99 29,997,732
50,000,000 5.48 01/07/99 49,985,055
Keybank, N.A.
100,000,000 5.13 02/22/99 99,992,398
10,000,000 5.18 02/22/99 9,994,987
Merrill Lynch & Co., Inc.
35,000,000 5.58 01/12/99 35,000,000
40,000,000 5.48 01/13/99 39,997,545
25,000,000 5.57 01/25/99 25,000,000
28,250,000 5.47 01/29/99 28,277,808
25,000,000 5.57 01/29/99 25,000,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Variable Rate Obligations (continued)
Merrill Lynch & Co., Inc. (continued)
$ 30,000,000 5.18% 03/01/99 $ 29,998,003
50,000,000 5.14 03/16/99 50,000,000
Monumental Life Insurance Co.
55,000,000 5.72 02/01/99 55,000,000
Morgan Stanley Dean Witter & Co.
80,000,000 5.58 01/19/99 80,000,000
National Rural Utilities Corp.
25,000,000 5.17 02/25/99 25,000,000
New York Life Insurance Co.
25,000,000 5.21 01/07/99 25,000,000
40,000,000 5.31 01/07/99 40,000,000
Old Kent Bank & Trust Co.
35,000,000 5.10 02/01/99 34,994,418
Pacific Mutual Life Insurance Co.
50,000,000 4.98 02/01/99 50,000,000
Pepsico Inc.
75,000,000 5.21 02/19/99 74,946,672
PNC Bank, N.A.
100,000,000 5.49 01/04/99 99,963,281
75,000,000 5.50 01/27/99 74,968,099
Seattle Washington Taxable Series 1994
25,000,000 5.58 02/01/99 25,000,000
SMM Trust Series 1998-A
35,000,000 5.32 03/16/99 35,000,000
Southtrust Bank of Alabama, N.A.
100,000,000 5.42 01/14/99 99,971,298
40,000,000 5.08 01/21/99 39,994,093
Texas State Taxable Veterans Series 1996 A
14,255,000 5.58 02/01/99 14,255,000
U.S. Bank, N.A.
50,000,000 5.50 01/08/99 49,992,464
65,000,000 5.43 01/20/99 64,982,525
- ------------------------------------------------------------------------------------------------
Total Variable Rate Obligations $2,137,212,280
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Repurchase Agreements--14.3%
Bear Stearns Companies, Inc.(b)
$ 50,000,000 5.15% 01/04/99 $ 50,000,000
Joint Repurchase Agreement Account
201,300,000 4.82 01/04/99 201,300,000
Joint Repurchase Agreement Account II
700,000,000 4.89 01/04/99 700,000,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreements $ 951,300,000
- ----------------------------------------------------------------------------------------------
Total Investments $6,636,599,406(c)
</TABLE>
- --------------------------------------------------------------------------------
(a) Variable rate security-base index is either U.S. Treasury Bill, LIBOR, one
month commercial paper, Federal Funds, or Prime lending rate.
(b) At December 31, 1998, this agreement was fully collateralized by Federal
Agency obligations.
(c) 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.
6
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Money Market Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Commercial Paper and Corporate Obligations--42.0%
Agency/Government
Province of Quebec
$ 35,000,000 5.01% 05/07/99 $ 34,386,275
Bank Holding Companies
Abbey National Treasury Services
35,000,000 4.92 02/19/99 34,765,855
ABN/AMRO Bank
35,000,000 4.89 04/30/99 34,434,254
Banca CRT Financial Corp.
10,621,000 5.41 02/08/99 10,560,348
15,000,000 5.41 02/17/99 14,894,054
20,500,000 5.40 03/01/99 20,318,575
BankAmerica Corp.
20,000,000 5.17 01/22/99 19,939,683
40,000,000 5.04 05/12/99 39,266,400
Banque Et Caisse Epargne
50,000,000 5.01 03/29/99 49,394,625
C.S. First Boston Corp.
30,000,000 5.33 02/10/99 29,822,333
70,000,000 5.02 02/23/99 69,482,661
IMI Funding Corp., U.S.A.
25,000,000 5.03 03/15/99 24,745,007
San Paolo U.S. Finance Co.
25,000,000 5.31 03/01/99 24,782,438
UBS Finance, Inc.
70,000,000 4.90 05/20/99 68,676,450
41,000,000 4.93 05/20/99 40,219,554
Business Credit Institutions
CIT Group Holdings, Inc.
30,000,000 5.05 03/29/99 29,633,875
General Electric Capital Corp.
75,000,000 5.36 02/16/99 74,489,528
Chemicals
Henkel Corp.
21,000,000 5.31 02/26/99 20,826,703
Commercial Banks
CP Trust Certificates Series 1996-1
51,000,000 4.95 03/30/99 51,000,000
CP Trust Certificates Series 1996-2
75,000,000 5.03 12/28/99 75,000,000
Mortgage Banking
Northern Rock PLC
50,000,000 5.12 02/01/99 49,779,556
5,000,000 5.12 02/02/99 4,977,244
22,214,000 5.17 03/29/99 21,936,455
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Commercial Paper and Corporate Obligations (continued)
Northern Rock PLC (continued)
$ 35,000,000 5.00% 04/27/99 $ 34,436,111
50,000,000 4.91 05/20/99 49,053,063
50,000,000 4.93 05/27/99 49,000,306
Motor Vehicles and Equipment
DaimlerChrysler N.A. Holding Corp.
35,000,000 4.98 05/17/99 34,341,533
Receivable/Asset Financing
Asset Securitization Corp.
50,000,000 5.15 03/12/99 49,499,306
Atlantis One Funding
18,500,000 5.20 03/24/99 18,280,878
38,526,000 5.17 05/12/99 37,801,208
Beta Finance
64,500,000 5.12 03/22/99 63,766,133
Cargill Global Funding
15,000,000 5.37 02/23/99 14,881,413
CC USA, Inc.
30,000,000 5.15 01/15/99 29,939,917
15,000,000 5.40 01/27/99 14,941,500
Ciesco, Inc.
50,000,000 5.30 02/05/99 49,742,361
Corporate Receivables Corp.
100,000,000 5.25 02/18/99 99,300,000
Dakota Certificates of Standard Credit Card Master Trust
25,000,000 5.30 02/17/99 24,827,014
Delaware Funding Corp.
50,000,000 5.22 01/22/99 49,847,750
Edison Asset Securitization Corp.
40,000,000 5.15 01/13/99 39,931,333
27,060,000 5.13 01/29/99 26,952,031
100,000,000 5.14 02/26/99 99,200,443
50,000,000 5.00 03/12/99 49,513,889
15,000,000 5.19 03/12/99 14,848,625
Eureka Securities
25,000,000 5.32 01/13/99 24,955,667
Falcon Asset Securitization Corp.
25,000,000 5.25 02/09/99 24,857,813
41,540,000 5.25 02/19/99 41,243,162
Four Winds Funding
47,000,000 5.25 01/14/99 46,910,896
Rose One Plus
57,980,000 5.30 01/07/99 57,928,784
24,462,000 5.31 01/08/99 24,436,743
25,000,000 5.30 01/19/99 24,933,750
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper and Corporate Obligations (continued)
Receivable/Asset Financing (continued)
Variable Funding Capital Corp.
$50,000,000 5.21% 01/05/99 $ 49,971,056
25,000,000 5.26 01/22/99 24,923,292
Windmill Funding
25,000,000 5.54 01/06/99 24,980,764
65,000,000 5.27 01/15/99 64,866,786
35,000,000 5.30 01/15/99 34,927,861
25,000,000 5.35 01/15/99 24,947,986
75,000,000 5.27 02/19/99 74,462,021
Security and Commodity Brokers, Dealers and Services
J.P. Morgan Securities, Inc.
45,000,000 5.75 03/10/99 45,000,000
40,000,000 5.02 04/21/99 39,386,444
Morgan Stanley Dean Witter & Co.
35,000,000 5.35 02/23/99 34,724,326
50,000,000 5.20 03/24/99 49,407,778
Salomon Smith Barney Holdings, Inc.
25,000,000 5.40 01/19/99 24,932,500
25,000,000 5.40 02/23/99 24,801,250
55,000,000 5.20 03/12/99 54,443,889
- -----------------------------------------------------------------------------------------------
Total Commercial Paper and Corporate Obligations $2,510,479,455
- -----------------------------------------------------------------------------------------------
Bank Notes--2.6%
BankBoston, N.A.
$50,000,000 5.20% 04/01/99 $ 50,000,000
30,000,000 5.11 04/05/99 30,000,000
First Union National Bank
25,000,000 5.12 03/29/99 25,000,000
NationsBank Corp.
50,000,000 4.96 11/18/99 49,991,512
- -----------------------------------------------------------------------------------------------
Total Bank Notes $ 154,991,512
- -----------------------------------------------------------------------------------------------
Certificates of Deposit--0.8%
Morgan Guaranty Trust Co.
$50,000,000 5.14% 04/19/99 $ 50,000,000
- -----------------------------------------------------------------------------------------------
Total Certificates of Deposit $ 50,000,000
- -----------------------------------------------------------------------------------------------
Certificates of Deposit--Yankeedollar--11.3%
Bank Austria, New York
$25,000,000 5.71% 06/07/99 $ 24,990,221
50,000,000 5.08 12/30/99 49,995,206
Bayerische Landesbank, New York
25,000,000 5.66 02/26/99 25,010,799
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Certificates of Deposit--Yankeedollar (continued)
CIBC Oppenheimer, New York
$100,000,000 5.01% 02/16/99 $100,000,000
Commerzbank, New York
8,000,000 5.37 02/24/99 8,001,946
19,000,000 5.41 03/11/99 19,009,284
Credit Agricole Indosuez, New York
15,000,000 5.74 04/26/99 14,997,286
Creditanstalt, New York
50,000,000 5.85 05/03/99 49,992,009
Deutsche Bank, New York
50,000,000 5.04 05/05/99 50,000,000
National Bank of Canada, New York
45,000,000 5.76 06/10/99 44,988,669
Societe Generale, New York
50,000,000 5.73 03/08/99 49,996,537
30,000,000 5.71 03/29/99 29,997,261
30,000,000 5.63 04/06/99 29,986,800
35,000,000 5.76 04/16/99 34,996,143
Toronto Dominion Bank, New York
30,100,000 4.97 05/20/99 30,090,612
25,000,000 5.10 12/29/99 25,001,195
UBS, New York
50,000,000 5.23 01/13/99 50,000,246
15,000,000 5.74 06/09/99 14,996,246
Westpac Banking Corp., New York
25,000,000 5.77 05/12/99 24,994,846
- ---------------------------------------------------------------------------------------------------
Total Certificates of Deposit--Yankeedollar $677,045,306
- ---------------------------------------------------------------------------------------------------
Taxable Municipal Notes--1.0%
Florida Housing Finance Authority
$ 27,900,000 5.50% 01/06/99 $ 27,900,000
Illinois Health & Education Facilities Authority for Elmhurst Memorial
Series 1998 B
29,400,000 5.70 01/07/99 29,400,000
- ---------------------------------------------------------------------------------------------------
Total Taxable Municipal Notes $ 57,300,000
- ---------------------------------------------------------------------------------------------------
Time Deposits--4.6%
Natexis Banque Grand Cayman(a)
$100,000,000 5.50% 01/05/99 $100,000,000
National City Bank(b)
125,000,000 4.94 01/04/99 125,000,000
Societe Generale
50,000,000 5.00 01/04/99 50,000,000
- ---------------------------------------------------------------------------------------------------
Total Time Deposit $275,000,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
8
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Money Market Fund (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate Obligations(c)--38.8%
Abbey National Treasury Services
$ 25,000,000 5.38% 01/04/99 $ 24,988,785
115,000,000 5.07 01/20/99 114,948,047
Allmerica Funding
25,000,000 5.45 02/08/99 25,000,000
Banca CRT Financial Corp.
20,000,000 5.16 03/01/99 19,995,308
25,000,000 5.15 03/05/99 24,994,108
Bank of Austria, New York
50,000,000 5.49 01/04/99 49,985,444
Bank of Western Australia Ltd.
55,000,000 5.35 02/19/99 54,996,751
Barclays Bank PLC
125,000,000 5.49 01/04/99 124,960,609
25,000,000 5.49 02/01/99 24,983,399
Bayerische Landesbank
75,000,000 5.03 01/22/99 74,967,417
75,000,000 5.49 01/29/99 74,972,885
C.S. First Boston Corp.
40,000,000 5.20 01/04/99 40,000,000
40,000,000 5.57 02/01/99 40,000,000
Comerica Bank Detroit
35,000,000 5.42 01/19/99 34,988,729
Den Danske Bank Corp.
20,000,000 5.52 01/04/99 19,995,089
30,000,000 5.56 01/25/99 29,999,348
First Tennessee Bank, N.A.
30,000,000 5.07 01/25/99 29,995,489
First Union National Bank
35,000,000 5.24 01/20/99 35,000,000
25,000,000 5.57 01/28/99 25,000,000
Halifax PLC
40,000,000 5.24 03/10/99 40,010,506
Hydro Quebec
5,000,000 5.35 01/15/99 4,999,554
Istituto Bancario, New York
85,000,000 5.22 01/14/99 84,988,271
100,000,000 5.12 02/24/99 99,973,099
20,000,000 5.09 03/08/99 19,994,054
J.P. Morgan Securities, Inc.
20,000,000 5.21 01/04/99 19,998,488
75,000,000 5.48 01/07/99 74,977,583
Keybank, N.A.
35,000,000 5.13 02/22/99 34,997,339
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate Obligations (continued)
Merrill Lynch & Co., Inc.
$ 35,000,000 5.51% 01/11/99 $ 35,000,000
50,000,000 5.51 01/19/99 50,000,000
70,000,000 5.57 01/25/99 70,000,000
25,000,000 5.57 01/29/99 25,000,000
30,000,000 5.14 03/16/99 30,000,000
25,000,000 5.24 03/24/99 25,010,369
Morgan Stanley Dean Witter & Co.
80,000,000 5.30 01/15/99 79,999,704
National Rural Utilities Corp.
25,000,000 5.17 02/25/99 25,000,000
New York Life Insurance Co.
25,000,000 5.21 01/07/99 25,000,000
40,000,000 5.31 01/07/99 40,000,000
Norwest Financial
30,000,000 5.17 03/22/99 29,997,931
Old Kent Bank & Trust Co.
30,000,000 5.10 02/01/99 29,995,215
PNC Bank, N.A.
50,000,000 5.43 01/04/99 49,982,644
100,000,000 5.50 01/04/99 99,960,951
Postipankki Ltd.
25,000,000 5.32 02/09/99 24,998,693
SMM Trust Series 1998-A
40,000,000 5.32 03/16/99 40,000,000
Societe Generale, New York
45,000,000 5.51 01/07/99 44,993,064
25,000,000 5.54 01/26/99 24,992,568
Southtrust Bank of Alabama, N.A.
40,000,000 5.08 01/21/99 39,994,093
SunAmerica Life Insurance Co.
50,000,000 5.64 01/04/99 50,000,000
Svenska Handelsbanken
150,000,000 5.44 01/04/99 149,963,406
34,500,000 5.34 02/18/99 34,496,231
Westpac Banking Corp.
50,000,000 5.10 02/03/99 49,987,061
- ----------------------------------------------------------------------------------------------
Total Variable Rate Obligations $2,324,082,232
- ----------------------------------------------------------------------------------------------
Repurchase Agreement--0.6%
Joint Repurchase Agreement Account(b)
$ 36,200,000 4.82% 01/04/99 $ 36,200,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreement $ 36,200,000
- ----------------------------------------------------------------------------------------------
Total Investments $6,085,098,505(d)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
(a) Forward commitments.
(b) A portion of this security is segregated for forward commitments.
(c) Variable rate security-base index is either U.S. Treasury Bill, LIBOR, one
month commercial paper, Federal Funds, or Prime lending rate.
(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.
10
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Premium Money Market Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper and Corporate Obligations--29.0%
Agricultural Services
Cargill, Inc.
$10,000,000 5.37% 02/23/99 $ 9,920,942
Bank Holding Companies
Banque Et Caisse Epargne
5,000,000 5.01 03/29/99 4,939,463
Deutsche Bank Financial
5,000,000 5.60 01/07/99 4,995,333
Dresdner U.S. Finance
15,000,000 5.41 01/04/99 14,993,238
IMI Funding Corp., U.S.A.
5,927,000 5.38 02/26/99 5,877,398
San Paolo U.S. Finance Co.
5,000,000 5.31 03/01/99 4,956,488
Business Credit Institutions
General Electric Capital Corp.
10,000,000 4.88 06/11/99 9,781,755
Electric and Gas Services
Hydro Quebec
5,510,000 7.74 02/26/99 5,525,996
Receivable/Asset Financing
Asset Portfolio Funding
5,000,000 5.20 03/17/99 4,945,833
Asset Securitization Corp.
15,000,000 5.15 03/12/99 14,849,792
CC USA, Inc.
10,000,000 5.27 01/29/00 9,959,011
Corporate Receivables Corp.
10,000,000 5.50 01/12/99 9,983,194
5,000,000 5.25 02/19/99 4,964,271
Edison Asset Securitization Corp.
5,000,000 5.13 01/29/99 4,980,050
5,000,000 5.14 02/26/99 4,960,022
5,000,000 5.15 03/22/99 4,942,778
Receivables Capital Corp.
15,000,000 5.50 01/04/99 14,993,125
Riverwoods Funding Corp.
10,000,000 5.05 02/25/99 9,922,847
WCP Funding, Inc.
10,000,000 5.53 01/12/99 9,983,103
Windmill Funding
5,000,000 5.30 01/15/99 4,989,694
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial Paper and Corporate Obligations (continued)
Mortgage Banking
Northern Rock PLC
$ 5,000,000 5.12% 02/02/99 $ 4,977,244
Security and Commodity Brokers, Dealers and Services
J.P. Morgan Securities, Inc.
5,000,000 5.02 04/21/99 4,923,306
Morgan Stanley Dean Witter & Co.
5,000,000 5.20 03/24/99 4,940,778
Salomon Smith Barney Holdings, Inc.
5,000,000 5.20 03/12/99 4,949,444
- --------------------------------------------------------------------------------------------------
Total Commercial Paper and Corporate Obligations $180,255,105
- --------------------------------------------------------------------------------------------------
Bank Notes--1.6%
BankBoston, N.A.
$ 5,000,000 5.11% 04/05/99 $ 5,000,000
5,000,000 5.15 05/04/99 5,000,000
- --------------------------------------------------------------------------------------------------
Total Bank Notes $ 10,000,000
- --------------------------------------------------------------------------------------------------
Certificates of Deposit--Yankeedollar--5.3%
Deutsche Bank, New York
$ 5,000,000 5.65% 03/22/99 $ 4,999,422
National Bank of Canada, New York
5,000,000 5.76 06/10/99 4,998,741
Royal Bank of Canada, New York
5,000,000 5.56 02/26/99 5,000,930
Societe Generale, New York
2,000,000 5.72 03/05/99 1,999,835
3,000,000 5.63 04/06/99 2,998,680
Swiss Bank Corp., New York
5,000,000 5.74 06/09/99 4,998,749
UBS, New York
5,000,000 5.23 01/13/99 5,000,024
Westpac Banking Corp., New York
3,000,000 5.77 05/12/99 2,999,382
- --------------------------------------------------------------------------------------------------
Total Certificates of Deposit--Yankeedollar $ 32,995,763
- --------------------------------------------------------------------------------------------------
Variable Rate Obligations(a)--26.6%
Abbey National Treasury Services
$10,000,000 5.37% 01/15/99 $ 9,995,332
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate Obligations (continued)
Bank of Austria, New York
$ 5,000,000 5.49% 01/04/99 $ 4,998,544
BankAmerica Corp.
6,000,000 5.39 01/15/99 6,004,337
Barclays Bank PLC
5,000,000 5.49 01/04/99 4,998,363
Bayerische Landesbank
5,000,000 5.49 01/25/99 4,999,491
2,000,000 5.09 03/23/99 1,999,655
C.S. First Boston Corp.
10,000,000 5.57 02/01/99 10,000,000
Citicorp, Inc.
5,000,000 5.20 03/17/99 5,000,000
Comerica Bank Detroit
5,000,000 5.11 03/10/99 4,998,495
Den Danske Bank Corp.
5,000,000 5.56 01/25/99 4,999,891
First Tennessee Bank, N.A.
5,000,000 5.07 01/25/99 4,999,248
First U.S.A. Bank
5,000,000 5.52 02/01/99 5,001,461
First Union National Bank
2,000,000 4.71 01/04/99 1,997,869
IBM Corp.
10,000,000 5.23 02/12/99 9,993,672
Istituto Bancario, New York
5,000,000 5.12 02/24/99 4,998,655
J.P. Morgan Securities, Inc.
5,000,000 5.48 01/07/99 4,998,506
Keybank, N.A.
3,000,000 5.52 01/11/99 2,999,352
Merrill Lynch & Co., Inc.
5,000,000 5.48 01/13/99 4,999,693
5,000,000 5.57 01/25/99 5,000,000
Morgan Stanley Dean Witter & Co.
5,000,000 5.30 01/15/99 4,999,981
National Rural Utilities Corp.
5,000,000 5.17 02/25/99 5,000,000
Old Kent Bank & Trust Co.
5,000,000 5.10 02/01/99 4,999,203
PepsiCo Inc.
10,000,000 5.21 02/19/99 9,992,890
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate Obligations (continued)
PNC Bank, N.A.
$ 5,000,000 5.50% 01/04/99 $ 4,997,873
5,000,000 5.50 01/27/99 4,998,048
SMM Trust Series 1998-A
2,000,000 5.32 03/16/99 2,000,000
Southtrust Bank of Alabama, N.A.
5,000,000 5.08 01/21/99 4,999,262
Svenska Handelsbanken
5,000,000 5.44 01/04/99 4,998,780
U.S. Bank, N.A.
10,000,000 5.50 01/08/99 9,998,493
Westpac Banking Corp.
5,000,000 5.11 02/03/99 4,998,706
- -------------------------------------------------------------------------------------------------
Total Variable Rate Obligations $164,965,800
- -------------------------------------------------------------------------------------------------
Repurchase Agreements--37.5%
Joint Repurchase Agreement Account
$182,800,000 4.82% 01/04/99 $182,800,000
Joint Repurchase Agreement Account II
50,000,000 4.89 01/04/99 50,000,000
- -------------------------------------------------------------------------------------------------
Total Repurchase Agreements $232,800,000
- -------------------------------------------------------------------------------------------------
Total Investments $621,016,668(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.
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.
12
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Treasury Obligations Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Obligations--16.2%
United States Treasury Notes
$ 85,000,000 6.38% 04/30/99 $ 85,209,148
60,000,000 6.38 05/17/99 60,165,750
60,000,000 6.25 06/01/99 60,166,783
115,000,000 6.00 06/30/99 115,515,225
42,000,000 6.00 08/16/99 42,428,849
52,000,000 7.13 09/30/99 52,819,839
202,000,000 7.50 11/01/99 207,137,071
195,000,000 5.88 11/15/99 197,252,584
50,000,000 7.75 11/30/99 51,350,109
- ------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations $ 872,045,358
- ------------------------------------------------------------------------------------------------
Repurchase Agreements--84.0%
ABN/AMRO, Inc. (a)
$ 235,000,000 4.92% 01/04/99 $ 235,000,000
Barclays Bank(a)
235,000,000 4.88 01/06/99 235,000,000
Bear Stearns Companies, Inc.(a)
235,000,000 4.60 01/04/99 235,000,000
C.S. First Boston Corp.(a)
235,000,000 4.82 01/04/99 235,000,000
CIBC Oppenheimer, Inc.(a)
100,000,000 4.70 01/04/99 100,000,000
Deutsche Bank(a)
235,000,000 4.88 01/04/99 235,000,000
Goldman, Sachs & Co.(a)
235,000,000 4.96 01/04/99 235,000,000
Joint Repurchase Agreement Account
1,678,200,000 4.82 01/04/99 1,678,200,000
J.P. Morgan Securities, Inc.(a)
235,000,000 4.75 01/04/99 235,000,000
Lehman Government Securities, Inc.(a)
235,000,000 4.90 01/04/99 235,000,000
Merrill Lynch Government Securities, Inc.(a)
160,000,000 4.65 01/04/99 160,000,000
Morgan Stanley Government Securities, Inc.(a)
240,000,000 5.75 01/04/99 240,000,000
NationsBanc Montgomery Securities LLC(a)
235,000,000 4.75 01/04/99 235,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements (continued)
Salomon Smith Barney Holdings, Inc.(a)
$ 235,000,000 4.90% 01/04/99 $ 235,000,000
- -----------------------------------------------------------------------------------------------
Total Repurchase Agreements $4,528,200,000
- -----------------------------------------------------------------------------------------------
Total Investments $5,400,245,358(b)
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) At December 31, 1998, these agreements were fully collateralized by U.S.
Treasury obligations.
(b) 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.
13
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Treasury Instruments Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Obligations--100.4%
United States Treasury Bills
$ 80,000,000 4.01% 01/07/99 $ 79,946,533
15,000,000 4.22 01/07/99 14,989,456
82,900,000 4.26 01/07/99 82,841,141
25,000,000 4.03 01/14/99 24,963,663
4,800,000 4.40 01/21/99 4,788,280
174,300,000 4.48 01/21/99 173,866,186
21,900,000 4.26 01/28/99 21,830,030
100,000,000 4.35 02/04/99 99,589,167
18,100,000 4.51 02/04/99 18,022,904
22,000,000 4.29 02/11/99 21,892,512
35,000,000 4.34 02/11/99 34,827,202
100,000,000 4.35 02/11/99 99,504,583
35,900,000 4.36 02/11/99 35,721,737
34,900,000 4.40 02/11/99 34,725,112
84,900,000 4.38 03/04/99 84,260,302
35,000,000 4.41 03/11/99 34,704,163
- -------------------------------------------------------------------------------------------------
Total U.S. Treasury Obligations $866,472,971
- -------------------------------------------------------------------------------------------------
Total Investments $866,472,971(a)
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount stated also represents aggregate cost for federal income tax
purposes.
Interest rates represent the annualized yield on date of purchase for
discounted notes.
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.
14
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Government Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations--74.7%
Federal Farm Credit Bank
$ 35,970,000 5.65% 01/04/99 $ 35,969,573
48,000,000 4.76(a) 01/18/00 47,912,400
Federal Home Loan Bank
88,760,000 4.75 01/20/99 88,537,484
50,000,000 5.50 03/26/99 49,981,819
37,795,000 5.63 04/09/99 37,788,930
38,045,000 5.52 08/12/99 38,184,017
125,000,000 4.86(a)(b) 04/11/00 124,913,750
Federal Home Loan Mortgage Corp.
50,000,000 5.41(b) 01/04/99 49,987,532
150,000,000 5.35(b) 01/18/99 149,935,064
115,000,000 5.44(b) 01/26/99 114,994,661
155,000,000 5.15 02/03/99 154,268,271
30,000,000 4.92 03/19/99 29,684,300
81,769,000 4.79 04/09/99 80,702,778
240,000,000 5.36(b) 04/21/99 239,957,326
41,000,000 5.60 04/21/99 41,102,352
Federal National Mortgage Association
85,000,000 4.98(b) 01/05/99 84,974,700
95,000,000 5.07 01/08/99 94,906,346
80,000,000 5.33(b) 01/17/99 79,991,913
200,000,000 5.36(b) 01/22/99 199,993,172
50,000,000 4.96(b) 01/23/99 49,978,159
41,000,000 5.41 02/23/99 40,989,434
35,000,000 5.53 03/11/99 34,994,972
40,000,000 4.98(b) 03/15/99 39,984,830
48,095,000 6.00 09/02/99 48,332,404
70,000,000 4.78 11/30/99 69,973,148
25,890,000 4.72 12/16/99 25,868,971
Student Loan Marketing Association
100,000,000 5.45(b) 01/03/99 99,940,164
25,000,000 5.63 06/30/99 24,995,685
- -----------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations $2,178,844,155
- -----------------------------------------------------------------------------------------------
Repurchase Agreements--31.3%
ABN/AMRO, Inc.(c)
$200,000,000 5.15% 01/04/99 $ 200,000,000
Joint Repurchase Agreement Account(d)
314,000,000 4.82 01/04/99 314,000,000
Joint Repurchase Agreement Account II
200,000,000 4.89 01/04/99 200,000,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements (continued)
NationsBanc Montgomery Securities LLC(c)
$200,000,000 5.15% 01/04/99 $ 200,000,000
- ----------------------------------------------------------------------------------------------
Total Repurchase Agreements $ 914,000,000
- ----------------------------------------------------------------------------------------------
Total Investments $3,092,844,155(e)
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Forward commitments.
(b) Variable rate security-base index is either Federal Funds, Prime lending
rate, or LIBOR.
(c) At December 31, 1998, these securities were fully collateralized by Federal
Agency obligations.
(d) A portion of this security is segregated for forward commitments.
(e) 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 Federal Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations--107.5%
Federal Farm Credit Bank
$ 60,000,000 4.50% 01/04/99 $ 59,977,500
50,000,000 5.09(a) 01/04/99 50,000,000
12,100,000 5.13 01/12/99 12,081,033
14,000,000 5.10 01/13/99 13,976,200
9,700,000 5.07 01/15/99 9,680,875
18,000,000 5.06 01/19/99 17,954,460
9,700,000 5.05 01/20/99 9,674,147
20,000,000 5.01 02/01/99 19,913,717
10,000,000 4.98 02/08/99 9,947,433
10,000,000 5.14 02/10/99 9,942,889
25,000,000 4.98 02/12/99 24,854,750
30,000,000 5.38 03/02/99 29,991,641
75,000,000 5.34(a) 04/15/99 74,989,490
25,000,000 5.35(a) 05/03/99 24,995,886
15,000,000 4.81 05/17/99 14,727,433
35,000,000 5.00(a) 06/01/99 34,991,503
60,000,000 5.00(a) 07/01/99 59,982,547
90,000,000 5.36(a) 07/23/99 89,960,517
100,000,000 5.34(a) 08/05/99 99,959,220
50,000,000 5.50 09/01/99 50,091,696
50,000,000 5.37(a) 10/13/99 50,000,000
60,000,000 5.37(a) 10/15/99 60,000,000
7,500,000 4.75 12/01/99 7,491,229
35,000,000 5.41(a) 12/01/99 35,000,000
58,000,000 4.76(b) 01/18/00 57,942,822
Federal Home Loan Bank
20,000,000 4.30 01/04/99 19,992,833
1,900,000 4.75 01/04/99 1,899,248
32,655,000 5.03 01/04/99 32,641,312
100,000,000 5.04 01/04/99 99,958,042
30,000,000 5.04 01/04/99 29,987,400
3,400,000 5.08 01/04/99 3,398,561
149,000,000 4.70 01/06/99 148,902,735
20,000,000 5.03 01/06/99 19,986,028
25,823,000 5.04 01/06/99 25,804,924
50,000,000 4.75 01/08/99 49,953,819
1,000,000 5.06 01/13/99 998,313
80,000,000 4.75 01/15/99 79,852,222
40,000,000 4.84 01/15/99 39,924,711
</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)
$ 88,600,000 4.75% 01/20/99 $ 88,377,885
10,400,000 5.12 01/20/99 10,371,897
27,700,000 4.79 01/22/99 27,622,602
25,000,000 4.94 01/22/99 24,927,958
28,784,000 4.82 01/27/99 28,683,800
48,970,000 5.03 02/03/99 48,744,207
19,000,000 5.05 02/03/99 18,912,046
40,000,000 5.05 02/05/99 39,803,611
75,000,000 5.34(a) 02/11/99 74,994,231
50,000,000 4.90 02/17/99 49,680,139
117,050,000 5.00 03/03/99 116,059,318
23,000,000 4.95 03/05/99 22,800,763
40,000,000 4.96 03/08/99 39,636,267
34,000,000 4.96 03/10/99 33,681,458
21,000,000 4.99(a) 03/10/99 20,994,784
20,000,000 5.60 03/10/99 19,999,851
83,000,000 4.95 03/17/99 82,144,063
27,095,000 4.97 03/17/99 26,814,454
50,000,000 4.96 03/17/99 49,483,333
48,258,000 4.95 03/19/99 47,747,068
5,000,000 4.97 03/19/99 4,946,849
21,189,000 4.82 05/05/99 20,837,216
34,889,000 4.84 05/05/99 34,307,362
20,000,000 5.61 06/18/99 19,994,919
100,000,000 5.38(a) 09/08/99 99,965,753
75,000,000 4.80(a) 11/09/99 74,956,021
125,000,000 4.86(a)(b) 01/11/00 124,913,750
Student Loan Marketing Association
25,000,000 4.28 01/04/99 24,991,083
150,000,000 4.99(c) 01/19/99 149,625,750
100,000,000 4.73(c) 01/27/99 99,658,389
75,000,000 5.01 02/11/99 74,572,062
12,890,000 4.95 02/16/99 12,808,471
70,000,000 4.99(a) 04/01/99 69,993,268
25,000,000 5.13(a) 04/16/99 24,996,476
30,000,000 5.63 06/02/99 29,993,954
10,000,000 5.63 06/30/99 9,997,815
130,000,000 5.00(a) 09/15/99 129,932,382
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
16
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Federal Fund (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations (continued)
Student Loan Marketing Association (continued)
$ 75,000,000 5.37(a) 10/15/99 $ 75,000,000
100,000,000 5.45(a) 12/03/99 99,940,164
65,000,000 5.24(a)(b) 01/11/00 64,968,150
Tennessee Valley Authority
40,000,000 5.08 01/28/99 39,847,600
- ---------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations $3,639,154,305
- ---------------------------------------------------------------------------------------------
Total Investments $3,639,154,305(d)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Variable rate security-base index is either U.S. Treasury Bill, Federal
Funds, Prime lending rate, or LIBOR.
(b) Forward commitments.
(c) A portion of these securities are segregated for forward commitments.
(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.
17
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Tax-Free Money Market Fund
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Alabama--4.4%
City of Mobile Industrial Development PCRB for Alabama Power
Series 1993 A (A-1/VMIG1)
$ 4,600,000 3.95% 01/07/99 $ 4,600,000
City of Valdez Marine Terminal RB for Arco Transportation 1994
Series B (A-1/VMIG1)
8,200,000 4.15 01/07/99 8,200,000
Columbia IDB PCRB for Alabama Power Company Series 1995 B
(A-1/VMIG1)
25,000,000 5.00 01/04/99 25,000,000
Columbia IDB PCRB for Alabama Power Company Series 1995 D
(A-1/VMIG1)
2,000,000 4.80 01/04/99 2,000,000
Columbia Town IDRB for Alabama Power Co. Series 1996 A
(A-1/VMIG1)
8,300,000 5.00 01/04/99 8,300,000
Eutaw City IDB PCRB for Mississippi Power Co. Greene County Plant Project
Series 1992 (A-1/VMIG1)
6,550,000 4.10 01/07/99 6,550,000
Homewood City Educational Building Authority Educational Facilities RB for
Samford University Series 1996 (Bank of Nova Scotia)
(A-1+/VMIG1)
7,900,000 5.00 01/04/99 7,900,000
Jefferson County MF Hsg. RB for Hickory Knolls Project Series 1994
(Amsouth Bank LOC) (P-1)
3,770,000 4.05 01/07/99 3,770,000
Montgomery City Special Care RB Series 1994 A (Amsouth Bank) (VMIG1)
7,900,000 3.95 01/07/99 7,900,000
- -----------------------------------------------------------------------------------------------
$ 74,220,000
- -----------------------------------------------------------------------------------------------
Arizona--2.3%
Maricopa County PCRB for Arizona Pollution Control Corp.
Series 1994 A (Morgan Guaranty Trust Co.) (A-1+/P-1)
$ 5,200,000 5.10% 01/04/99 $ 5,200,000
Maricopa County PCRB Series 1994 D (Bank of America National Trust &
Savings) (A-1+/P-1)
11,700,000 5.05 01/04/99 11,700,000
Tempe VRDN Excise Tax Revenue Obligations Series 1998
(A-1+/VMIG1)
21,800,000 5.00 01/04/99 21,800,000
- -----------------------------------------------------------------------------------------------
$ 38,700,000
- -----------------------------------------------------------------------------------------------
California--2.4%
California Health Facilities Authority Insured Variable Rate Hospital RB
for Adventist Health System/West Series 1998 A
(MBIA) (A-1+/VMIG1)
$ 9,500,000 5.00% 01/04/99 $ 9,500,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
California (continued)
California Pollution Control Financing Authority PCRB for Pacific Gas &
Electric Company Series 1996 F (Banque Nationale de Paris, S.A.) (A-1)
$ 3,600,000 5.00% 01/04/99 $ 3,600,000
City of Long Beach TRANS Series 1998-1999 (SP-1+)
3,400,000 4.00 10/05/99 3,421,009
Irvine Ranch Water District Consolidated Refunding Series 1985 B
(Landesbank Hessen-Thuringen LOC) (A-1+)
4,000,000 5.00 01/04/99 4,000,000
Los Angeles County TRANS Series 1998-99 A (SP-1+/MIG1)
10,000,000 4.50 06/30/99 10,045,198
State of California Municipal Securities Trust Receipt Series 1997 SGA 55
(FGIC) (A-1+)
9,300,000 4.03 01/07/99 9,300,000
- -----------------------------------------------------------------------------------------------
$ 39,866,207
- -----------------------------------------------------------------------------------------------
Colorado--1.0%
Jefferson County School District TANS Series 1998 (SP-1+/MIG1)
$15,910,000 4.00% 06/30/99 $ 15,975,320
- -----------------------------------------------------------------------------------------------
Connecticut--1.5%
State of Connecticut 2nd Lien Special TRANS VRDN (Commerzbank Bank LOC)
(A-1+/VMIG1)
$25,700,000 4.10% 01/07/99 $ 25,700,000
- -----------------------------------------------------------------------------------------------
Florida--1.8%
Florida Local Government Finance Commission Series A (First Union National
Bank) (A-1/P-1)
$16,890,000 3.00% 03/15/99 $ 16,890,000
Putnam County Development Authority Floating/Fixed Rate PCRB for Seminole
Electric Series 1984 H1 (NRU LOC) (A-1+/P-1)
3,600,000 4.05 01/07/99 3,600,000
Putnam County Development Authority Floating/Fixed Rate PCRB for Seminole
Electric Series 1984 H2 (NRU LOC) (A-1+/P-1)
6,530,000 4.05 01/07/99 6,530,000
Putnam County Development Authority Floating/Fixed Rate PCRB for Seminole
Electric Series 1984 S (NRU LOC) (A-1+/P-1)
2,655,000 4.05 01/07/99 2,655,000
- -----------------------------------------------------------------------------------------------
$ 29,675,000
- -----------------------------------------------------------------------------------------------
Georgia--13.4%
Bartow County IDA PCRB for Georgia Power Co. First Series 1997
(A-1/VMIG1)
$38,000,000 5.00% 01/04/99 $ 38,000,000
Burke County IDA Adjustable Tender PCRB for Oglethorpe Power Corp. Series
1993 A (FGIC) (A-1+/VMIG1)
21,200,000 3.85 01/07/99 21,200,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Tax-Free Money Market Fund (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Georgia (continued)
Burke County IDA PCRB for Georgia Power Co. First Series 1997
(A-1/VMIG1)
$11,200,000 5.05% 01/04/99 $ 11,200,000
Burke County IDA PCRB for Oglethorpe Power Corp. Series 1993 A (FGIC)(A-
1+/VMIG1)(a)
12,000,000 3.80 01/07/99 12,000,000
Burke County PCRB Series 1994 A for Oglethorpe Power Corp. (FGIC) (A-
1+/VMIG1)
3,175,000 3.85 01/07/99 3,175,000
Dekalb County Hospital Authority Revenue Anticipation Certificates for
Dekalb Medical Center Series 1993 B (Suntrust Bank) (VMIG1)
2,030,000 4.00 01/07/99 2,030,000
Georgia Municipal Electric and Gas Project One Subordinated Bonds Series
1994 E (ABN/AMRO Bank, N.V.) (A-1+/VMIG1)
31,290,000 3.80 01/07/99 31,290,000
Georgia Municipal Gas Authority RB for Agency Project Series B (C.S. First
Boston/Morgan Guaranty/Bayerische Landesbank Girozentrale/Wachovia Bank
N.A./ABN/AMRO Bank, N.V.) (A-1+)
9,900,000 4.15 01/07/99 9,900,000
Georgia Municipal Gas Authority RB Series A (C.S. First Boston /Morgan
Guaranty/Bayerische Landesbank Girozentrale/Wachovia Bank N.A./ABN/AMRO
Bank, N.V.) (A-1+)
20,305,000 4.15 01/07/99 20,305,000
Georgia Municipal Gas Authority RB for Gas Portfolio II Project Series A
(C.S. First Boston/Morgan Guaranty/Bayerische Landensbank
Girozentrale/Wachovia Bank N.A. ABN/AMRO Bank, N.V.) (A-1+)(a)
6,840,000 3.80 01/07/99 6,840,000
Georgia Municipal Gas Authority RB for Gas Portfolio II Project Series B
(C.S. First Boston/Morgan Guaranty/Bayerische Landesbank
Girozentrale/Wachovia Bank N.A.) (A-1+)
47,055,000 3.90 01/07/99 47,055,000
Municipal Electric Authority of Georgia Subordinated General Resolution
Bonds Series 1985 C (Bayerische Landesbank Girozentrale LOC) (A-1+/VMIG1)
14,400,000 4.15 01/07/99 14,400,000
Municipal Electric Authority of Georgia Subordinate General Resolution
Bonds Series 1985 B (Landesbank Hessen-Thuringen LOC)
(A-1+/VMIG1)
7,200,000 3.95 01/07/99 7,200,000
- -----------------------------------------------------------------------------------------------
$224,595,000
- -----------------------------------------------------------------------------------------------
Idaho--1.2%
State of Idaho TANS Series 1998 (MIG1/SP-1+)
$20,000,000 4.50% 06/30/99 $ 20,085,648
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Illinois--6.0%
Chicago City RB for Chicago Midway Airport Series 1996A Societe Generale
Trustor Municipal Securities Trust Receipts (MBIA) (A-1+C)
$ 7,540,000 4.10% 01/07/99 $ 7,540,000
Cook County GO VRDN Series 1996 (A-1+/VMIG1)
1,000,000 4.10 01/07/99 1,000,000
Illinois Health Facilities Authority VRDN Adjustable RB for Evanston
Northwestern Health Care Corp. Series 1998 (A-1+/VMIG1)
7,500,000 3.70 06/01/99 7,500,000
Illinois Health Facilities Authority VRDN for Elmhurst Memorial Health
Systems Series 93B (VMIG1)
3,200,000 5.15 01/04/99 3,200,000
Illinois Health Facilities Authority VRDN for Northwest Community Hospital
Series 1997 (A-1+/VMIG1)
8,200,000 4.00 01/07/99 8,200,000
Illinois Health Facilities Authority VRDN for the Revolving Fund Pooled
Finance Program Series 1985 C (The First National Bank of Chicago) (A-
1+/VMIG1)
19,000,000 4.10 01/07/99 19,000,000
Illinois Health Facilities Authority VRDN RB for Northwest Community
Hospital Series 1995 (A-1+/VMIG1)
4,800,000 4.00 01/07/99 4,800,000
Illinois Health Facility Authority VRDN Revolving Fund Pooled Finance
Program Series 85D (The First National Bank of Chicago)
(A- 1+/VMIG1)
21,000,000 4.10 01/07/99 21,000,000
Illinois State GO Eagle Tax Exempt Trust Series 1995 96C1305 Class A COPS
(FGIC) (A-1C)
14,850,000 4.15 01/07/99 14,850,000
O'Hare International Airport Adjustable Rate RB for American Airlines
Series 1983 B (P-1)
10,100,000 5.00 01/04/99 10,100,000
Sauget Village PCRB VRDN for Monsanto Project Series 1992 (P-1)
1,000,000 4.15 01/07/99 1,000,000
Sauget Village PCRB VRDN for Monsanto Project Series 1993 (P-1)
1,900,000 4.15 01/07/99 1,900,000
- -----------------------------------------------------------------------------------------------
$100,090,000
- -----------------------------------------------------------------------------------------------
Indiana--2.3%
Fort Wayne Hospital Authority VRDN for Parkview Memorial Hospital Series
1985 B (Bank of America LOC) (VMIG1)
$1,600,000 3.90% 01/07/99 $ 1,600,000
Indiana Development Finance Authority Series 1997 (Bayer Corporation) (A-
1+/P-1)
4,800,000 5.15 01/04/99 4,800,000
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Indiana (continued)
Indiana Health Facilities Financing Authority Hospital RB Series 1997 E
(A-1+/VMIG1)(a)
$19,540,000 3.80% 01/07/99 $ 19,540,000
Indiana Hospital Equipment Financing Authority VRDN Series 1985 A (MBIA)
(A-1/VMIG1)
5,000,000 4.00 01/07/99 5,000,000
Warrick County PCRB for ALCOA Series 1992 (A-1)
7,475,000 4.15 01/07/99 7,475,000
- -----------------------------------------------------------------------------------------------
$ 38,415,000
- -----------------------------------------------------------------------------------------------
Iowa--1.9%
Chillicothe City PCRB for Midamerican Energy Co./Midwest Power Systems
Series 1993 A (A-1/VMIG1)
$ 2,400,000 4.20% 01/07/99 $ 2,400,000
Louisa County PCRB for Iowa-Illinois Gas & Electric Co./Midamerican Energy
Co. Series 1986 A (A-1)
9,100,000 4.20 01/07/99 9,100,000
Louisa County PCRB for Midwest Power Systems Inc. Series 1994
(A-1/VMIG1)(b)
20,000,000 4.20 01/07/99 20,000,000
- -----------------------------------------------------------------------------------------------
$ 31,500,000
- -----------------------------------------------------------------------------------------------
Kentucky--2.2%
Calvert PCRB for Air Products and Chemicals, Inc. Project Series 1993 A
(A-1)
$ 3,000,000 4.10% 01/07/99 $ 3,000,000
Kentucky Economic Development Financing Authority Adjustable Rate Hospital
Facilities RB for the Health Alliance of Greater Cincinnati Series 1997 D
(MBIA) (A-1+/VMIG1)
11,700,000 4.00 01/07/99 11,700,000
Kentucky Turnpike Authority Resource Recovery Road Refunding RB Series
1987 A Trust Receipts, Series 1997 (FSA) (A-1+/VMIG1)
18,165,000 4.10 01/07/99 18,165,000
Trimble County PCRB for Louisville Gas and Electric Co. Series 1996 A (A-
1/VMIG1)
4,000,000 3.05 03/26/99 4,000,000
- -----------------------------------------------------------------------------------------------
$ 36,865,000
- -----------------------------------------------------------------------------------------------
Louisiana--1.2%
Calcasieu Parish VRDN for Olin Corp. Series 1993 B (Wachovia Bank N.A. (A-
1+)
$ 5,500,000 5.10% 01/04/99 $ 5,500,000
East Baton Rouge PCRB for Exxon Project Series 1993 (A-1+/P-1)
4,900,000 5.00 01/04/99 4,900,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Louisiana (continued)
Parish of Desoto PCRB for Central Louisiana Electric Co. Series 1991 A
(Westdeutsche Landesbank Girozentrale LOC) (A-1+/VMIG1)
$10,000,000 3.85% 01/07/99 $ 10,000,000
- -----------------------------------------------------------------------------------------------
$ 20,400,000
- -----------------------------------------------------------------------------------------------
Maryland--2.4%
Maryland State & Local Loan of 1998 GO Puttable Floating Option
Tax-Exempt Securities Receipts PA-256 Series 1 (A-1+)
$29,665,000 4.10% 01/07/99 $ 29,665,000
Washington Suburban Sanitary District GO VRDN Series 1998 (A-1+/VMIG1)
11,000,000 4.05 01/07/99 11,000,000
- -----------------------------------------------------------------------------------------------
$ 40,665,000
- -----------------------------------------------------------------------------------------------
Massachusetts--4.2%
Commonwealth of Massachusetts GO Refunding Bonds Series 1998 A (A-
1+/VMIG1)
$ 3,000,000 3.90% 01/07/99 $ 3,000,000
Commonwealth of Massachusetts GO Refunding Bonds 1995 A (AA3/AA-)
5,000,000 5.50 07/01/99 5,053,395
Commonwealth of Massachusetts GO Refunding Bonds 1997 A (AA3/AA-)
9,485,000 4.50 08/01/99 9,571,168
Massachusetts Health & Education Facility Authority for Harvard University
Series A Eagle Tax-Exempt Trust Series 972104 Class A COPS (A-1+C)
10,000,000 4.15 01/07/99 10,000,000
Massachusetts Water Resources Authority Subordinated General Revenue RB
Series 1998 D (FGIC) (A-1+/VMIG1)
42,195,000 3.90 01/07/99 42,195,000
- -----------------------------------------------------------------------------------------------
$ 69,819,563
- -----------------------------------------------------------------------------------------------
Michigan--1.8%
Michigan Building Authority CP Notes Series 2 (Canadian Imperial Bank of
Commerce) (A-1+/P-1)
$17,500,000 3.30% 02/09/99 $ 17,500,000
Michigan State Trunk Line Fund Series 1998 A--Eagle Tax-Exempt Trust
Series 982202 Class A Certificates (A-1+C)
12,165,000 4.13 01/07/99 12,165,000
- -----------------------------------------------------------------------------------------------
$ 29,665,000
- -----------------------------------------------------------------------------------------------
Minnesota--0.2%
Port Authority of St. Paul VRDN for Weyerhaeuser Project Series 1993 (A-1)
$ 4,000,000 4.10% 01/07/99 $ 4,000,000
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
20
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Tax-Free Money Market Fund (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Mississippi--0.6%
Jackson County PCRB for Chevron U.S.A. Series 1992 (VMIG1)
$10,000,000 5.10% 01/04/99 $ 10,000,000
- -----------------------------------------------------------------------------------------------
Missouri--0.4%
Missouri Environmental Improvement & Energy VRDN PCRB for Monsanto Series
1993 (P-1)
$ 1,500,000 4.10% 01/07/99 $ 1,500,000
Missouri Refunding RB for Washington University Series 1984 (A-1+/VMIG1)
5,800,000 4.10 01/07/99 5,800,000
- -----------------------------------------------------------------------------------------------
$ 7,300,000
- -----------------------------------------------------------------------------------------------
Nevada--3.1%
Clark County Refunding RB for Nevada Airport System Series 1993 A (MBIA)
(A-1+/VMIG1)
$52,060,000 3.85% 01/07/99 $ 52,060,000
- -----------------------------------------------------------------------------------------------
New Jersey--1.6%
New Jersey TRANS Series 1999 A (A-1+/P-1)
$ 5,000,000 3.35% 03/11/99 $ 5,000,000
13,500,000 2.95 03/17/99 13,500,000
7,500,000 3.35 04/06/99 7,500,000
- -----------------------------------------------------------------------------------------------
$ 26,000,000
- -----------------------------------------------------------------------------------------------
New Mexico--0.4%
State of New Mexico TRANS Series 1998 (SP-1+/MIG1)
$ 6,800,000 4.25% 06/30/99 $ 6,821,041
- -----------------------------------------------------------------------------------------------
New York--6.2%
Long Island Power Authority Electric System Subordinated RB Series 3
(Bayerische Landesbank Girozentrale/Westdeutsche Landesbank Girozentrale)
(A-1+/VMIG1)
$22,000,000 2.90% 03/11/99 $ 22,000,000
Long Island Power Authority Electric System Subordinated RB Series 4
(Bayerische Landesbank Girozentrale/Westdeutsche Landesbank Girozentrale)
(A-1+/VMIG1)
24,800,000 3.05 03/09/99 24,800,000
Long Island Power Authority Electric System Subordinated RB Series 6
(Morgan Guaranty Trust Co./ABN/AMRO Bank, N.V.) (A-1+/VMIG1)
16,930,000 4.85 01/04/99 16,930,000
New York City Adjustable Rate GO Bonds Series 1994 B/Subseries B-2 (Morgan
Guaranty Trust) (A-1+/VMIG1)
700,000 5.00 01/04/99 700,000
New York City GO Bonds Fiscal 1995 Series B-5 (MBIA) (A-1+/VMIG1)
2,370,000 5.15 01/04/99 2,370,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
New York (continued)
New York City GO Puttable Tax-Exempt Receipts Series 1995 D (MBIA) (VMIG1)
$ 8,500,000 4.25% 01/07/99 $ 8,500,000
New York City Health & Hospitals Corp. Health System Bonds Series 1997 B
(Canadian Imperial Bank of Commerce) (A-1+/VMIG1)
600,000 3.95 01/07/99 600,000
New York City Transitional Finance Authority Future Tax Secured Bonds
Series 1999 A, Subseries A-1 (A-1+/VMIG1)
5,000,000 4.05 01/07/99 5,000,000
New York City Transitional Finance Authority Future Tax Secured Bonds
Series 1999 A, Subseries A-2 (A-1+/VMIG1)
10,000,000 3.90 01/07/99 10,000,000
New York State Environmental Facility Corp. RB Eagle Tax-Exempt Trust
Series 1994 D, Class A COPS (A-1+)
11,000,000 4.13 01/07/99 11,000,000
Syracuse University IDA RB for Syracuse University Eggers Hall Series 1993
(Morgan Guaranty Trust Co.) (A-1+/VMIG1)
2,600,000 5.00 01/04/99 2,600,000
- -----------------------------------------------------------------------------------------------
$ 104,500,000
- -----------------------------------------------------------------------------------------------
North Carolina--4.0%
Charlotte Variable Rate Airport Refunding RB Series 1993 A (MBIA)
(A-1+/VMIG1)
$ 1,500,000 3.85% 01/07/99 $ 1,500,000
City of Greensboro COPS Series 1998 (A-1+/VMIG1)
5,000,000 4.10 01/07/99 5,000,000
North Carolina State Public School Building Bonds Series 1998A Puttable
Floating Option Tax-Exempt Receipts Series PA 283 (A-1+)
8,750,000 4.10 01/07/99 8,750,000
Person County PCRB for Carolina Power & Light Series 1992 A (A-1/P-1)
16,400,000 4.10 01/07/99 16,400,000
Rockingham County Refunding PCRB for Philip Morris Project Series 1992 (A-
1/P-1)(b)
7,700,000 4.10 01/07/99 7,700,000
Wake County Industrial Facilities & Pollution Control Financing Authority
PCRB for Carolina Power & Light Series 1990 B (Bank of New York)(A-1+/P-
1)
7,000,000 3.15 03/11/99 7,000,000
10,000,000 2.90 03/23/99 10,000,000
10,000,000 2.90 03/24/99 10,000,000
- -----------------------------------------------------------------------------------------------
$ 66,350,000
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Ohio--0.8%
Columbus Electric System RB Series 1994 (Union Bank of Switzerland LOC)
(VMIG1)
$10,900,000 3.30% 02/01/99 $ 10,900,000
Hamilton County Adjustable Rate Hospital Facilities RB for the Health
Alliance of Greater Cincinnati Series 1997 B (MBIA) (A-1+/VMIG1)
2,800,000 4.00 01/07/99 2,800,000
- -----------------------------------------------------------------------------------------------
$ 13,700,000
- -----------------------------------------------------------------------------------------------
Oklahoma--1.4%
Muskogee Industrial Trust Pollution Control for Oklahoma Gas and Electric
Company Project Series 1997 A (A-1+/VMIG1)
$23,500,000 4.05% 01/07/99 $ 23,500,000
- -----------------------------------------------------------------------------------------------
Oregon--1.2%
Oregon Veterans Welfare VRDN Series 73 H (A-1+/VMIG1)
$19,300,000 4.10% 01/07/99 $ 19,300,000
- -----------------------------------------------------------------------------------------------
Pennsylvania--3.0%
Commonwealth of Pennsylvania GO Bonds First Series 1994 Eagle Tax-Exempt
Trust 943804/Class A COPS (AMBAC) (A-1C)
$15,030,000 4.15% 01/07/99 $ 15,030,000
Philadelphia City TRANS Series A 1998-1999 (SP-1+/MIG1)
31,625,000 4.25 06/30/99 31,757,203
Delaware County IDA PCRB for BP Oil, Inc. Project Series 1985
(A-1+/P-1)
4,300,000 5.00 01/04/99 4,300,000
- -----------------------------------------------------------------------------------------------
$ 51,087,203
- -----------------------------------------------------------------------------------------------
South Carolina--1.7%
Piedmont Municipal Power Agency Refunding RB Series 1996 C (MBIA) (A-
1+/VMIG1)
$20,000,000 3.85% 01/07/99 $ 20,000,000
York County Floating/Fixed Rate PCRB Pooled Series 1984-North Carolina
Electric Membership Corp. VRDN (NRU) (A-1+/VMIG1)
8,425,000 4.05 01/07/99 8,425,000
- -----------------------------------------------------------------------------------------------
$ 28,425,000
- -----------------------------------------------------------------------------------------------
Tennessee--0.1%
Blount County IDB PCRB for Aluminum Company of America Series 1992 (A-1)
$2,450,000 4.15% 01/07/99 $ 2,450,000
- -----------------------------------------------------------------------------------------------
Texas--13.2%
City of San Antonio Electric & Gas System Revenue RB Series 1997 SG 104,
SG 105 (A-1+C)
$20,200,000 4.10% 01/07/99 $ 20,200,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Texas (continued)
Coastal Bend Health Facilities Development Corp. for Incarnate Word Health
System RB Series 1998 B (AMBAC) (VMIG1)
$10,100,000 4.05% 01/07/99 $ 10,100,000
Coastal Bend Health Facilities Development Corp. RB Series 1997
(First National Bank of Chicago) (VMIG1)
1,000,000 4.00 01/07/99 1,000,000
Gulf Coast Waste Disposal Authority PCRB for Monsanto Series 1996 (P-1)
5,300,000 4.15 01/07/99 5,300,000
Gulf Coast Waste Disposal Authority PCRB Series 1992 (Amoco Corp.) (A-
1+/VMIG1)
9,575,000 5.10 01/04/99 9,575,000
Harris County Health Facilities Development Corp. RB for Memorial Hospital
System Series 1997 B (MBIA) (A-1+/VMIG1)
3,500,000 3.90 01/07/99 3,500,000
Harris County Health Facilities Development Corp. RB for Methodist
Hospital Series 1994 (A-1+)
5,000,000 5.00 01/04/99 5,000,000
Harris County Health Facilities Development Corp. Unit Priced Demand
Adjustable RB for St. Luke's Episcopal Hospital Series
1997 A (A-1+)
9,800,000 4.85 01/04/99 9,800,000
Harris County IDA PCRB for Exxon Corp. Series 1984 B (A-1+)
11,300,000 5.00 01/04/99 11,300,000
Harris County Toll Road VRDN Series 1994 E (A-1+/VMIG1)
10,700,000 3.95 01/07/99 10,700,000
Harris County Toll Road VRDN Series 1994 F (A-1+/VMIG1)
11,300,000 3.95 01/07/99 11,300,000
San Antonio Electric & Gas System CP Notes Series A (A-1+/P-1)
18,000,000 3.05 03/16/99 18,000,000
10,000,000 3.00 04/08/99 10,000,000
State of Texas TRANS Series 1997 B (A-1+/P-1)
14,000,000 2.95 07/28/99 14,000,000
14,000,000 2.95 08/23/99 14,000,000
State of Texas TRANS Series 1998 (SP-1+/MIG1)
56,000,000 4.50 08/31/99 56,539,392
Waco Health Facilities Development Corp. Variable Rate RB for Charity
Obligation Group Series 1997 E (A-1+/VMIG1)
4,800,000 3.90 01/07/99 4,800,000
West Side Calhoun County Development Corp. PCRB Series 1985
(A-1+/P-1)
5,800,000 5.00 01/04/99 5,800,000
- -----------------------------------------------------------------------------------------------
$ 220,914,392
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
22
<PAGE>
Statement of Investments
- --------------------------------------------------------------------------------
Financial Square Tax-Free Money Market Fund (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Utah--1.9%
Central Utah Water Conservancy District GO Limited Tax Refunding Bonds
Variable Rate Tender Option Bonds Series 1998 F (AMBAC) (A-1+/VMIG1)
$ 6,000,000 3.95% 01/07/99 $ 6,000,000
Salt Lake County PCRB for Service Station/British Petroleum Series 1994 B
(A-1+)
6,800,000 5.00 01/04/99 6,800,000
Utah State Board of Regents Auxiliary and Campus Facilities System RB
Series 1997 A (A-1+/VMIG1)
18,690,000 3.75 01/07/99 18,690,000
- -----------------------------------------------------------------------------------------------
$ 31,490,000
- -----------------------------------------------------------------------------------------------
Virginia--3.5%
Chesterfield County IDA PCRB for Philip Morris Companies, Inc. Series 1992
(A-1/P-1)(b)
$14,700,000 4.10% 01/07/99 $ 14,700,000
Chesterfield County IDA PCRB for Virginia Electric & Power Series 1985 (A-
1/VMIG1)
8,000,000 3.10 01/15/99 8,000,000
Louisa PCRB for Virginia & Electric Power Series 1984 (A-1/VMIG1)
2,000,000 3.15 01/26/99 2,000,000
3,900,000 3.15 01/27/99 3,900,000
4,000,000 3.10 03/17/99 4,000,000
4,000,000 3.15 03/18/99 4,000,000
Roanoke City VRDN for Carilion Health System Hospital Series B (A-1/VMIG1)
6,600,000 5.00 01/04/99 6,600,000
York County IDA PCRB for Virginia Electric & Power Series 1985
(A-1/VMIG1)
5,600,000 3.10 01/15/99 5,600,000
9,000,000 3.00 02/01/99 9,000,000
- -----------------------------------------------------------------------------------------------
$ 57,800,000
- -----------------------------------------------------------------------------------------------
Washington--1.9%
King County Limited Tax GO Bonds Series 1994 A Eagle Tax-Exempt Trust
Series 97C 4701/Class A Certificates (A-1+C)
$ 5,410,000 4.13% 01/07/99 $ 5,410,000
King County Sewer Revenue BANS CP Series A (A-1/P-1)
14,100,000 3.05 03/18/99 14,100,000
Washington Health Care Facilities Authority VRDN for Hutchinson Cancer
Research Center Series 1991 A (Morgan Guaranty Trust LOC) (VMIG1)
6,075,000 5.30 01/04/99 6,075,000
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Washington (continued)
Washington Health Care Facilities Authority VRDN for Fred Hutchinson
Cancer Research Center Series 1996 (Morgan Guaranty Trust LOC) (VMIG1)
$ 6,000,000 5.30% 01/04/99 $ 6,000,000
- ---------------------------------------------------------------------------------------------
$ 31,585,000
- ---------------------------------------------------------------------------------------------
Wisconsin--5.1%
City of Milwaukee Short-Term School Order Notes Series 1998 B
(SP-1+/MIG1)
$48,500,000 4.25% 08/26/99 $ 48,719,616
Milwaukee IDRB Multi-Modal for Pharmacia & Upjohn, Inc.
Series 1994 (P-1)
8,000,000 4.70 01/07/99 8,000,000
Milwaukee Metropolitan Sewage District GO Capital Purpose Bonds Series
1992 A Eagle Tax-Exempt Trust Series 944905 (A-1C)
10,300,000 4.15 01/07/99 10,300,000
State of Wisconsin Operating Notes Series 1998 (SP-1+/MIG1)
12,500,000 4.50 06/15/99 12,578,765
Wisconsin Health & Educational Facilities Authority VRDN for Wheaton
Franciscan Services Series 1997 (Toronto Dominion Bank) (A-1+/VMIG1)
6,575,000 4.00 01/07/99 6,575,000
- ---------------------------------------------------------------------------------------------
$ 86,173,381
- ---------------------------------------------------------------------------------------------
Wyoming--1.6%
Converse County PCRB for PacifiCorp Series 1994 (AMBAC) (A-1/VMIG1)
$ 4,690,000 5.00% 01/04/99 $ 4,690,000
Kemmerer PCRB for Exxon Project Series 1984 (A-1+)
9,400,000 5.10 01/04/99 9,400,000
Lincoln County PCRB for PacifiCorp Project Series 1994 (AMBAC)
(A-1/VMIG1)
4,100,000 5.00 01/04/99 4,100,000
Sweetwater PCRB for Idaho Power Co. Series 1996 C (A-1/VMIG1)
3,400,000 5.15 01/04/99 3,400,000
Uinta County PCRB for Chevron Project Series 1993 (P-1)
5,200,000 5.10 01/04/99 5,200,000
- ---------------------------------------------------------------------------------------------
$ 26,790,000
- ---------------------------------------------------------------------------------------------
Total Investments $1,706,482,755(c)
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Forward commitments.
(b) A portion of this security is segregated for forward commitments.
(c) The amount stated also represents aggregate cost for federal income
tax purposes.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
Interest rates represent either the stated coupon rate, annualized yield on
date of purchase for discounted notes, or, for floating rate securities, the
current resent 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>
AMBAC --Insured by American Municipal Bond Assurance Corp.
COPS --Certificates of Participation
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Insured by Financial Security Assistance 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
NRU LOC --Insured by National Rural Utilities Cooperative Finance Corp.
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
TANS --Tax Anticipation Note
TRANS --Tax Revenue Anticipation Note
VRDN --Variable Rate Demand Note
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
24
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Premium
Obligations Money Market Money Market
Fund Fund Fund
-----------------------------------
<S> <C> <C> <C>
Assets:
Investment in securities, at value
based on amortized cost $6,636,599,406 $6,085,098,505 $621,016,668
Cash 298,327 -- 80,748
Receivables:
Interest 27,706,012 33,999,989 2,181,794
Reimbursement from advisor 450,137 294,071 100,349
Deferred organization expenses, net -- 3,394 --
Other assets 84,694 13,758 --
- -------------------------------------------------------------------------------
Total assets 6,665,138,576 6,119,409,717 623,379,559
- -------------------------------------------------------------------------------
Liabilities:
Due to Bank -- 61,649 --
Payables:
Investment securities purchased -- 100,000,000 --
Income distribution 31,259,879 32,340,715 2,339,046
Management fee 1,114,213 1,131,543 81,432
Accrued expenses and other
liabilities 1,032,401 882,057 208,824
- -------------------------------------------------------------------------------
Total liabilities 33,406,493 134,415,964 2,629,302
- -------------------------------------------------------------------------------
Net Assets:
Paid-in capital 6,631,732,083 5,984,993,753 620,750,257
Accumulated undistributed net
investment income -- -- --
Accumulated net realized gain
(loss) on investment transactions -- -- --
- -------------------------------------------------------------------------------
Net assets $6,631,732,083 $5,984,993,753 $620,750,257
- -------------------------------------------------------------------------------
Net asset value, offering and
redemption price per share
(net assets/shares outstanding) $1.00 $1.00 $1.00
- -------------------------------------------------------------------------------
Shares outstanding:
FST shares 5,831,768,188 4,995,780,038 479,851,439
FST Preferred shares 132,561,671 93,218,173 107,516,022
FST Administration shares 331,197,822 399,471,260 13,727,829
FST Service shares 336,204,402 496,524,282 19,654,967
- -------------------------------------------------------------------------------
Total shares of beneficial interest
outstanding, $.001 par value
(unlimited number of shares
authorized) 6,631,732,083 5,984,993,753 620,750,257
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury Tax-Free
Obligations Instruments Government Federal Money Market
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$5,400,245,358 $866,472,971 $3,092,844,155 $3,639,154,305 $1,706,482,755
3,332 27,082 14,592 4,901 762,747
11,441,856 -- 9,337,823 8,090,270 10,521,899
165,686 89,086 88,747 214,668 68,684
-- -- -- -- 8,495
18,445 1,084 -- 3,117 1,307
- --------------------------------------------------------------------------
5,411,874,677 866,590,223 3,102,285,317 3,647,467,261 1,717,845,887
- --------------------------------------------------------------------------
-- -- -- -- --
-- -- 172,826,151 247,824,722 38,380,000
21,345,388 3,278,932 11,985,692 14,253,493 4,276,340
785,788 131,417 430,250 498,403 236,180
1,041,214 167,150 696,073 704,865 279,077
- --------------------------------------------------------------------------
23,172,390 3,577,499 185,938,166 263,281,483 43,171,597
- --------------------------------------------------------------------------
5,388,702,287 863,008,071 2,916,347,151 3,384,185,270 1,674,687,909
-- -- -- -- --
-- 4,653 -- 508 (13,619)
- --------------------------------------------------------------------------
$5,388,702,287 $863,012,724 $2,916,347,151 $3,384,185,778 $1,674,674,290
- --------------------------------------------------------------------------
$1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------
3,521,332,237 822,206,369 1,563,870,902 2,346,253,833 1,456,015,068
285,244,600 1,616 245,628,297 26,723,880 20,882,055
1,080,496,197 23,673,636 407,360,955 690,084,049 146,800,755
501,629,253 17,126,450 699,486,997 321,123,508 50,990,031
- --------------------------------------------------------------------------
5,388,702,287 863,008,071 2,916,347,151 3,384,185,270 1,674,687,909
- --------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
26
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Statements of Operations
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Premium
Obligations Money Market Money Market
Fund Fund Fund
--------------------------------
<S> <C> <C> <C>
Investment income:
Interest $318,336,858 $338,553,940 $22,796,216
- -------------------------------------------------------------------------------
Expenses:
Management fees 11,710,577 12,445,772 843,317
Custodian fees 552,698 555,902 84,641
Registration fees 819,764 331,256 206,183
Professional fees 41,981 73,465 36,472
Trustee fees 35,073 36,175 10,931
Amortization of deferred organization
expenses -- 9,038 --
Service share fees 1,167,952 2,478,988 49,926
Administration share fees 832,405 947,740 20,162
Preferred share fees 156,506 76,867 102,701
Other 165,425 107,752 20,694
- -------------------------------------------------------------------------------
Total expenses 15,482,381 17,062,955 1,375,027
Less--expenses reimbursed and fees
waived by Goldman Sachs (2,956,784) (2,537,081) (534,957)
- -------------------------------------------------------------------------------
Net expenses 12,525,597 14,525,874 840,070
- -------------------------------------------------------------------------------
Net investment income 305,811,261 324,028,066 21,956,146
- -------------------------------------------------------------------------------
Net realized gain on investment
transactions 78,008 66,176 16,410
- -------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $305,889,269 $324,094,242 $21,972,556
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury Tax-Free
Obligations Instruments Government Federal Money Market
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$251,765,564 $21,275,471 $150,324,658 $137,467,745 $48,952,424
- ----------------------------------------------------------------------------
9,566,416 884,528 5,599,007 5,186,650 2,900,718
517,367 58,559 372,110 314,288 54,454
510,717 219,192 134,697 249,970 201,854
41,553 36,820 39,892 38,967 38,607
28,238 12,231 21,777 19,410 15,405
-- -- -- -- 15,585
2,019,235 97,057 3,225,643 1,312,961 254,984
2,373,198 49,689 845,644 951,754 360,347
307,604 -- 96,834 122,073 93,209
133,448 22,879 63,455 57,032 21,191
- ----------------------------------------------------------------------------
15,497,776 1,380,955 10,399,059 8,253,105 3,956,354
(2,327,675) (449,425) (1,275,663) (1,269,935) (678,201)
- ----------------------------------------------------------------------------
13,170,101 931,530 9,123,396 6,983,170 3,278,153
- ----------------------------------------------------------------------------
238,595,463 20,343,941 141,201,262 130,484,575 45,674,271
- ----------------------------------------------------------------------------
1,450,576 174,690 -- 31,979 1,321
- ----------------------------------------------------------------------------
$240,046,039 $20,518,631 $141,201,262 $130,516,554 $45,675,592
- ----------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
28
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prime Premium
Obligations Money Market Money Market
Fund Fund Fund
----------------------------------------
<S> <C> <C> <C>
From operations:
Net investment income $ 305,811,261 $ 324,028,066 $ 21,956,146
Net realized gain on
investment transactions 78,008 66,176 16,410
- ---------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 305,889,269 324,094,242 21,972,556
- ---------------------------------------------------------------------------------
Distributions to
shareholders from:
Net investment income
FST shares (269,081,520) (276,370,684) (15,650,407)
FST Preferred shares (8,232,389) (4,076,565) (5,432,663)
FST Administration shares (17,131,415) (19,556,691) (410,201)
FST Service shares (11,435,814) (24,091,684) (479,285)
- ---------------------------------------------------------------------------------
Total distributions to
shareholders (305,881,138) (324,095,624) (21,972,556)
- ---------------------------------------------------------------------------------
From share transactions (at
$1.00 per share):
Proceeds from sales of
shares 57,969,401,996 69,898,690,078 5,229,951,088
Reinvestment of dividends
and distributions 93,909,532 166,197,933 14,446,374
Cost of shares repurchased (55,869,833,965) (68,984,229,619) (4,844,668,494)
- ---------------------------------------------------------------------------------
Net increase in net assets
resulting from share
transactions 2,193,477,563 1,080,658,392 399,728,968
- ---------------------------------------------------------------------------------
Total increase 2,193,485,694 1,080,657,010 399,728,968
Net assets:
Beginning of year 4,438,246,389 4,904,336,743 221,021,289
- ---------------------------------------------------------------------------------
End of year $ 6,631,732,083 $ 5,984,993,753 $ 620,750,257
- ---------------------------------------------------------------------------------
Accumulated undistributed
net investment income -- -- --
- ---------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements.
29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury Tax-Free
Obligations Instruments Government Federal Money Market
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 238,595,463 $ 20,343,941 $ 141,201,262 $ 130,484,575 $ 45,674,271
1,450,576 174,690 -- 31,979 1,321
- ----------------------------------------------------------------------------------------
240,046,039 20,518,631 141,201,262 130,516,554 45,675,592
- ----------------------------------------------------------------------------------------
(157,673,844) (18,729,601) (87,893,105) (92,448,326) (36,931,756)
(47,202,665) (78) (4,985,314) (6,428,582) (2,953,491)
(19,083,866) (927,699) (17,131,280) (19,097,019) (4,375,262)
(16,085,664) (857,978) (31,191,563) (12,542,759) (1,413,762)
- ----------------------------------------------------------------------------------------
(240,046,039) (20,515,356) (141,201,262) (130,516,686) (45,674,271)
- ----------------------------------------------------------------------------------------
53,000,555,348 3,317,001,578 29,790,708,579 14,894,751,480 9,696,660,958
91,114,922 8,446,401 37,971,285 64,289,412 19,443,237
(51,218,122,026) (2,983,195,546) (29,278,022,826) (13,748,692,419) (9,161,617,389)
- ----------------------------------------------------------------------------------------
1,873,548,244 342,252,433 550,657,038 1,210,348,473 554,486,806
- ----------------------------------------------------------------------------------------
1,873,548,244 342,255,708 550,657,038 1,210,348,341 554,488,127
3,515,154,043 520,757,016 2,365,690,113 2,173,837,437 1,120,186,163
- ----------------------------------------------------------------------------------------
$ 5,388,702,287 $ 863,012,724 $ 2,916,347,151 $ 3,384,185,778 $ 1,674,674,290
- ----------------------------------------------------------------------------------------
-- -- -- -- --
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
30
<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 --
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 277,995,585 266,262,703 4,194,052
- --------------------------------------------------------------------------------
Distributions to
shareholders 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
investment 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 assets
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 dates of operations for the Premium Money Market, Treasury
Instruments and the Federal Fund were August 1, 1997, March 3, 1997 and
February 28, 1997, respectively.
- --------------------------------------- ---------------------------------------
The accompanying notes are an integral
part of these financial statements
31
<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>
- --------------------------------------- ---------------------------------------
32
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1998
- --------------------------------------- ---------------------------------------
1. Organization
The Goldman Sachs Trust (the "Trust") is a Delaware business trust registered
under the Investment Company Act of 1940 (as amended) as an open-end management
investment company. The Trust includes the Financial Square Funds, collectively
"the Funds" or individually a "Fund". Financial Square consists of nine
diversified funds: Prime Obligations, Money Market, Premium Money Market,
Treasury Obligations, Treasury Instruments, Government, Federal, Tax-Free Money
Market and Municipal Money Market (inactive as of December 31, 1998). 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. In addition, the
Tax-Free Money Market Fund seeks to provide shareholders with a high level of
income exempt from federal income tax.
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, 1998 (tax year-end), the following fund had a capital loss
carryforward for U.S. Federal tax purposes of approximately:
<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
---- ------- ----------
<S> <C> <C>
Tax-Free Money Market....................................... $11,000 2003-2005
</TABLE>
This amount is available to be carried forward to offset future capital gains
to the extent permitted by applicable laws or regulations.
D. Deferred Organization Expenses--
Organization-related costs are 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 the nature of the expense.
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.
---------------------------------------
- ---------------------------------------
33
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
3. Agreements
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), acts as investment adviser (the
"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 Funds' portfolios and administers each Fund's business
affairs, including providing facilities. 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 .205% of each Fund's average daily net assets.
For the year ended December 31, 1998, 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, litigation, indemnification and other
extraordinary expenses) to the extent that such expenses exceed .01% per annum
of each Fund's average daily net assets.
Goldman Sachs serves as Transfer Agent and Distributor of shares of the Funds
pursuant to Transfer Agent and Distribution Agreements and receives no separate
fee.
The following chart outlines the fee waivers and expense reimbursements for
the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Management
Fees Expense
Fund Waived Reimbursements Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prime Obligations $2,000 $957 $2,957
- ------------------------------------------------------------------------------------------
Money Market 2,125 412 2,537
- ------------------------------------------------------------------------------------------
Premium Money Market 224 311 535
- ------------------------------------------------------------------------------------------
Treasury Obligations 1,633 695 2,328
- ------------------------------------------------------------------------------------------
Treasury Instruments 151 298 449
- ------------------------------------------------------------------------------------------
Government 956 320 1,276
- ------------------------------------------------------------------------------------------
Federal 886 384 1,270
- ------------------------------------------------------------------------------------------
Tax-Free Money Market 495 183 678
</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.
---------------------------------------
- ---------------------------------------
34
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
December 31, 1998
- --------------------------------------- ---------------------------------------
5.Line of Credit Facility
The Funds participate in a $250,000,000 uncommitted, unsecured revolving line
of credit facility to be used solely for temporary or emergency purposes. 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, 1998, 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.
At December 31, 1998, the Prime Obligations, Money Market, Premium Money
Market, Treasury Obligations and Government Funds had undivided interests in
the repurchase agreements held in the following joint account, which equaled
$201,300,000, $36,200,000, $182,800,000, $1,678,200,000 and $314,000,000 in
principal amount, respectively. At December 31, 1998, the repurchase agreements
held in this joint account were fully collateralized by U.S. Treasury
obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Donaldson, Lufkin & Jenrette, Inc.
$1,285,000,000 4.95% 01/04/1999 $1,285,000,000
Goldman, Sachs & Co.
500,000,000 4.75 01/04/1999 500,000,000
SBC Warburg Dillon Read Corp.
500,000,000 4.70 01/04/1999 500,000,000
1,098,400,000 4.75 01/04/1999 1,098,400,000
- -----------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account $3,383,400,000
- -----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the Prime Obligations, Premium Money Market, and
Government Funds had undivided interests in the repurchase agreements in the
following joint account II, which equaled $700,000,000 and $50,000,000, and
$200,000,000 in principal amount, respectively. At December 31, 1998, the
following repurchase agreements held in the following joint account were fully
collateralized by Federal Agency obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Amount Rate Date Cost
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ABN/AMRO, Inc.
$120,000,000 5.15% 01/04/1999 $ 120,000,000
Deutsche Bank
77,300,000 5.07 01/04/1999 77,300,000
Donaldson, Lufkin & Jenrette, Inc.
150,000,000 4.95 01/04/1999 150,000,000
J.P. Morgan Securities, Inc.
700,000,000 4.75 01/04/1999 700,000,000
Morgan Stanley & Co.
200,000,000 4.95 01/04/1999 200,000,000
NationsBanc Montgomery Securities LLC
125,000,000 5.15 01/04/1999 125,000,000
- ---------------------------------------------------------------------------------------------
Total Joint Repurchase Agreement Account II $1,372,300,000
- ---------------------------------------------------------------------------------------------
</TABLE>
---------------------------------------
- ---------------------------------------
35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
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 annual limitations as follows: 25% of eligible security
transactions, as defined, and 10% of repurchase agreement transactions.
9. Certain Reclassifications
In accordance with Statement of Position 93-2, the Financial Square Federal
Fund has reclassified $8,313 from accumulated undistributed net investment
income to accumulated net realized loss. This reclassification has no impact on
the net asset value of the Fund and is designed to present the Fund's capital
accounts on a tax basis.
---------------------------------------
- ---------------------------------------
36
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
December 31, 1998
- --------------------------------------------------------------------------------
10. Summary of Share Transactions (at $1.00 per share)
Share activity for the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Prime Premium
Obligations Money Market Money Market
Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FST shares:
Shares sold 50,577,781,681 64,642,205,884 4,885,235,788
Reinvestment of dividends
and distributions 81,013,084 145,091,154 9,694,829
Shares repurchased (48,694,767,051) (64,138,032,706) (4,633,271,570)
-----------------------------------------
1,964,027,714 649,264,332 261,659,047
- -------------------------------------------------------------------------------
FST Preferred shares:
Shares sold 1,635,375,108 587,335,211 212,622,508
Reinvestment of dividends
and distributions 1,663,959 3,560,753 4,477,152
Shares repurchased (1,657,247,424) (517,936,393) (110,141,465)
-----------------------------------------
(20,208,357) 72,959,571 106,958,195
- -------------------------------------------------------------------------------
FST Administration shares:
Shares sold 2,386,485,745 2,258,106,370 37,942,427
Reinvestment of dividends
and distributions 5,232,944 13,668,515 128,617
Shares repurchased (2,302,131,386) (2,093,556,998) (25,799,913)
-----------------------------------------
89,587,303 178,217,887 12,271,131
- -------------------------------------------------------------------------------
FST Service shares:
Shares sold 3,369,759,462 2,411,042,613 94,150,365
Reinvestment of dividends
and distributions 5,999,545 3,877,511 145,776
Shares repurchased (3,215,688,104) (2,234,703,522) (75,455,546)
-----------------------------------------
160,070,903 180,216,602 18,840,595
- -------------------------------------------------------------------------------
Net increase in shares 2,193,477,563 1,080,658,392 399,728,968
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
37
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Treasury Treasury Tax-Free
Obligations Instruments Government Federal Money Market
Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
38,811,128,138 3,155,786,943 19,929,403,199 10,287,288,538 8,343,229,377
53,825,326 7,667,006 28,357,386 45,213,214 17,430,024
(37,561,525,035) (2,837,666,325) (19,872,424,728) (9,111,928,825) (7,844,065,473)
- -----------------------------------------------------------------------------------
1,303,428,429 325,787,624 85,335,857 1,220,572,927 516,593,928
- -----------------------------------------------------------------------------------
2,747,117,320 -- 1,063,864,036 138,883,456 451,367,441
6,885,153 77 2,648,231 7,188,094 155,091
(2,714,118,870) -- (828,030,762) (313,722,647) (465,792,140)
- -----------------------------------------------------------------------------------
39,883,603 77 238,481,505 (167,651,097) (14,269,608)
- -----------------------------------------------------------------------------------
5,954,832,820 69,117,817 5,103,623,628 2,165,279,603 557,825,919
16,115,116 770,968 4,155,641 6,022,375 1,389,127
(5,629,346,838) (50,374,164) (5,000,220,220) (2,106,551,874) (515,464,054)
- -----------------------------------------------------------------------------------
341,601,098 19,514,621 107,559,049 64,750,104 43,750,992
- -----------------------------------------------------------------------------------
5,487,477,070 92,096,818 3,693,817,716 2,303,299,883 344,238,221
14,289,327 8,350 2,810,027 5,865,729 468,995
(5,313,131,283) (95,155,057) (3,577,347,116) (2,216,489,073) (336,295,722)
- -----------------------------------------------------------------------------------
188,635,114 (3,049,889) 119,280,627 92,676,539 8,411,494
- -----------------------------------------------------------------------------------
1,873,548,244 342,252,433 550,657,038 1,210,348,473 554,486,806
- -----------------------------------------------------------------------------------
</TABLE>
- --------------------------------------- ---------------------------------------
38
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
December 31, 1998
- --------------------------------------------------------------------------------
10. Summary of Share Transactions (at $1.00 per share) (continued)
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) --
----------------------------------------
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) --
----------------------------------------
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.
- --------------------------------------- ---------------------------------------
39
<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) -- (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>
- --------------------------------------- ---------------------------------------
40
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
Prime Obligations Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... $1.00 $0.05 $(0.05) $1.00 5.55% $5,831,773 0.18% 5.39%
1998-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.45 132,558 0.28 5.26
1998-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.29 331,196 0.43 5.14
1998-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 5.03 336,205 0.68 4.89
- --------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.60 3,867,739 0.18 5.46
1997-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.50 152,767 0.28 5.38
1997-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.34 241,607 0.43 5.22
1997-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 5.08 176,133 0.68 4.97
- --------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.41 3,901,797 0.18 5.29
1996-FST Pre-
ferred Shares
(commenced May
1).............. 1.00 0.03 (0.03) 1.00 5.28(c) 127,126 0.28(c) 5.19(c)
1996-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.14 215,898 0.43 5.06
1996-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.88 115,114 0.68 4.78
- --------------------------------------------------------------------------------------------------------------
1995-FST
shares.......... 1.00 0.06 (0.06) 1.00 6.02 3,295,791 0.18 5.86
1995-FST Admin-
istration
shares.......... 1.00 0.06 (0.06) 1.00 5.75 147,894 0.43 5.59
1995-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 5.49 65,278 0.68 5.33
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,(d)
- ------------------------------------
1994-FST
shares.......... 1.00 0.04 (0.04) 1.00 4.38(c) 2,774,849 0.18(c) 4.38(c)
1994-FST Pre-
ferred Shares... 1.00 0.04 (0.04) 1.00 4.12(c) 66,113 0.43(c) 4.18(c)
1994-FST Service
shares.......... 1.00 0.04 (0.04) 1.00 3.86(c) 41,372 0.68(c) 3.98(c)
- --------------------------------------------------------------------------------------------------------------
For the Years Ended January 31,
- -------------------------------
1994-FST
shares.......... 1.00 0.03 (0.03) 1.00 3.18 1,831,413 0.17 3.11
1994-FST Admin-
istration
shares.......... 1.00 0.03 (0.03) 1.00 2.92 35,250 0.42 2.86
1994-FST Service
shares.......... 1.00 0.03 (0.03) 1.00 2.66 14,001 0.67 2.61
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net
Ratio of investment
expenses to income to
average net average net
assets assets
------------------------------------------------------------------------------------------
<S> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... 0.24% 5.33%
1998-FST Pre-
ferred shares... 0.34 5.20
1998-FST Admin-
istration
shares.......... 0.49 5.08
1998-FST Service
shares.......... 0.74 4.83
- --------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 0.23 5.41
1997-FST Pre-
ferred shares... 0.33 5.33
1997-FST Admin-
istration
shares.......... 0.48 5.17
1997-FST Service
shares.......... 0.73 4.92
- --------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 0.23 5.24
1996-FST Pre-
ferred Shares
(commenced May
1).............. 0.33(c) 5.14(c)
1996-FST Admin-
istration
shares.......... 0.48 5.01
1996-FST Service
shares.......... 0.73 4.73
- --------------------------------------------------------------------------------------------------------------
1995-FST
shares.......... 0.22 5.82
1995-FST Admin-
istration
shares.......... 0.47 5.55
1995-FST Service
shares.......... 0.72 5.29
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,(d)
- ------------------------------------
1994-FST
shares.......... 0.24(c) 4.32(c)
1994-FST Pre-
ferred Shares... 0.49(c) 4.12(c)
1994-FST Service
shares.......... 0.74(c) 3.92(c)
- --------------------------------------------------------------------------------------------------------------
For the Years Ended January 31,
- -------------------------------
1994-FST
shares.......... 0.25 3.03
1994-FST Admin-
istration
shares.......... 0.50 2.78
1994-FST Service
shares.......... 0.75 2.53
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
(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 Trust (formerly Goldman Sachs Money
Market Trust).
- -------------------------------------------------------------------------------
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
Money Market Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... $1.00 $0.05 $(0.05) $1.00 5.55% $4,995,782 0.18% 5.40%
1998-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.45 93,218 0.28 5.30
1998-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.29 399,474 0.43 5.16
1998-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 5.03 496,520 0.68 4.86
- --------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 1.00 0.06 (0.06) 1.00 5.63 4,346,519 0.18 5.50
1997-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.53 20,258 0.28 5.44
1997-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.37 221,256 0.43 5.26
1997-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 5.11 316,304 0.68 4.99
- --------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.45 2,540,366 0.18 5.33
1996-FST Pre-
ferred shares
(commenced May
1).............. 1.00 0.03 (0.03) 1.00 5.31(c) 17,510 0.28(c) 5.23(c)
1996-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.19 165,766 0.43 5.04
1996-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.93 234,376 0.68 4.84
- --------------------------------------------------------------------------------------------------------------
1995-FST
Shares.......... 1.00 0.06 (0.06) 1.00 6.07 2,069,197 0.15 5.89
1995-FST Admin-
istration
shares.......... 1.00 0.06 (0.06) 1.00 5.80 137,412 0.40 5.61
1995-FST Service
shares (com-
menced July
14)............. 1.00 0.02 (0.02) 1.00 5.41(c) 4,219 0.65(c) 4.93(c)
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1994-FST shares
(commenced May
18)............. 1.00 0.03 (0.03) 1.00 4.91(c) 862,971 0.11(c) 4.88(c)
1994-FST Admin-
istration shares
(commenced May
20)............. 1.00 0.03 (0.03) 1.00 4.65(c) 66,560 0.36(c) 4.82(c)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net
Ratio of investment
expenses to income to
average net average net
assets assets
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... 0.23% 5.35%
1998-FST Pre-
ferred shares... 0.33 5.25
1998-FST Admin-
istration
shares.......... 0.48 5.11
1998-FST Service
shares.......... 0.73 4.81
- --------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 0.23 5.45
1997-FST Pre-
ferred shares... 0.33 5.39
1997-FST Admin-
istration
shares.......... 0.48 5.21
1997-FST Service
shares.......... 0.73 4.94
- --------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 0.23 5.28
1996-FST Pre-
ferred shares
(commenced May
1).............. 0.33(c) 5.18(c)
1996-FST Admin-
istration
shares.......... 0.48 4.99
1996-FST Service
shares.......... 0.73 4.79
- --------------------------------------------------------------------------------------------------------------
1995-FST
Shares.......... 0.23 5.81
1995-FST Admin-
istration
shares.......... 0.48 5.53
1995-FST Service
shares (com-
menced July
14)............. 0.73(c) 4.85(c)
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1994-FST shares
(commenced May
18)............. 0.25(c) 4.74(c)
1994-FST Admin-
istration shares
(commenced May
20)............. 0.50(c) 4.68(c)
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
42
<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>
Net
assets at Ratio of net
Net asset Net asset end Ratio of net investment
value at Net Distributions value at of period expenses to income to
beginning investment to end Total (in average net average net
of period income(a) shareholders of period return(b) 000's) assets assets
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31,
- -------------------------------
1998-FST
shares......... $1.00 $0.05 $(0.05) $1.00 5.55% $479,851 0.16% 5.38%
1998-FST Pre-
ferred shares.. 1.00 0.05 (0.05) 1.00 5.45 107,517 0.26 5.29
1998-FST Admin-
istration
shares......... 1.00 0.05 (0.05) 1.00 5.29 13,728 0.41 5.08
1998-FST Service
shares......... 1.00 0.05 (0.05) 1.00 5.03 19,655 0.66 4.79
- ------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1997-FST shares
(commenced
August 1)...... 1.00 0.02 (0.02) 1.00 5.73(c) 218,192 0.08(c) 5.59(c)
1997-FST
Preferred
Shares
(commenced
August 1)...... 1.00 0.02 (0.02) 1.00 5.62(c) 558 0.18(c) 5.50(c)
1997-FST
Administration
shares
(commenced
August 1)...... 1.00 0.02 (0.02) 1.00 5.47(c) 1,457 0.33(c) 5.33(c)
1997-FST Service
shares
(commenced
August 1)...... 1.00 0.02 (0.02) 1.00 5.20(c) 814 0.58(c) 5.17(c)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net
Ratio of investment
expenses to income to
average net average net
assets assets
-------------------------------------------------------------------------------
<S> <C> <C>
For the Year Ended December 31,
- -------------------------------
1998-FST
shares......... 0.29% 5.25%
1998-FST Pre-
ferred shares.. 0.39 5.16
1998-FST Admin-
istration
shares......... 0.54 4.95
1998-FST Service
shares......... 0.79 4.66
- ------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1997-FST shares
(commenced
August 1)...... 0.43(c) 5.24(c)
1997-FST
Preferred
Shares
(commenced
August 1)...... 0.53(c) 5.15(c)
1997-FST
Administration
shares
(commenced
August 1)...... 0.68(c) 4.98(c)
1997-FST Service
shares
(commenced
August 1)...... 0.93(c) 4.82(c)
</TABLE>
- ------
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Obligations Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Net asset Net asset assets at Ratio of net
value at Net Distributions value at end expenses to
beginning investment to end Total of period average net
of period income(a) shareholders of period return(b) (in 000's) assets
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... $1.00 $0.05 $(0.05) $1.00 5.40% $3,521,389 0.18%
1998-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.29 285,240 0.28
1998-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.14 1,080,454 0.43
1998-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.87 501,619 0.68
- --------------------------------------------------------------------------------------------------
1997-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.50 2,217,943 0.18
1997-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.40 245,355 0.28
1997-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.24 738,865 0.43
1997-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.98 312,991 0.68
- --------------------------------------------------------------------------------------------------
1996-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.35 2,291,051 0.18
1996-FST Pre-
ferred
shares (commenced
May 1).......... 1.00 0.03 (0.03) 1.00 5.24(c) 46,637 0.28(c)
1996-FST Admin-
istration shares
................. 1.00 0.05 (0.05) 1.00 5.09 536,895 0.43
1996-FST Service
shares ......... 1.00 0.05 (0.05) 1.00 4.83 220,560 0.68
- --------------------------------------------------------------------------------------------------
1995-FST shares
................. 1.00 0.06 (0.06) 1.00 5.96 1,587,715 0.18
1995-FST Admin-
istration shares
................. 1.00 0.06 (0.06) 1.00 5.69 283,186 0.43
1995-FST Service
shares ......... 1.00 0.05 (0.05) 1.00 5.43 139,117 0.68
- --------------------------------------------------------------------------------------------------
For the Period Ended December 31,(d)
- ------------------------------------
1994-FST
shares ......... 1.00 0.04 (0.04) 1.00 4.23(c) 958,196 0.18(c)
1994-FST Admin-
istration
shares ......... 1.00 0.04 (0.04) 1.00 3.97(c) 82,124 0.43(c)
1994-FST Service
shares ......... 1.00 0.03 (0.03) 1.00 3.71(c) 81,162 0.68(c)
- --------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
1994-FST
shares.......... 1.00 0.03 (0.03) 1.00 3.11 812,420 0.17
1994-FST Admin-
istration shares
................. 1.00 0.03 (0.03) 1.00 2.85 24,485 0.42
1994-FST Service
shares ......... 1.00 0.03 (0.03) 1.00 2.60 35,656 0.67
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net Ratio of net
investment Ratio of investment
income to expenses to income to
average net average net average net
assets assets assets
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... 5.22% 0.23% 5.17%
1998-FST Pre-
ferred shares... 5.20 0.33 5.15
1998-FST Admin-
istration
shares.......... 4.94 0.48 4.89
1998-FST Service
shares.......... 4.69 0.73 4.64
- --------------------------------------------------------------------------------------------------
1997-FST
shares.......... 5.36 0.23 5.31
1997-FST Pre-
ferred shares... 5.32 0.33 5.27
1997-FST Admin-
istration
shares.......... 5.12 0.48 5.07
1997-FST Service
shares.......... 4.87 0.73 4.82
- --------------------------------------------------------------------------------------------------
1996-FST
shares.......... 5.22 0.24 5.16
1996-FST Pre-
ferred
shares (commenced
May 1).......... 5.11(c) 0.34(c) 5.05(c)
1996-FST Admin-
istration shares
................. 4.97 0.49 4.91
1996-FST Service
shares ......... 4.72 0.74 4.66
- --------------------------------------------------------------------------------------------------
1995-FST shares
................. 5.73 0.23 5.68
1995-FST Admin-
istration shares
................. 5.47 0.48 5.42
1995-FST Service
shares ......... 5.21 0.73 5.16
- --------------------------------------------------------------------------------------------------
For the Period Ended December 31,(d)
- ------------------------------------
1994-FST
shares ......... 4.13(c) 0.25(c) 4.06(c)
1994-FST Admin-
istration
shares ......... 4.24(c) 0.50(c) 4.17(c)
1994-FST Service
shares ......... 3.82(c) 0.75(c) 3.75(c)
- --------------------------------------------------------------------------------------------------
For the Year Ended January 31,
- ------------------------------
1994-FST
shares.......... 3.01 0.24 2.94
1994-FST Admin-
istration shares
................. 2.76 0.49 2.69
1994-FST Service
shares ......... 2.51 0.74 2.44
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
(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 Trust (formerly Goldman Sachs Money
Market Trust).
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Treasury Instruments Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
assets at Ratio of net
Net asset Net asset end Ratio of net investment
value at Net Distributions value at of period expenses to income to
beginning investment to end Total (in average net average net
of period income(a) shareholders of period return(b) 000's) assets assets
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31,
- -------------------------------
1998-FST
shares.......... $1.00 $0.05 $(0.05) $1.00 5.05% $822,207 0.18% 4.74%
1998-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 4.94 2 0.28 4.68
1998-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 4.79 23,676 0.43 4.62
1998-FST Service
shares.......... 1.00 0.04 (0.04) 1.00 4.53 17,128 0.68 4.37
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1997-FST
shares (commenced
March 3)........ 1.00 0.04 (0.04) 1.00 5.25(c) 496,419 0.18(c) 5.09(c)
1997-FST Pre-
ferred shares
(commenced May
30)............. 1.00 0.03 (0.03) 1.00 5.13(c) 2 0.28(c) 5.00(c)
1997-FST Admin-
istration shares
(commenced April
1).............. 1.00 0.04 (0.04) 1.00 4.99(c) 4,159 0.43(c) 4.84(c)
1997-FST Service
shares (com-
menced
March 5)........ 1.00 0.04 (0.04) 1.00 4.71(c) 20,177 0.68(c) 4.62(c)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net
Ratio of investment
expenses to income to
average net average net
assets assets
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended December 31,
- -------------------------------
1998-FST
shares.......... 0.29% 4.63%
1998-FST Pre-
ferred shares... 0.39 4.57
1998-FST Admin-
istration
shares.......... 0.54 4.51
1998-FST Service
shares.......... 0.79 4.26
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1997-FST
shares (commenced
March 3)........ 0.29(c) 4.98(c)
1997-FST Pre-
ferred shares
(commenced May
30)............. 0.39(c) 4.89(c)
1997-FST Admin-
istration shares
(commenced April
1).............. 0.54(c) 4.73(c)
1997-FST Service
shares (com-
menced
March 5)........ 0.79(c) 4.51(c)
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Government Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... $1.00 $0.05 $(0.05) $1.00 5.46% $1,563,875 0.18% 5.32%
1998-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.36 245,628 0.28 5.15
1998-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.20 407,363 0.43 5.06
1998-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.94 699,481 0.68 4.83
- -----------------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.54 1,478,539 0.18 5.41
1997-FST Pre-
ferred shares... 1.00 0.05 (0.05) 1.00 5.43 7,147 0.28 5.34
1997-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.28 299,804 0.43 5.15
1997-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 5.02 580,200 0.68 4.91
- -----------------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 1.00 0.05 (0.05) 1.00 5.38 858,769 0.18 5.25
1996-FST Pre-
ferred shares
(commenced May
1).............. 1.00 0.03 (0.03) 1.00 5.26(c) 112 0.28(c) 5.14(c)
1996-FST Admin-
istration
shares.......... 1.00 0.05 (0.05) 1.00 5.12 145,108 0.43 5.01
1996-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.86 223,554 0.68 4.74
- -----------------------------------------------------------------------------------------------------------------------
1995-FST
shares.......... 1.00 0.06 (0.06) 1.00 6.00 743,884 0.18 5.81
1995-FST Admin-
istration
shares.......... 1.00 0.06 (0.06) 1.00 5.74 82,386 0.43 5.54
1995-FST Service
shares (com-
menced May 16).. 1.00 0.03 (0.03) 1.00 5.40(c) 14,508 0.68(c) 5.08(c)
- -----------------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,(d)
- ------------------------------------
1994-FST
shares.......... 1.00 0.04 (0.04) 1.00 4.36(c) 258,350 0.15(c) 4.64(c)
1994-FST Admin-
istration
shares.......... 1.00 0.04 (0.04) 1.00 4.10(c) 54,253 0.40(c) 4.67(c)
- -----------------------------------------------------------------------------------------------------------------------
For the Period Ended January 31,
- --------------------------------
1993-FST shares
(commenced April
6).............. 1.00 0.03 (0.03) 1.00 3.14(c) 44,697 0.08(c) 3.10(c)
1993-FST
Administration
shares
(commenced September 1).. 1.00 0.01 (0.01) 1.00 2.87(c) 14,126 0.35(c) 2.85(c)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net
Ratio of investment
expenses to income to
average net average net
assets assets
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... 0.23% 5.27%
1998-FST Pre-
ferred shares... 0.33 5.10
1998-FST Admin-
istration
shares.......... 0.48 5.01
1998-FST Service
shares.......... 0.73 4.78
- -----------------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 0.24 5.35
1997-FST Pre-
ferred shares... 0.34 5.28
1997-FST Admin-
istration
shares.......... 0.49 5.09
1997-FST Service
shares.......... 0.74 4.85
- -----------------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 0.24 5.19
1996-FST Pre-
ferred shares
(commenced May
1).............. 0.34(c) 5.08(c)
1996-FST Admin-
istration
shares.......... 0.49 4.95
1996-FST Service
shares.......... 0.74 4.68
- -----------------------------------------------------------------------------------------------------------------------
1995-FST
shares.......... 0.24 5.75
1995-FST Admin-
istration
shares.......... 0.49 5.48
1995-FST Service
shares (com-
menced May 16).. 0.74(c) 5.02(c)
- -----------------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,(d)
- ------------------------------------
1994-FST
shares.......... 0.25(c) 4.54(c)
1994-FST Admin-
istration
shares.......... 0.50(c) 4.57(c)
- -----------------------------------------------------------------------------------------------------------------------
For the Period Ended January 31,
- --------------------------------
1993-FST shares
(commenced April
6).............. 0.59(c) 2.59(c)
1993-FST
Administration
shares
(commenced September 1).. 0.76(c) 2.44(c)
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
(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 Trust (formerly Goldman Sachs Money
Market Trust).
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
Goldman Sachs Trust--Financial Square Funds
- -------------------------------------------------------------------------------
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Period
Federal Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Net Asset Net asset assets at Ratio of net
value at Net Distributions value at end expenses to
beginning investment to end Total of period average net
of period income(a) shareholders of period return(b) (in 000's) assets
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31,
- -------------------------------
1998-FST
shares.......... $1.00 $0.05 $(0.05) $1.00 5.41% $2,346,254 0.18%
1998-FST
Preferred
shares.......... 1.00 0.05 (0.05) 1.00 5.31 26,724 0.28
1998-FST
Administration
shares.......... 1.00 0.05 (0.05) 1.00 5.15 690,084 0.43
1998-FST Service
shares.......... 1.00 0.05 (0.05) 1.00 4.89 321,124 0.68
- ------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1997-FST shares
(commenced
February 28).... 1.00 0.05 (0.05) 1.00 5.51(c) 1,125,681 0.18(c)
1997-FST
Preferred shares
(commenced May
30)............. 1.00 0.03 (0.03) 1.00 5.43(c) 194,375 0.28(c)
1997-FST
Administration
shares
(commenced April
1).............. 1.00 0.04 (0.04) 1.00 5.27(c) 625,334 0.43(c)
1997-FST Service
shares
(commenced March
25)............. 1.00 0.04 (0.04) 1.00 5.00(c) 228,447 0.68(c)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net Ratio of net
investment Ratio of investment
income to expenses to income to
average net average net average net
assets assets assets
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31,
- -------------------------------
1998-FST
shares.......... 5.24% 0.24% 5.18%
1998-FST
Preferred
shares.......... 5.20 0.34 5.14
1998-FST
Administration
shares.......... 5.02 0.49 4.96
1998-FST Service
shares.......... 4.78 0.74 4.72
- ------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1997-FST shares
(commenced
February 28).... 5.39(c) 0.27(c) 5.30(c)
1997-FST
Preferred shares
(commenced May
30)............. 5.26(c) 0.37(c) 5.17(c)
1997-FST
Administration
shares
(commenced April
1).............. 5.15(c) 0.52(c) 5.06(c)
1997-FST Service
shares
(commenced March
25)............. 4.78(c) 0.77(c) 4.69(c)
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
47
<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>
Net Ratio of net
Net asset Net asset assets at Ratio of net investment
value at Net Distributions value at end expenses to income to
beginning investment to end Total of period average net average net
of period income(a) shareholders of period return(b) (in 000's) assets assets
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... $1.00 $0.03 $(0.03) $1.00 3.34% $1,456,002 0.18% 3.28%
1998-FST Pre-
ferred shares... 1.00 0.03 (0.03) 1.00 3.24 20,882 0.28 3.17
1998-FST Admin-
istration
shares.......... 1.00 0.03 (0.03) 1.00 3.08 146,800 0.43 3.04
1998-FST Service
shares.......... 1.00 0.03 (0.03) 1.00 2.83 50,990 0.68 2.77
- --------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 1.00 0.04 (0.04) 1.00 3.54 939,407 0.18 3.50
1997-FST Pre-
ferred shares... 1.00 0.03 (0.03) 1.00 3.43 35,152 0.28 3.39
1997-FST Admin-
istration
shares.......... 1.00 0.03 (0.03) 1.00 3.28 103,049 0.43 3.27
1997-FST Service
shares.......... 1.00 0.03 (0.03) 1.00 3.02 42,578 0.68 3.01
- --------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 1.00 0.03 (0.03) 1.00 3.39 440,838 0.18 3.35
1996-FST Pre-
ferred shares
(commenced May
1).............. 1.00 0.02 (0.02) 1.00 3.30(c) 28,731 0.28(c) 3.26(c)
1996-FST Admin-
istration shares
................. 1.00 0.03 (0.03) 1.00 3.13 51,661 0.43 3.10
1996-FST Service
shares.......... 1.00 0.03 (0.03) 1.00 2.88 19,855 0.68 2.85
- --------------------------------------------------------------------------------------------------------------
1995-FST
shares.......... 1.00 0.04 (0.04) 1.00 3.89 448,367 0.14 3.81
1995-FST Admin-
istration
shares.......... 1.00 0.04 (0.04) 1.00 3.63 20,939 0.39 3.54
1995-FST Service
shares.......... 1.00 0.03 (0.03) 1.00 3.38 19,860 0.64 3.32
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1994-FST shares
(commenced July
19)............. 1.00 0.02 (0.02) 1.00 3.41(c) 183,570 0.07(c) 3.42(c)
1994-FST Admin-
istration shares
(commenced Au-
gust 1)......... 1.00 0.01 (0.01) 1.00 3.19(c) 2,042 0.32(c) 3.25(c)
1994-FST Service
shares (com-
menced September
23)............. 1.00 0.01 (0.01) 1.00 3.11(c) 2,267 0.57(c) 3.32(c)
<CAPTION>
Ratios assuming no
waiver of fees and no
expense limitations
------------------------
Ratio of net
Ratio of investment
expenses to income to
average net average net
assets assets
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended December 31,
- --------------------------------
1998-FST
shares.......... 0.23% 3.23%
1998-FST Pre-
ferred shares... 0.33 3.12
1998-FST Admin-
istration
shares.......... 0.48 2.99
1998-FST Service
shares.......... 0.73 2.72
- --------------------------------------------------------------------------------------------------------------
1997-FST
shares.......... 0.24 3.44
1997-FST Pre-
ferred shares... 0.34 3.33
1997-FST Admin-
istration
shares.......... 0.49 3.21
1997-FST Service
shares.......... 0.74 2.95
- --------------------------------------------------------------------------------------------------------------
1996-FST
shares.......... 0.23 3.30
1996-FST Pre-
ferred shares
(commenced May
1).............. 0.33(c) 3.21(c)
1996-FST Admin-
istration shares
................. 0.48 3.05
1996-FST Service
shares.......... 0.73 2.80
- --------------------------------------------------------------------------------------------------------------
1995-FST
shares.......... 0.24 3.71
1995-FST Admin-
istration
shares.......... 0.49 3.44
1995-FST Service
shares.......... 0.74 3.22
- --------------------------------------------------------------------------------------------------------------
For the Period Ended December 31,
- ---------------------------------
1994-FST shares
(commenced July
19)............. 0.31(c) 3.18(c)
1994-FST Admin-
istration shares
(commenced Au-
gust 1)......... 0.56(c) 3.01(c)
1994-FST Service
shares (com-
menced September
23)............. 0.81(c) 3.08(c)
</TABLE>
- ----
(a) Calculated based on the average shares outstanding methodology.
(b) 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.
(c) Annualized.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
- --------------------------------------- ---------------------------------------
Goldman Sachs Trust--Financial Square Funds
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------------
To the Shareholders and Board of Trustees of
Goldman Sachs Trust--Financial Square Funds:
We have audited the accompanying statements of assets and liabilities of
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,
1998, and the related statements of operations and the statements of changes in
net assets and the financial highlights for the periods presented. These
financial statements and the financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and 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, 1998, the results of their operations and the changes
in their net assets and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 12, 1999
49
<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.
- --------------------------------------------------------------------------------
50
<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
Jesse H. Cole, Vice President
James A. Fitzpatrick, Vice President
Anne E. Marcel, Vice President
Nancy L. Mucker, Vice President
John M. Perlowski, Treasurer
Michael J. Richman, Secretary
Howard B. Surloff, Assistant Secretary
Valerie A. Zondorak, Assistant Secretary
GOLDMAN SACHS
Investment Adviser,
Distributor and Transfer Agent
Goldman Sachs Funds
One New York Plaza, 41st Floor
New York, NY 10004
[LOGO] Goldman
Sachs
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The following summarizes the rating categories used by Standard
and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be
A-1
<PAGE>
evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating categories.
The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps employs
three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.
A-2
<PAGE>
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation indicates
that the capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates that
default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
A-3
<PAGE>
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest category and
indicates a very high likelihood that principal and interest will be paid on a
timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-highest
category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest investment-
grade category and indicates that while the obligation is more susceptible to
adverse developments (both internal and external) than those with higher
ratings, the capacity to service principal and interest in a timely fashion is
considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest rating
category and indicates that the obligation is regarded as non-investment grade
and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for corporate
and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
A-4
<PAGE>
"BBB" - An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to nonpayment.
"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
A-5
<PAGE>
"D" - An obligation rated "D" is in payment default. The "D" rating category
is used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards. Together with
the "Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
A-6
<PAGE>
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
"BBB" - Debt possesses below-average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or
A-7
<PAGE>
preferred dividends. Debt rated "DD" is a defaulted debt obligation, and the
rating "DP" represents preferred stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A," "BBB,"
"BB," and "B" ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that there
is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC," and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
A-8
<PAGE>
"DDD," "DD," and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA ratings
from and including "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay principal and
interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade category and
indicates an acceptable capacity to repay principal and interest. Issues rated
"BBB" are more vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a plus
or minus sign designation which indicates where within the respective category
the issue is placed.
A-9
<PAGE>
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Ratings Group for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to pay
principal and interest. Those issues determined to possess very strong
characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity to
pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk.
The following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins of
protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
A-10
<PAGE>
"MIG-4"/"VMIG-4" - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments in this
category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-11
<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.
A-1
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING
AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and securities
firm with a number of distinguishing characteristics.
.. Privately owned and ranked among Wall Street's best capitalized firms, with
partners' capital of approximately $6.1 billion as of November 28, 1997.
.. With thirty-seven offices worldwide, Goldman Sachs employs over 11,000
professionals focused on opportunities in major markets.
.. The number one underwriter of all international equity issuers from (1993-
1996).
.. A research budget of $200 million for 1997.
.. Premier lead manager of negotiated municipal bond offerings over the past
six years (1990-1996).
.. The number one lead manager of U.S. common stock offerings for the past
eight years (1989-1996).
.. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1996).
A-2
<PAGE>
.. SOURCE: SECURITIES DATA CORPORATION. COMMON STOCK RANKING EXCLUDES REITS,
------------------------------------
INVESTMENT TRUSTS AND RIGHTS.
A-3
<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 Goldman Sachs opens London office
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Goldman Sachs provides advisory services for the largest privatization
in the region of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche 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
- --------------------------- COMPARISON OF FOOTNOTES ----------------------------
- ---------------------------- COMPARISON OF HEADERS -----------------------------
A-4
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares
Class B Shares
Class C Shares
Service Shares
Institutional Shares
GOLDMAN SACHS CONSERVATIVE STRATEGY PORTFOLIO
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO (FORMERLY, THE
"INCOME STRATEGY PORTFOLIO")
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
(Each a portfolio of Goldman Sachs Trust)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement should be read in conjunction with the
prospectuses for the Class A, Class B, Class C, Service Shares and Institutional
Shares of Goldman Sachs Conservative Strategy Portfolio, Goldman Sachs Balanced
Strategy Portfolio, Goldman Sachs Growth and Income Strategy Portfolio, Goldman
Sachs Growth Strategy Portfolio and Goldman Sachs Aggressive Growth Strategy
Portfolio dated May 1, 1999, and as may be further amended and/or supplemented
from time to time (the "Prospectus"), which may be obtained without charge from
Goldman, Sachs & Co. by calling the telephone number, or writing to one of the
addresses, listed below.
The audited financial statements and related Report of Arthur Andersen LLP,
independent public accountants, for each Portfolio contained in each Portfolio's
1998 annual report is incorporated herein by reference in the section "Financial
Statements." No other portions of the Portfolio's Annual Report are
incorporated herein by reference.
The date of this Additional Statement is May 1, 1999.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
INTRODUCTION.................................................................B-3
INVESTMENT OBJECTIVES AND POLICIES...........................................B-3
INVESTMENT RESTRICTIONS.....................................................B-60
MANAGEMENT..................................................................B-63
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................B-81
NET ASSET VALUE.............................................................B-83
PERFORMANCE INFORMATION.....................................................B-84
SHARES OF THE TRUST.........................................................B-90
TAXATION....................................................................B-95
FINANCIAL STATEMENTS.......................................................B-101
OTHER INFORMATION..........................................................B-102
</TABLE>
<PAGE>
<TABLE>
<S> <C>
OTHER INFORMATION REGARDING PURCHASES......................................B-103
REDEMPTIONS, EXCHANGES AND DIVIDENDS.......................................B-103
DISTRIBUTION AND SERVICE PLANS.............................................B-106
SERVICE PLAN...............................................................B-112
APPENDIX A...................................................................A-1
APPENDIX B...................................................................B-1
</TABLE>
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT
Investment Adviser
One New York Plaza
New York, New York 10004
GOLDMAN, SACHS & CO.
Distributor
85 Broad Street
New York, NY 10004
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free .......800-526-7384
<PAGE>
INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end management investment
company. The Trust is organized as a Delaware business trust, and is a
successor to a Massachusetts business trust that was combined with the Trust on
April 30, 1997. The following series of the Trust are described in this
Additional Statement: Goldman Sachs Conservative Strategy Portfolio
("Conservative Strategy Portfolio"), Goldman Sachs Balanced Strategy Portfolio
("Balanced Strategy Portfolio"), Goldman Sachs Growth and Income Strategy
Portfolio ("Growth and Income Strategy Portfolio"), Goldman Sachs Growth
Strategy Portfolio ("Growth Strategy Portfolio") and Goldman Sachs Aggressive
Growth Strategy Portfolio ("Aggressive Growth Strategy Portfolio") (each
referred to herein as a "Portfolio" and collectively referred to as the
"Portfolios"). The Trust assumed its current name on March 22, 1991. The
Trustees of the Trust have authority under the Declaration of Trust to create
and classify shares into separate series and to classify and reclassify any
series of shares into one or more classes without further action by
shareholders. Pursuant thereto, the Trustees have created the Portfolios and
other series. Each Portfolio is each authorized to issue five classes of
shares: Institutional Shares, Service Shares, Class A Shares, Class B Shares
and Class C Shares. Additional series and classes may be added in the future
from time to time.
Each Portfolio is a separately managed, diversified mutual fund with
its own investment objectives and policies. Each Portfolio has been constructed
as a "fund of funds," which means that it pursues its investment objective
primarily by allocating its investments among other investment portfolios of the
Trust (the "Underlying Funds").
Goldman Sachs Asset Management ("GSAM"), a separate operating division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to each
Portfolio. GSAM is sometimes referred to herein as the "Adviser." Goldman
Sachs serves as each Portfolio's distributor and transfer agent. Each
Portfolio's custodian is State Street Bank and Trust Company ("State Street").
INVESTMENT OBJECTIVES AND POLICIES
Normally, each of the Portfolios will be predominantly invested in
shares of the Underlying Funds. These Underlying Funds currently consist of the
Adjustable Rate Government Fund, Short Duration Government Fund, Government
Income Fund, Core Fixed Income Fund, Global Income Fund, High Yield Fund and
Growth and Income Fund (the "Underlying Fixed-Income Funds"); the CORE U.S.
Equity Fund, CORE Large Cap Growth Fund, CORE Large Cap Value Fund, CORE Small
Cap Equity Fund, Capital Growth Fund, Mid Cap Value Fund, Small Cap Value Fund,
CORE International Equity Fund, International Equity Fund, Emerging Markets
Equity Fund, Asia Growth Fund, European Equity Fund, Japanese Equity Fund,
International Small Cap Fund and Real Estate Securities Fund (the "Underlying
Equity Funds"); and the Financial Square Prime Obligations Fund. The value of
the Underlying Funds' investments, and the net asset value of the shares of both
the Underlying Funds and the Portfolios will fluctuate with market, economic
and, to the extent applicable, foreign exchange conditions, so that an
investment in any of the Portfolios may be worth more or less when redeemed than
when purchased. The following description provides additional information
regarding the Underlying Funds and the types of investments that the Underlying
Funds may make. As stated in the Portfolios' Prospectus, the Portfolios may
invest a portion of their assets in high
B-3
<PAGE>
quality, short-term debt obligations. These obligations are also described
below in this section. Further information about the Underlying Funds and their
respective investment objectives and policies is included in their Prospectuses
and Additional Statements. There is no assurance that any Portfolio or
Underlying Fund will achieve its objective.
A. Description of Underlying Funds
Adjustable Rate Government Fund
Objective. This Fund seeks to provide investors with a high level of
---------
current income, consistent with low volatility of principal.
Duration. Under normal interest rate conditions, the Fund's duration
--------
is expected to be in a range approximately equal to that of a six-month to one-
year U.S. Treasury security. In addition, under normal interest rate
conditions, the Fund's maximum duration will not exceed two years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a nine-month note.
Investment Sector. This Fund invests, under normal circumstances, at
-----------------
least 65% of its total assets in U.S. Government Securities that are adjustable
rate mortgage pass-through securities and other mortgage securities with
periodic interest rate resets. The remainder of the Fund's assets (up to 35%)
may be invested in other U.S. Government Securities, including fixed rate
mortgage pass-through securities, other securities representing an interest in
or collateralized by adjustable rate and fixed rate mortgage loans ("Mortgage-
Backed Securities") and repurchase agreements collateralized by U.S. Government
Securities. Substantially all of the Fund's assets will be invested in U.S.
Government Securities. 100% of the Fund's portfolio will be invested in U.S.
dollar-denominated securities.
Credit Quality. This Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices.
Short Duration Government Fund
Objective. This Fund seeks to provide a high level of current income.
---------
Secondarily, the Fund may, in seeking current income, also consider the
potential for capital appreciation.
Duration. Under normal interest rate conditions, the Fund's duration
--------
is expected to be equal to that of the Fund's benchmark, the two-year U.S.
Treasury security, plus or minus .5 years. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed three years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a two-year bond.
B-4
<PAGE>
Investment Sector. This Fund invests, under normal market conditions,
-----------------
at least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. Substantially all of the Fund's
assets will be invested in U.S. Government Securities. 100% of the Fund's
portfolio will be invested in U.S. dollar-denominated securities.
Credit Quality. This Fund invests in U.S. Government Securities and
--------------
repurchase agreements collateralized by such securities.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices.
Government Income Fund
Objective. This Fund seeks to provide investors with a high level of
---------
current income, consistent with safety of principal.
Duration. Under normal interest rate conditions, the Fund's duration
--------
is expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Mutual Fund Government/Mortgage Index, plus or minus one year. In addition,
under normal interest rate conditions, the Fund's maximum duration will not
exceed six years. The approximate interest rate sensitivity of the Fund is
expected to be comparable to a five-year bond.
Investment Sector. This Fund invests, under normal circumstances, at
-----------------
least 65% of its total assets in U.S. Government Securities and in repurchase
agreements collateralized by such securities. The remainder of the Fund's
assets may be invested in non-government securities such as privately issued
Mortgage-Backed Securities, Asset-Backed Securities and corporate securities.
100% of the Fund's portfolio will be invested in U.S. dollar-denominated
securities.
Credit Quality. This Fund's non-U.S. Government Securities will be
--------------
rated, at the time of investment, AAA or Aaa by a Nationally Recognized
Statistical Rating Organization (an "NRSRO") or, if unrated, will be determined
by the Fund's investment adviser to be of comparable quality.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure and to seek to enhance returns. These
techniques include, but are not limited to, the use of financial futures
contracts, option contracts (including options on futures), mortgage and
interest rate swaps and interest rate floors, caps and collars. The Fund may
also employ other investment techniques to seek to enhance returns, such as
lending portfolio securities and entering into mortgage dollar rolls, repurchase
agreements and other investment practices.
B-5
<PAGE>
Core Fixed Income Fund
Objective. This Fund seeks to provide investors with a total return
---------
consisting of capital appreciation and income that exceeds the total return of
the Lehman Brothers Aggregate Bond Index (the "Index").
Duration. Under normal interest rate conditions, the Fund's duration
--------
is expected to be equal to that of the Fund's benchmark, the Lehman Brothers
Aggregate Bond Index, plus or minus one year. In addition, under normal interest
rate conditions, the Fund's maximum duration will not exceed six years. The
approximate interest rate sensitivity of the Fund is expected to be comparable
to a five-year bond.
Investment Sector. This Fund invests, under normal circumstances, at
-----------------
least 65% of its total assets in fixed-income securities, including U.S.
Government Securities, corporate debt securities, Mortgage-Backed Securities,
and Asset-Backed Securities. The Fund may invest up to 25% of its total assets
in obligations of domestic and foreign issuers which are denominated in
currencies other than the U.S. dollar, 10% of which may be invested in issuers
in countries with emerging markets and economies. A number of investment
strategies will be used to achieve the Fund's investment objective, including
market sector selection, determination of yield curve exposure, and issuer
selection. In addition, the Investment Adviser will attempt to take advantage
of pricing inefficiencies in the fixed-income markets.
The Index currently includes U.S. Government Securities and fixed-
rate, publicly issued, U.S. dollar-denominated fixed-income securities rated at
least BBB or Baa by an NRSRO. Securities rated BBB or Baa are considered
medium-grade obligations with speculative characteristics, and adverse economic
conditions or changing circumstances may weaken their issuers' capability to pay
interest and repay principal. The securities currently included in the Index
have at least one year remaining to maturity; have an outstanding principal
amount of at least $100 million; and are issued by the following types of
issuers, with each category receiving a different weighting in the Index: U.S.
Treasury; agencies, authorities or instrumentalities of the U.S. government;
issuers of Mortgage-Backed Securities; utilities; industrial issuers; financial
institutions; foreign issuers; and issuers of Asset-Backed Securities. The
Index is a trademark of Lehman Brothers. Inclusion of a security in the Index
does not imply an opinion by Lehman Brothers as to its attractiveness or
appropriateness for investment. Although Lehman Brothers obtains factual
information used in connection with the Index from sources which it considers
reliable, Lehman Brothers claims no responsibility for the accuracy,
completeness or timeliness of such information and has no liability to any
person for any loss arising from results obtained from the use of the Index
data.
Credit Quality. All U.S. dollar-denominated fixed-income securities
--------------
purchased by the Fund will be rated, at the time of investment, at least BBB or
Baa by an NRSRO or, if unrated, will be determined by the Fund's investment
adviser to be of comparable quality. The non-U.S. dollar-denominated fixed-
income securities in which the Fund may invest will be rated, at the time of
investment, at least AA or Aa by an NRSRO or, if unrated, will be determined by
the Fund's investment adviser to be of comparable quality. Fixed-income
securities rated BBB or Baa are considered medium-grade obligations with
speculative characteristics and adverse economic conditions or changing
circumstances may weaken their issuers' capability to pay interest and repay
principal.
B-6
<PAGE>
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, credit, mortgage and interest rate swaps
and interest rate floors, caps and collars. Currency management techniques
involve risks different from those associated with investing solely in U.S.
dollar-denominated fixed-income securities of U.S. issuers. It is expected that
the Fund will use certain currency techniques to seek to hedge against currency
exchange rate fluctuations or to seek to increase total return. The Fund may
invest in custodial receipts, Municipal Securities and convertible securities.
The Fund may also employ other investment techniques to seek to enhance returns,
such as lending portfolio securities and entering into mortgage dollar rolls,
repurchase agreements and other investment practices.
Global Income Fund
Objective. This Fund seeks to provide investors with a high total
---------
return, emphasizing current income, and, to a lesser extent, providing
opportunities for capital appreciation.
Duration. Under normal interest rate conditions, the Fund's duration
--------
is expected to be equal to that of the Fund's benchmark, the J.P. Morgan Global
Government Bond Index (hedged), plus or minus 2.5 years. In addition, under
normal interest rate conditions, the Fund's maximum duration will not exceed 7.5
years. The approximate interest rate sensitivity of the Fund is expected to be
comparable to a six-year bond.
Investment Sector. The Fund invests primarily in a portfolio of high
-----------------
quality fixed-income securities of U.S. and foreign issuers and enters into
transactions in foreign currencies. Under normal market conditions, the Fund
will (i) have at least 30% of its total assets, after considering the effect of
currency positions, denominated in U.S. dollars and (ii) invest in securities of
issuers in at least three countries. The Fund may also invest up to 10% of its
total assets in issuers in countries with emerging markets and economies. The
Fund seeks to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations.
The fixed-income securities in which the Fund may invest include: (i)
U.S. Government Securities and custodial receipts therefor; (ii) securities
issued or guaranteed by a foreign government or any of its political
subdivisions, authorities, agencies, instrumentalities or by supranational
entities (i.e., international organizations designated or supported by
governmental entities to promote economic reconstruction or development, such as
the World Bank); (iii) corporate debt securities; (iv) certificates of deposit
and bankers' acceptances issued or guaranteed by, or time deposits maintained
at, U.S. or foreign banks (and their branches wherever located) having total
assets of more than $1 billion; (v) commercial paper; and (vi) Mortgage-Backed
and Asset-Backed Securities.
Credit Quality. All securities purchased by the Fund will be rated,
--------------
at the time of investment, at least BBB or Baa by an NRSRO. However, the Fund
will invest at least 50% of its total assets in securities rated, at the time of
investment, AAA or Aaa by an NRSRO. Unrated securities will be determined by
the Fund's investment adviser to be of comparable
B-7
<PAGE>
quality. Securities rated BBB or Baa are considered medium-grade obligations
with speculative characteristics, and adverse economic conditions or changing
circumstances may weaken their issuers' capacity to pay interest and repay
principal.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure, to seek to hedge its exposure to foreign
currencies and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, credit, mortgage and interest rate swaps
and interest rate floors, caps and collars. Currency management techniques
involve risks different from those associated with investing solely in U.S.
dollar-denominated fixed-income securities of U.S. issuers. It is expected that
the Fund will use certain currency techniques to seek to hedge against currency
exchange rate fluctuations or to seek to increase total return. While the Fund
will have both long and short currency positions, its net long and short foreign
currency exposure will not exceed the value of the Fund's total assets. To the
extent that the Fund is fully invested in foreign securities while also
maintaining currency positions, it may be exposed to greater combined risk. The
Fund's net currency positions may expose it to risks independent of its
securities positions. The Fund may also employ other investment techniques to
seek to enhance returns, such as lending portfolio securities and entering into
mortgage dollar rolls, repurchase agreements and other investment practices.
The Fund may invest more than 25% of its total assets in the
securities of corporate and governmental issuers located in each of Canada,
Germany, Japan, and the United Kingdom as well as in the securities of U.S.
issuers. Concentration of the Fund's investments in such issuers will subject
the Fund, to a greater extent than if investment was more limited, to the risks
of adverse securities markets, exchange rates and social, political or economic
events which may occur in those countries. Not more than 25% of the Fund's
total assets will be invested in securities of issuers in any other single
foreign country.
High Yield Fund
Objective. This Fund seeks to provide investors with a high level of
---------
current income and may also consider the potential for capital appreciation.
Duration. Under normal interest rate conditions, the Fund's duration
--------
is expected to be equal to that of the Fund's benchmark, the Lehman Brothers
High Yield Bond Index, plus or minus 2.5 years. In addition, under normal
interest rate conditions, the Fund's maximum duration will not exceed 7.5 years.
The approximate interest rate sensitivity of the Fund is expected to be
comparable to a 6-year bond.
Investment Sector. This Fund invests, under normal circumstances, at
-----------------
least 65% of its total assets in high yield, fixed-income securities rated, at
the time of investment, below investment grade. Non-investment grade securities
are securities rated BB, Ba or below by an NRSRO, or, if unrated, determined by
the investment adviser to be of comparable quality. The Fund may invest in all
types of fixed-income securities, including senior and subordinated corporate
debt obligations (such as bonds, debentures, notes and commercial paper),
convertible and non-convertible corporate debt obligations, loan participations,
custodial receipts, municipal securities and preferred stock. The Fund may
invest up to 25% of its total assets in obligations of domestic and foreign
issuers (including securities of issuers
B-8
<PAGE>
located in countries with emerging markets and economies) which are denominated
in currencies other than the U.S. dollar. Under normal market conditions, the
Fund may invest up to 35% of its total assets in investment grade fixed-income
securities, including U.S. Government Securities, Asset-Backed and Mortgage-
Backed Securities and corporate securities. The Fund may also invest in common
stocks, warrants, rights and other equity securities, but will generally hold
such equity investments only when debt or preferred stock of the issuer of such
equity securities is held by the Fund. A number of investment strategies are
used to seek to achieve the Fund's investment objective, including market sector
selection, determination of yield curve exposure, and issuer selection. In
addition, the Fund's investment adviser will attempt to take advantage of
pricing inefficiencies in the fixed-income markets.
Credit Quality. This Fund invests primarily in high yield, fixed-
--------------
income securities rated below investment grade, including securities of issuers
in default. Non-investment grade securities (commonly known as "junk bonds")
tend to offer higher yields than higher rated securities with similar
maturities. Non-investment grade securities are, however, considered speculative
and generally involve greater price volatility and greater risk of loss of
principal and interest than higher rated securities. See "Description of
Investment Securities and Practices." A description of the corporate bond and
preferred stock ratings is contained in Appendix A to this Additional
Statement.
Other. This Fund may employ certain active management techniques to
-----
manage its duration and term structure, to seek to hedge its exposure to foreign
securities and to seek to enhance returns. These techniques include, but are
not limited to, the use of financial futures contracts, option contracts
(including options on futures), forward foreign currency exchange contracts,
currency options and futures, currency, credit, mortgage and interest rate
swaps, and interest rate floors, caps and collars. Currency management
techniques involve risks different from those associated with investing solely
in U.S. dollar-denominated fixed-income securities of U.S. issuers. It is
expected that the Fund will use certain currency techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total return.
The Fund may also employ other investment techniques to seek to enhance returns,
such as lending portfolio securities and entering into repurchase agreements and
other investment practices.
Growth and Income Fund
Objectives. This Fund seeks to provide investors with long-term
----------
growth of capital and growth of income.
Primary Investment Focus. This Fund invests, under normal
------------------------
circumstances, at least 65% of its total assets in equity securities that its
investment adviser considers to have favorable prospects for capital
appreciation and/or dividend-paying ability.
Other. This Fund may invest up to 35% of its total assets in fixed-
-----
income securities that, in the opinion of its investment adviser, offer the
potential to further the Fund's investment objectives. In addition, although
the Fund will invest primarily in publicly traded U.S. securities, it may invest
up to 25% of its total assets in foreign securities, including securities of
issuers in Emerging Countries and securities quoted in foreign currencies.
B-9
<PAGE>
CORE U.S. Equity Fund
Objective. This Fund seeks to provide investors with long-term growth
---------
of capital and dividend income. The Fund seeks to achieve its objective through
a broadly diversified portfolio of large cap and blue chip equity securities
representing all major sectors of the U.S. economy.
Primary Investment Focus. This Fund invests, under normal
------------------------
circumstances, at least 90% of its total assets in equity securities of U.S.
issuers, including certain foreign issuers that are traded in the United States.
The Fund's investments are selected using both a variety of quantitative
techniques and fundamental research in seeking to maximize the Fund's expected
return, while maintaining risk, style, capitalization and industry
characteristics similar to the S&P 500 Index. The Fund seeks a broad
representation in most major sectors of the U.S. economy and a portfolio
composed of companies with average long-term earnings growth expectations and
dividend yields. The Fund's investments in fixed-income securities are limited
to securities that are considered cash equivalents.
CORE Large Cap Growth Fund
Objective. This Fund seeks to provide investors with long-term growth
---------
of capital. The Fund seeks to achieve its objective through a broadly
diversified portfolio of equity securities of large cap U.S. issuers that are
expected to have better prospects for earnings growth than the growth rate of
the general domestic economy. Dividend income is a secondary consideration.
Primary Investment Focus. This Fund invests, under normal
------------------------
circumstances, at least 90% of its total assets in equity securities of U.S.
issuers, including certain foreign issuers that are traded in the United States.
The Fund's investment adviser emphasizes a company's growth prospects in
analyzing equity securities to be purchased by the Fund. The Fund's investments
are selected using both a variety of quantitative techniques and fundamental
research in seeking to maximize the Fund's expected return, while maintaining
risk, style, capitalization and industry characteristics similar to the Russell
1000 Growth Index. The Fund seeks a portfolio composed of companies with above
average capitalizations and earnings growth expectations and below average
dividend yields. The Fund's investments in fixed-income securities are limited
to securities that are considered cash equivalents.
CORE Large Cap Value Fund
Objective. This Fund seeks to provide investors with long-term growth of
---------
capital and dividend income. The Fund seeks to achieve its objective through a
broadly diversified portfolio of equity securities of large cap U.S. issuers
that are selling at low to modest valuations relative to general market measures
such as earnings, book value and other fundamental accounting measures, and that
are expected to have favorable prospects for capital appreciation and/or
dividend-paying ability.
Primary Investment Focus. This Fund invests, under normal circumstances, at
------------------------
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics
B-10
<PAGE>
similar to the Russell 1000 Value Index. The Fund seeks a portfolio composed of
companies with above average capitalizations and low to moderate valuations as
measured by price/earnings ratios, book value and other fundamental accounting
measures. The Fund's investments in fixed-income securities are limited to
securities that are considered cash equivalents.
CORE Small Cap Equity Fund
Objective. This Fund seeks to provide investors with long-term growth of
---------
capital. The Fund seeks to achieve its objective through a broadly diversified
portfolio of equity securities of U.S. issuers which are included in the Russell
2000 Index at the time of investment.
Primary Investment Focus. This Fund invests, under normal circumstances, at
------------------------
least 90% of its total assets in equity securities of U.S. issuers, including
certain foreign issuers that are traded in the United States. The Fund's
investments are selected using both a variety of quantitative techniques and
fundamental research in seeking to maximize the Fund's expected return, while
maintaining risk, style, capitalization and industry characteristics similar to
the Russell 2000 Index. The Fund seeks a portfolio composed of companies with
small market capitalizations, strong expected earnings growth and momentum, and
better valuation and risk characteristics than the Russell 2000 Index. If the
issuer of a portfolio security held by the Fund is no longer included in the
Russell 2000 Index, the Fund may, but is not required to, sell the security.
The Fund's investments in fixed-income securities are limited to securities that
are considered cash equivalents.
Capital Growth Fund
Objective. This Fund seeks to provide investors with long-term growth of
---------
capital.
Primary Investment Focus. This Fund invests, under normal circumstances, at
------------------------
least 90% of its total assets in equity securities. The Fund seeks to achieve
its investment objective by investing in a diversified portfolio of equity
securities that are considered by its investment adviser to have long-term
capital appreciation potential.
Other. Although this Fund will invest primarily in publicly traded U.S.
-----
securities, it may invest up to 10% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
B-11
<PAGE>
Mid Cap Value Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. This Fund invests, under normal circumstances,
------------------------
substantially all of its assets in equity securities and at least 65% of its
total assets in equity securities of Mid-Cap Companies with public stock market
capitalizations (based upon shares available for trading on an unrestricted
basis) within the range of the market capitalization of companies constituting
the Russell Midcap Index at the time of investment (currently between $400
million and $16 billion). If the capitalization of an issuer increases above
$16 billion after purchase of such issuer's securities, the Fund may, but is not
required to, sell the securities. Dividend income, if any, is an incidental
consideration.
Other. This Fund may invest up to 35% of its total assets in fixed-income
-----
securities. In addition, although the Fund will invest primarily in publicly
traded U.S. securities, it may invest up to 25% of its total assets in foreign
securities, including securities of issuers in Emerging Countries and securities
quoted in foreign currencies.
Small Cap Value Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
growth.
Primary Investment Focus. This Fund invests, under normal circumstances, at
------------------------
least 65% of its total assets in equity securities of companies with public
stock market capitalizations of $1 billion or less at the time of investment.
Under normal circumstances, the Fund's investment horizon for ownership of
stocks will be two to three years. Dividend income, if any, is an incidental
consideration. If the market capitalization of a company held by the Fund
increases above the amount stated above, the Fund may, consistent with its
investment objective, continue to hold the security.
Small Capitalization Companies. This Fund invests in companies which its
------------------------------
investment adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small market
capitalization companies which may have experienced financial difficulties.
Investments may also be made in companies that are in the early stages of their
life and that the Fund's investment adviser believes have significant growth
potential. The investment adviser believes that the companies in which the Fund
may
B-12
<PAGE>
invest offer greater opportunity for growth of capital than larger, more mature,
better known companies. However, investments in such small market capitalization
companies involve special risks.
Other. This Fund may invest in the aggregate up to 35% of its total assets in
-----
the equity securities of companies with public stock market capitalizations in
excess of $1 billion at the time of investment and in fixed-income securities.
In addition, although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 25% of its total assets in foreign securities,
including securities of issuers in Emerging Countries and securities quoted in
foreign currencies.
CORE International Equity Fund
Objective. This Fund seeks to provide investors with long-term growth of
---------
capital. The Fund seeks to achieve its objective through a broadly diversified
portfolio of large cap equity securities of companies that are organized outside
the United States or whose securities are principally traded outside the United
States.
Primary Investment Focus. This Fund invests, under normal circumstances, at
------------------------
least 90% of its total assets in equity securities of companies that are
organized outside the United States or whose securities are principally traded
outside the United States. The Fund seeks broad representation of large cap
issuers across major countries and sectors of the international economy. The
Fund's investments are selected using both a variety of quantitative techniques
and fundamental research in seeking to maximize the Fund's expected return,
while maintaining risk, style, capitalization and industry characteristics
similar to the EAFE Index. In addition, the Fund seeks a portfolio composed of
companies with attractive valuations and stronger momentum characteristics than
the EAFE Index.
The Fund may allocate its assets among countries as determined by its
investment adviser from time to time, provided the Fund's assets are invested in
at least three foreign countries. The Fund may invest in securities of issuers
in Emerging Countries which involve certain risks which are not present in
investments in more developed countries.
International Equity Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. This Fund invests, under normal circumstances,
------------------------
substantially all, and at least 65%, of its total assets in equity securities of
companies that are organized outside the United States or whose securities are
principally traded outside the United States. The Fund may allocate its assets
among countries as determined by its investment adviser from time to time
provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
the securities of issuers located in the developed countries of Western Europe
and in Japan. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which the
Fund may invest have emerging markets or economies which involve certain risks
that are not present in investments in more developed countries. The Fund
intends to invest in companies with public stock market capitalizations
B-13
<PAGE>
that are larger than those in which the International Small Cap Fund primarily
intends to invest.
Other. Up to 35% of the Fund's total assets may be invested in fixed-income
-----
securities.
Emerging Markets Equity Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. This Fund invests, under normal market
------------------------
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of Emerging Country issuers. For purposes of the Fund's
investment policies, Emerging Countries are countries with economies or
securities markets that are considered by the Fund's investment adviser not to
be fully developed. The investment adviser may consider classifications by the
World Bank, the International Finance Corporation or the United Nations and its
agencies in determining whether a country is emerging or developed. Currently,
Emerging Countries include, among others, most Latin American, African, Asian
and Eastern European nations. The Fund's investment adviser currently intends
that the Fund's investment focus will be in the following Emerging Countries:
Argentina, Botswana, Brazil, Chile, China, Colombia, the Czech Republic, Egypt,
Greece, Hong Kong, Hungary, India, Indonesia, Israel, Jordan, Kenya, Malaysia,
Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, Portugal, Russia,
Singapore, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey,
Venezuela and Zimbabwe.
An Emerging Country issuer is any entity that satisfies at least one of the
following criteria: (i) it derives 50% or more of its total revenue from goods
produced, sales made or services performed in one or more Emerging Countries;
(ii) it is organized under the laws of, or has a principal office in, an
Emerging Country; (iii) it maintains 50% or more of its assets in one or more of
the Emerging Countries; or (iv) the principal securities trading market for a
class of its securities is in an Emerging Country.
Investments in Emerging Countries involve certain risks which are not present
in investments in more developed countries. The Fund may purchase privately
placed equity securities, equity securities of companies that are in the process
of being privatized by foreign governments, securities of issuers that have not
paid dividends on a timely basis, equity securities of issuers that have
experienced difficulties, and securities of companies without performance
records.
Other. Under normal circumstances, this Fund maintains investments in at
-----
least six Emerging Countries, and will not invest more than 35% of its total
assets in securities of issuers in any one Emerging Country. Allocation of the
Fund's investments will depend upon the relative attractiveness of the Emerging
Country markets and particular issuers. In addition, macro-economic factors and
the portfolio managers' and Goldman Sachs economists' views of the relative
attractiveness of Emerging Countries and currencies are considered in allocating
the Fund's assets among Emerging Countries. Concentration of the Fund's assets
in one or a few Emerging Countries and currencies will subject the Fund to
greater risks than if the Fund's assets were not geographically concentrated.
The Fund may invest in the aggregate up to 35% of its total assets in (i) fixed-
income securities of private
B-14
<PAGE>
and governmental Emerging Country issuers; and (ii) equity and fixed-income
securities of issuers in developed countries.
Asia Growth Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. This Fund invests, under normal market
------------------------
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies that satisfy at least one of the following
criteria: (i) their securities are traded principally on stock exchanges in one
or more of the Asian countries; (ii) they derive 50% or more of their total
revenue from goods produced, sales made or services performed in one or more of
the Asian countries; (iii) they maintain 50% or more of their assets in one or
more of the Asian countries; or (iv) they are organized under the laws of one of
the Asian countries. The Fund seeks to achieve its objective by investing
primarily in equity securities of Asian companies which are considered by the
Fund's investment adviser to have long-term capital appreciation potential.
Many of the countries in which the Fund may invest have emerging markets or
economies which involve certain risks which are not present in investments in
more developed countries. The Fund may purchase equity securities of issuers
that have not paid dividends on a timely basis, securities of companies that
have experienced difficulties, and securities of companies without performance
records.
Other. This Fund may allocate its assets among the Asian countries as
-----
determined from time to time by its investment adviser. For purposes of the
Fund's investment policies, Asian countries are China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan and Thailand as well as any other country in Asia (other than
Japan) to the extent that foreign investors are permitted by applicable law to
make such investments. Allocation of the Fund's investments will depend upon
the investment adviser's view of the relative attractiveness of the Asian
markets and particular issuers. Concentration of the Fund's assets in one or a
few of the Asian countries and Asian currencies will subject the Fund to greater
risks than if the Fund's assets were not geographically concentrated. For
example, on January 31, 1998 (the end of the Fund's last fiscal year), more than
35% of the Fund's assets were invested in securities traded in Hong Kong. The
Fund may invest in the aggregate up to 35% of its total assets in equity
securities of issuers in other countries, including Japan, and in fixed-income
securities.
European Equity Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. The Fund invests, under normal market
------------------------
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of European companies. Because of its focus, the Fund will be
more susceptible to European economic, market, political and local risks than a
fund that is more geographically diversified. "European companies" are
companies that satisfy at least one of the following criteria: (i) their
securities are traded principally on stock exchanges in one or more of the
European countries; (ii) they derive 50% or more of their total revenue from
goods produced, sales made or services performed in one or more of the European
countries; (iii) they maintain 50% or more of their assets in one or more of the
European countries; or (iv) they are organized under the laws of a European
country. The Fund may allocate its assets among
B-15
<PAGE>
different countries as determined by its investment adviser, provided that the
Fund's assets are invested in at least three European countries. It is currently
anticipated that a majority of the Fund's assets will be invested in the equity
securities of large cap companies located in the developed countries of Western
Europe. However, the Fund may also invest, without limit, in mid cap companies
and small cap companies, as well as companies located in Emerging Countries in
which the Emerging Markets Equity Fund may invest, including Eastern European
countries and the European states that formerly comprised the Soviet Union and
Yugoslavia.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
-----
equity securities of non-European countries and in fixed-income securities.
Japanese Equity Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. The Fund invests, under normal circumstances,
------------------------
substantially all, and at least 65%, of its total assets in equity securities of
Japanese companies. Japanese companies include those organized under the laws
of Japan or whose shares are traded primarily on a Japanese stock exchange as
well as those whose shares are registered with the Japan Securities Dealers
Association for trading primarily on Japan's over-the-counter market. The
Fund's concentration in Japanese companies will expose it to the risk of adverse
social, political and economic events which occur in Japan or affect the
Japanese markets.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
-----
equity securities of non-Japanese companies and in fixed-income securities.
International Small Cap Fund
Objective. This Fund seeks to provide investors with long-term capital
---------
appreciation.
Primary Investment Focus. The Fund invests, under normal market
------------------------
circumstances, substantially all, and at least 65%, of its total assets in
equity securities of companies with public stock market capitalizations of $1
billion or less at the time of investment that are organized outside the U.S. or
whose securities are principally traded outside the U.S. The Fund may allocate
its assets among countries as determined by its investment adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The Fund expects to invest a substantial portion of its assets in
small cap securities of companies in the developed countries of Western Europe,
Japan and Asia. However, the Fund may also invest in the securities of issuers
located in Australia, Canada, New Zealand and the Emerging Countries in which
the Emerging Markets Equity Fund may invest. Many of the countries in which the
Fund may invest have emerging markets economics which involve certain risks,
which are not present in investments in more developed countries. If the market
capitalization of a company held by the Fund increases above $1 billion, the
Fund may, consistent with its investment objective, continue to hold the
security.
Other. The Fund may invest in the aggregate up to 35% of its total assets in
-----
equity securities of larger cap companies with public stock market
capitalizations of more than $1 billion at the time of investment and in fixed-
income securities.
B-16
<PAGE>
Real Estate Securities Fund
Objective. This Fund seeks to provide investors with total return comprised
---------
of long-term growth of capital and dividend income.
Primary Investment Focus. This Fund will invest, under normal circumstances,
------------------------
substantially all, and at least 80%, of its total assets in issuers that are
primarily engaged in or related to the real estate industry. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
equity securities of REITs and other real estate industry companies. A "real
estate industry company" is a company that derives at least 50% of its gross
revenues or net profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate or interests therein.
Shares of REITs. The Fund may invest without limitation in shares of REITs.
---------------
REITs are pooled investment vehicles which invest primarily in income producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. Similar to
investment companies such as the Fund, REITs are not taxed on income distributed
to shareholders provided they comply with several requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund will indirectly bear its
proportionate share of expenses incurred by REITs in which the Fund invests in
addition to the expenses directly by the Fund.
Other. Under normal circumstances, this Fund may invest up to 20% of its
-----
total assets in fixed-income securities that, in the opinion of its investment
adviser, offer the potential to further the Fund's investment objectives. In
addition, although the Fund will invest primarily in publicly traded U.S.
securities, it may invest up to 15% of its net assets in foreign securities.
Financial Square Prime Obligations Fund
Objective. This Fund seeks 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.
Primary Investment Focus. This Fund invests in securities of the U.S.
------------------------
Government, its agencies, authorities and instrumentalities, obligations of U.S.
banks, commercial paper, and other short-term obligations of U.S. companies,
states, municipalities and other entities and repurchase agreements. Securities
purchased by the Fund will be determined by its investment adviser to present
minimal credit risks, and will have remaining maturities (as determined in
accordance with regulatory requirements) of 13 months or less at the time of
purchase. The dollar-weighted average maturity of the Fund will not exceed 90
days.
Other. The investments of this Fund are limited by regulations applicable to
-----
money market funds as described in its Prospectus, and do not include many of
the types of investments discussed below that are permitted for the other
Underlying Funds. Although
B-17
<PAGE>
this Fund attempts to maintain a stable net asset value of $1.00 per share,
there is no assurance that it will be able to do so on a continuous basis. Like
investments in the other Underlying Funds, an investment in this Fund is neither
insured nor guaranteed by the U.S. Government or any governmental authority.
B. Description of Investment Securities and Practices
Corporate Debt Obligations
Each Underlying Fund (other than the Adjustable Rate Government and Short
Duration Government Funds) may, under normal market conditions, invest in
corporate debt obligations, including obligations of industrial, utility and
financial issuers. CORE U.S. Equity, CORE Large Cap Value Fund, CORE Large Cap
Growth, CORE Small Cap Equity and CORE International Equity Funds may only
invest in debt securities that are cash equivalents. Corporate debt obligations
are subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations and may also be subject to price volatility due to
such factors as market interest rates, market perception of the creditworthiness
of the issuer and general market liquidity.
Fixed-income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken their issuers' capacity to pay interest and
repay principal. Medium to lower rated and comparable non-rated securities tend
to offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Underlying Funds'
investment advisers will attempt to reduce these risks through portfolio
diversification and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends and corporate
developments.
High Yield Securities. Bonds rated BB or below by Standard & Poor's Ratings
---------------------
Group ("Standard & Poor's") or Ba or below by Moody's Investors Service, Inc.
("Moody's") (or comparable rated and unrated securities) are commonly referred
to as "junk bonds" and are considered speculative. The ability of their issuers
to make principal and interest payments may be questionable. In some cases,
such bonds may be highly speculative, have poor prospects for reaching
investment grade standing and be in default. As a result, investment in such
bonds will entail greater risks than those associated with investment grade
bonds (i.e., bonds rated AAA, AA, A or BBB by Standard and Poor's or Aaa, Aa, A
or Baa by Moody's). Analysis of the creditworthiness of issuers of high yield
securities may be more complex than for issuers of higher quality debt
securities, and the ability of an Underlying Fund to achieve its investment
objective may, to the extent of its investments in high yield securities, be
more dependent upon such creditworthiness analysis than would be the case if the
Underlying Fund were investing in higher quality securities. See Appendix A to
this Additional Statement for a description of the corporate bond and preferred
stock ratings by Standard & Poor's, Moody's, Fitch IBCA, Inc. and Duff &
Phelps.
B-18
<PAGE>
The amount of high yield, fixed-income securities proliferated in the 1980s
and early 1990s as a result of increased merger and acquisition and leveraged
buyout activity. Such securities are also issued by less-established
corporations desiring to expand. Risks associated with acquiring the securities
of such issuers generally are greater than is the case with higher rated
securities because such issuers are often less creditworthy companies or are
highly leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest.
The market values of high yield, fixed-income securities tends to reflect
those individual corporate developments to a greater extent than do those of
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. Issuers of such high yield securities may not be able
to make use of more traditional methods of financing and their ability to
service debt obligations may be more adversely affected than issuers of higher
rated securities by economic downturns, specific corporate developments or the
issuers' inability to meet specific projected business forecasts. These non-
investment grade securities also tend to be more sensitive to economic
conditions than higher-rated securities. Negative publicity about the junk bond
market and investor perceptions regarding lower-rated securities, whether or not
based on fundamental analysis, may depress the prices for such securities.
Since investors generally perceive that there are greater risks associated
with non-investment grade securities of the type in which the Underlying Funds
may invest, the yields and prices of such securities may tend to fluctuate more
than those for higher-rated securities. In the lower quality segments of the
fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities
market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in an Underlying Fund's net asset value.
The risk of loss from default for the holders of high yield, fixed-income
securities is significantly greater than is the case for holders of other debt
securities because such high yield, fixed-income securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities. Investment by an Underlying Fund in already
defaulted securities poses an additional risk of loss should nonpayment of
principal and interest continue in respect of such securities. Even if such
securities are held to maturity, recovery by an Underlying Fund of its initial
investment and any anticipated income or appreciation is uncertain. An
Underlying Fund may be required to liquidate other portfolio securities to
satisfy the Underlying Fund's annual distribution obligations in respect of
accrued interest income on securities which are subsequently written off, even
though the Underlying Fund has not received any cash payments of such interest.
The secondary market for high yield, fixed-income securities is concentrated
in relatively few markets and is dominated by institutional investors, including
mutual funds, insurance companies and other financial institutions.
Accordingly, the secondary market for such securities is not as liquid as and is
more volatile than the secondary market for higher-
B-19
<PAGE>
rated securities. In addition, the trading volume for high-yield, fixed-income
securities is generally lower than that of higher rated securities and the
secondary market for high yield, fixed-income securities could shrink or
disappear suddenly and without warning as a result of adverse market or economic
conditions independent of any specific adverse changes in the condition of a
particular issuer. Because of the lack of sufficient market liquidity, a Fund
may incur losses because it will be required to effect sale at a disadvantageous
time and then only at a substantial drop in price. Prices realized upon the sale
of such lower rated or unrated securities, under these circumstances, may be
less than the prices used in calculating an Underlying Fund's net asset value. A
less liquid secondary market also may make it more difficult for an Underlying
Fund to obtain precise valuations of the high yield securities in its
portfolio.
Certain proposed and recently enacted federal laws could adversely affect the
secondary market for high yield securities and the financial condition of
issuers of these securities. The form of proposed legislation and the
probability of such legislation being enacted is uncertain.
Non-investment grade or high-yield, fixed-income securities also present risks
based on payment expectations. High yield, fixed-income securities frequently
contain "call" or buy-back features which permit the issuer to call or
repurchase the security from its holder. If an issuer exercises such a "call
option" and redeems the security, an Underlying Fund may have to replace such
security with a lower-yielding security, resulting in a decreased return for
investors. In addition, if an Underlying Fund experiences net redemptions of
its shares, it may be forced to sell its higher-rated securities, resulting in a
decline in the overall credit quality of the Underlying Fund's portfolio and
increasing the exposure of the Underlying Fund to the risks of high yield
securities. An Underlying Fund may also incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of principal
or interest on a portfolio security.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in non-investment
grade and comparable unrated obligations will be more dependent on the credit
analysis of an Underlying Fund's investment adviser than would be the case with
investments in investment-grade debt obligations. An Underlying Fund's
investment adviser employs its own credit research and analysis, which includes
a study of existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The investment adviser monitors the
investments in an Underlying Fund's portfolio and evaluates whether to dispose
of or to retain non-investment grade and comparable unrated securities whose
credit ratings or credit quality may have changed.
Loan Participations. The High Yield Fund may invest in loan participations.
-------------------
Such loans must be to issuers in whose obligations the High Yield Fund may
invest. A loan participation is an interest in a loan to a U.S. or foreign
company or other borrower which is administered and sold by a financial
intermediary. In a typical corporate loan syndication, a
B-20
<PAGE>
number of lenders, usually banks (co-lenders), lend a corporate borrower a
specified sum pursuant to the terms and conditions of a loan agreement. One of
the co-lenders usually agrees to act as the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the form of a
direct or co-lending relationship with the corporate borrower, an assignment of
an interest in the loan by a co-lender or another participant, or a
participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High Yield
Fund acquires certain participation interests, the High Yield Fund will have
direct recourse against the borrower if the borrower fails to pay scheduled
principal and interest. In cases where the High Yield Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit remedies
against the borrower. In these cases, the High Yield Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Underlying Fund had purchased a direct obligation (such as
commercial paper) of such borrower. For example, in the event of the bankruptcy
or insolvency of the corporate borrower, a loan participation may be subject to
certain defenses by the borrower as a result of improper conduct by the agent
bank. Moreover, under the terms of the loan participation, the High Yield Fund
may be regarded as a creditor of the agent bank (rather than of the underlying
corporate borrower), so that the High Yield Fund may also be subject to the risk
that the agent bank may become insolvent. The secondary market, if any, for
these loan participations is limited and any loan participations purchased by
the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to diversification
of the High Yield Fund's portfolio investments, the issuer of a loan
participation will be the underlying borrower. However, in cases where the High
Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
Obligations of the United States, Its Agencies, Instrumentalities and Sponsored
Enterprises
Each Underlying Fund may invest in U.S. government securities ("U.S.
Government Securities"), which are obligations issued or guaranteed by the U.S.
government and its agencies, instrumentalities or sponsored enterprises. Some
U.S. Government Securities (such as Treasury bills, notes and bonds, which
differ only in their interest rates, maturities and times of issuance) are
supported by the full faith and credit of the United States of America. Others,
such as obligations issued or guaranteed by U.S. government agencies,
instrumentalities or sponsored enterprises, are supported either by (a) the
right of the issuer to borrow from the Treasury (such as securities of Federal
Home Loan Banks), (b) the discretionary authority of the U.S. government to
purchase the agency's obligations (such as securities of Federal National
Mortgage Association ("Fannie Mae")) or (c) only the credit of the issuer (such
as securities of the Financing Corporation). The U.S. government is under no
legal obligation, in general, to purchase the obligations of its agencies,
instrumentalities or sponsored enterprises. No assurance can be given that the
U.S. government will provide financial support to the U.S. government agencies,
instrumentalities or sponsored enterprises in the future.
B-21
<PAGE>
U.S. Government Securities include (to the extent consistent with the
Investment Company Act of 1940, as amended (the "Act")) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. government, or its agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities also include (to the extent consistent
with the Act) participations in loans made to foreign governments or their
agencies that are guaranteed as to principal and interest by the U.S. government
or its agencies, instrumentalities or sponsored enterprises. The secondary
market for certain of these participations is extremely limited. In the absence
of a suitable secondary market, such participations are regarded as illiquid.
Each Underlying Fund may also purchase U.S. Government Securities in private
placements, subject to the Underlying Fund's limitation on investment in
illiquid securities.
The Underlying Funds may also invest in separately traded principal and
interest components of securities guaranteed or issued by the U.S. Treasury that
are traded independently under the separate trading of registered interest and
principal of securities program ("STRIPS").
Bank Obligations
Certain of the Underlying Funds may invest in obligations issued or guaranteed
by U.S. or foreign banks. Bank obligations, including without limitation, time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or government regulation. Banks are subject
to extensive governmental regulations which may limit both the amount and types
of loans which may be made and interest rates which may be charged. In
addition, the profitability of the banking industry is largely dependent upon
the availability and cost of funds for the purpose of financing lending
operations under prevailing money market conditions. General economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds
Certain of the Underlying Funds expect to invest in deferred interest and
capital appreciation bonds and pay-in-kind ("PIK") securities. Deferred
interest and capital appreciation bonds are debt securities issued or sold at a
discount from their face value and which do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date. The
original issue discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, the liquidity of the security and
the perceived credit quality of the issuer. These securities also may take the
form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves or receipts or certificates representing
interests in such stripped debt obligations or coupons. The market prices of
deferred interest, capital appreciation bonds and PIK securities generally are
more volatile than the market prices of interest bearing securities and are
likely to respond to a greater degree to changes in interest rates than interest
bearing securities having similar maturities and credit quality.
PIK securities may be debt obligations or preferred shares that provide the
issuer with the option of paying interest or dividends on such obligations in
cash or in the form of additional securities rather than cash. Similar to zero
coupon bonds and deferred interest
B-22
<PAGE>
bonds, PIK securities are designed to give an issuer flexibility in managing
cash flow. PIK securities that are debt securities can either be senior or
subordinated debt and generally trade flat (i.e., without accrued interest). The
trading price of PIK debt securities generally reflects the market value of the
underlying debt plus an amount representing accrued interest since the last
interest payment.
Deferred interest, capital appreciation and PIK securities involve the
additional risk that, unlike securities that periodically pay interest to
maturity, an Underlying Fund will realize no cash until a specified future
payment date unless a portion of such securities is sold and, if the issuer of
such securities defaults, an Underlying Fund may obtain no return at all on its
investment. In addition, even though such securities do not provide for the
payment of current interest in cash, the Underlying Funds are nonetheless
required to accrue income on such investments for each taxable year and
generally are required to distribute such accrued amounts (net of deductible
expenses, if any) to avoid being subject to tax. Because no cash is generally
received at the time of the accrual, an Underlying Fund may be required to
liquidate other portfolio securities to obtain sufficient cash to satisfy
federal tax distribution requirements applicable to the Underlying Fund.
Zero Coupon Bonds
An Underlying Fund's investments in fixed-income securities may include zero
coupon bonds, which are debt obligations issued or purchased at a significant
discount from face value. The discount approximates the total amount of
interest the bonds would have accrued and compounded over the period until
maturity. Zero coupon bonds do not require the periodic payment of interest.
Such investments benefit the issuer by mitigating its need for cash to meet debt
service but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments may experience greater
volatility in market value than debt obligations which provide for regular
payments of interest. In addition, if an issuer of zero coupon bonds held by
an Underlying Fund defaults, the Underlying Fund may obtain no return at all on
its investment. Each Fund will accrue income on such investments for each
taxable year which (net of deductible expenses, if any) is distributable to
shareholders and which, because no cash is generally received at the time of
accrual, may require the liquidation of other portfolio securities to obtain
sufficient cash to satisfy the Underlying Fund's distribution obligations.
Variable and Floating Rate Securities
The interest rates payable on certain fixed-income securities in which an
Underlying Fund may invest are not fixed and may fluctuate based upon changes in
market rates. A variable rate obligation has an interest rate which is adjusted
at predesignated periods in response to changes in the market rate of interest
on which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
Permissible investments for the Underlying Funds include "leveraged" inverse
floating rate debt instruments ("inverse floaters"), including "leveraged
inverse floaters." The interest rate on inverse floaters resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be
B-23
<PAGE>
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
the degree of leverage of an inverse floater, the greater the volatility of its
market value. Accordingly, the duration of an inverse floater may exceed its
stated final maturity. Certain inverse floaters may be deemed to be illiquid
securities for purposes of each Fund's limitation on illiquid investments.
Custodial Receipts
Each Underlying Fund may invest up to 5% of its net assets in custodial
receipts in respect of securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies, instrumentalities, political
subdivisions or authorities. Such custodial receipts evidence ownership of
future interest payments, principal payments or both on certain notes or bonds
issued by the U.S. Government, its agencies, instrumentalities, political
subdivisions or authorities. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts"
("TIGRs"), and "Certificates of Accrual on Treasury Securities" ("CATs"). For
certain securities law purposes, custodial receipts are not considered U.S.
Government securities.
Municipal Securities
Certain of the Underlying Funds may invest in bonds, notes and other
instruments issued by or on behalf of states, territories and possessions of the
United States (including the District of Columbia) and their political
subdivisions, agencies or instrumentalities ("Municipal Securities").
Municipal Securities are often issued to obtain funds for various public
purposes including refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal Securities also include certain
"private activity bonds" or industrial development bonds, which are issued by or
on behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities within a municipality for privately or publicly
owned corporations.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest, although the characteristics and enforcement of general obligations
may vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer, and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer of a
revenue obligation may be backed by a letter of credit, guarantee or insurance.
General obligations and revenue obligations may be issued in a variety of forms,
including commercial paper, fixed, variable and floating rate securities, tender
option bonds, auction rate bonds and zero coupon bonds, deferred interest bonds
and capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a variety
of hybrid and special types of Municipal Securities. There are also numerous
differences in the security of Municipal Securities both within and between
these two principal classifications.
B-24
<PAGE>
An entire issue of Municipal Securities may be purchased by one or a small
number of institutional investors such as the High Yield and Core Fixed Income
Funds. Thus, the issue may not be said to be publicly offered. Unlike some
securities that are not publicly offered, a secondary market exists for many
Municipal Securities that were not publicly offered initially and such
securities may be readily marketable.
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a Municipal
Security may be materially affected.
Municipal Leases, Certificates of Participation and Other Participation
-----------------------------------------------------------------------
Interests. Municipal Securities include leases, certificates of participation
- ---------
and other participation interests. A municipal lease is an obligation in the
form of a lease or installment purchase which is issued by a state or local
government to acquire equipment and facilities. Income from such obligations is
generally exempt from state and local taxes in the state of issuance. Municipal
leases frequently involve special risks not normally associated with general
obligations or revenue bonds. Leases and installment purchase or conditional
sale contracts (which normally provide for title to the leased asset to pass
eventually to the governmental issuer) have evolved as a means for governmental
issuers to acquire property and equipment without meeting the constitutional and
statutory requirements for the issuance of debt. The debt issuance limitations
are deemed to be inapplicable because of the inclusion in many leases or
contracts of "non-appropriation" clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the appropriate legislative body on a yearly
or other periodic basis. In addition, such leases or contracts may be subject
to the temporary abatement of payments in the event the issuer is prevented from
maintaining occupancy of the leased premises or utilizing the leased equipment.
Although the obligations may be secured by the leased equipment or facilities,
the disposition of the property in the event of non-appropriation or foreclosure
might prove difficult, time consuming and costly, and result in a delay in
recovering or the failure to fully recover an Underlying Fund's original
investment.
Certificates of participation represent undivided interests in municipal
leases, installment purchase agreements or other instruments. The certificates
are typically issued by a trust or other entity which has received an assignment
of the payments to be made by the state or political subdivision under such
leases or installment purchase agreements.
Certain municipal lease obligations and certificates of participation may be
deemed to be illiquid for the purpose of an Underlying Fund's limitation on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by an Underlying Fund may be determined
by its investment adviser, pursuant to guidelines adopted by the Trustees of the
Trust, to be liquid securities for the purpose of such limitation. In
determining the liquidity of municipal lease obligations and certificates of
participation, the investment adviser will consider a variety of factors
including: (1) the willingness of dealers to bid for the security; (2) the
number of dealers willing to purchase or sell the
B-25
<PAGE>
obligation and the number of other potential buyers; (3) the frequency of trades
or quotes for the obligation; and (4) the nature of the marketplace trades. In
addition, the investment adviser will consider factors unique to particular
lease obligations and certificates of participation affecting the marketability
thereof. These include the general creditworthiness of the issuer, the
importance to the issuer of the property covered by the lease and the likelihood
that the marketability of the obligation will be maintained throughout the time
the obligation is held by an Underlying Fund.
The Underlying Funds may purchase participations in Municipal Securities held
by a commercial bank or other financial institution. Such participations provide
an Underlying Fund with the right to a pro rata undivided interest in the
underlying Municipal Securities. In addition, such participations generally
provide an Underlying Fund with the right to demand payment, on not more than
seven days' notice, of all or any part of such Fund's participation interest in
the underlying Municipal Security, plus accrued interest. An Underlying Fund
will only invest in such participations if, in the opinion of bond counsel,
counsel for the issuers of such participations or counsel selected by the
investment advisors, the interest from such participation is exempt from regular
federal income tax.
Auction Rate Securities. Municipal Securities also include auction rate
-----------------------
Municipal Securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in Municipal Securities
(collectively, "auction rate securities"). Provided that the auction mechanism
is successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The dividend is
reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The dividend rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there is some risk
that an auction will fail due to insufficient demand for the securities.
An Underlying Fund's investments in auction rate securities of closed-end
funds are subject to the limitations prescribed by the Act. An Underlying Fund
will indirectly bear its proportionate share of any management and other fees
paid by such closed-end funds in addition to the advisory fees payable directly
by the Underlying Funds.
Other Types of Municipal Securities. Other types of Municipal Securities in
-----------------------------------
which certain of the Underlying Funds may invest include municipal notes, tax-
exempt commercial paper, pre-refunded municipal bonds, industrial development
bonds and insured municipal obligations.
Call Risk and Reinvestment Risk. Municipal Securities may include "call"
-------------------------------
provisions which permit the issuers of such securities, at any time or after a
specified period, to redeem the securities prior to their stated maturity. In
the event that Municipal Securities held in an Underlying Fund's portfolio are
called prior to the maturity, the Underlying Fund will be required to reinvest
the proceeds on such securities at an earlier date and may be able to do so only
at lower yields, thereby reducing the Underlying Fund's return on its portfolio
securities.
B-26
<PAGE>
Mortgage Loans and Mortgage-Backed Securities
General Characteristics. Certain of the Underlying Funds may invest in
-----------------------
Mortgage-Backed Securities as described in the Prospectus. Each mortgage pool
underlying Mortgage-Backed Securities consists of mortgage loans evidenced by
promissory notes secured by first mortgages or first deeds of trust or other
similar security instruments creating a first lien on owner occupied and non-
owner occupied one-unit to four-unit residential properties, multifamily (i.e.,
five or more) properties, agriculture properties, commercial properties and
mixed use properties (the "Mortgaged Properties"). The Mortgaged Properties may
consist of detached individual dwelling units, multifamily dwelling units,
individual condominiums, townhouses, duplexes, triplexes, fourplexes, row
houses, individual units in planned unit developments and other attached
dwelling units. The Mortgaged Properties may also include residential investment
properties and second homes.
The investment characteristics of adjustable and fixed rate Mortgage-Backed
Securities differ from those of traditional fixed-income securities. The major
differences include the payment of interest and principal on Mortgage-Backed
Securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed-
income securities. As a result, if an Underlying Fund purchases Mortgage-Backed
Securities at a premium, a faster than expected prepayment rate will reduce both
the market value and the yield to maturity from those which were anticipated. A
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity and market value. Conversely, if an Underlying
Fund purchases Mortgage-Backed Securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce
yield to maturity and market values. To the extent that an Underlying Fund
invests in Mortgage-Backed Securities, its investment adviser may seek to manage
these potential risks by investing in a variety of Mortgage-Backed Securities
and by using certain hedging techniques.
Adjustable Rate Mortgage Loans ("ARMs"). ARMs generally provide for a fixed
---------------------------------------
initial mortgage interest rate for a specified period of time. Thereafter, the
interest rates (the "Mortgage Interest Rates") may be subject to periodic
adjustment based on changes in the applicable index rate (the "Index Rate"). The
adjusted rate would be equal to the Index Rate plus a fixed percentage spread
over the Index Rate established for each ARM at the time of its origination.
ARMs allow a Fund to participate in increases in interest rates through periodic
increases in the securities coupon rates. During periods of declining interest
rates, coupon rates may readjust downward resulting in lower yields to a
Fund.
Adjustable interest rates can cause payment increases that some mortgagors may
find difficult to make. However, certain ARMs may provide that the Mortgage
Interest Rate may not be adjusted to a rate above an applicable lifetime maximum
rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs
may also be subject to limitations on the maximum amount by which the Mortgage
Interest Rate may adjust for any single adjustment period (the "Maximum
Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide instead or
as well for limitations on changes in the monthly payment on such ARMs.
Limitations on monthly payments can result in monthly payments which are greater
or less than the amount necessary to amortize a Negatively Amortizing ARM by its
maturity at the Mortgage Interest Rate in effect in any particular month. In
the event that a
B-27
<PAGE>
monthly payment is not sufficient to pay the interest accruing on a Negatively
Amortizing ARM, any such excess interest is added to the principal balance of
the loan, causing negative amortization, and will be repaid through future
monthly payments. It may take borrowers under Negatively Amortizing ARMs longer
periods of time to build up equity and may increase the likelihood of default by
such borrowers. In the event that a monthly payment exceeds the sum of the
interest accrued at the applicable Mortgage Interest Rate and the principal
payment which would have been necessary to amortize the outstanding principal
balance over the remaining term of the loan, the excess (or "accelerated
amortization") further reduces the principal balance of the ARM. Negatively
Amortizing ARMs do not provide for the extension of their original maturity to
accommodate changes in their Mortgage Interest Rate. As a result, unless there
is a periodic recalculation of the payment amount (which there generally is),
the final payment may be substantially larger than the other payments. These
limitations on periodic increases in interest rates and on changes in monthly
payments protect borrowers from unlimited interest rate and payment increases.
ARMs also have the risk of prepayments. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment resulting in lower yields to a Fund. For
example, if prevailing interest rates fall significantly, ARMs could be subject
to higher prepayment rates (than if prevailing interest rates remain constant or
increase) because the availability of low fixed-rate mortgages may encourage
mortgagors to refinance their ARMs to "lock-in" a fixed-rate mortgage.
Conversely, if prevailing interest rates rise significantly, ARMs may prepay
more slowly. As with fixed-rate mortgages, ARM prepayment rates vary in both
stable and changing interest rate environments.
There are two main categories of indices which provide the basis for rate
adjustments on ARMs: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year, three-year and
five-year constant maturity Treasury rates, the three-month Treasury bill rate,
the 180-day Treasury bill rate, rates on longer-term Treasury securities, the
11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate, the prime rate of a specific bank or commercial paper rates. Some
indices, such as the one-year constant maturity Treasury rate, closely mirror
changes in market interest rate levels. Others, such as the 11th District
Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market
rate levels and tend to be somewhat less volatile. The degree of volatility in
the market value of an Underlying Fund's portfolio and, therefore, in the net
asset value of an Underlying Fund's shares will be a function of the length of
the interest rate reset periods and the degree of volatility in the applicable
indices.
Fixed-Rate Mortgage Loans. Generally, fixed-rate mortgage loans included in a
-------------------------
mortgage pool (the "Fixed-Rate Mortgage Loans") will bear simple interest at
fixed annual rates and have original terms to maturity ranging from 5 to 40
years. Fixed-Rate Mortgage Loans generally provide for monthly payments of
principal and interest in substantially equal installments for the term of the
mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain Fixed-Rate Mortgage Loans provide for a large final "balloon"
payment upon maturity.
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<PAGE>
Legal Considerations of Mortgage Loans. The following is a discussion of
--------------------------------------
certain legal and regulatory aspects of the mortgage loans in which the
Underlying Funds may invest. These regulations may impair the ability of a
mortgage lender to enforce its rights under the mortgage documents. These
regulations may adversely affect the Underlying Funds' investments in Mortgage-
Backed Securities (including those issued or guaranteed by the U.S. government,
its agencies or instrumentalities) by delaying the Underlying Funds' receipt of
payments derived from principal or interest on mortgage loans affected by such
regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed due
-----------
to compliance with statutory notice or service of process provisions,
difficulties in locating necessary parties or legal challenges to the
mortgagee's right to foreclose. Depending upon market conditions, the
ultimate proceeds of the sale of foreclosed property may not equal the
amounts owed on the Mortgage-Backed Securities.
Furthermore, courts in some cases have imposed general equitable principles
upon foreclosure generally designed to relieve the borrower from the legal
effect of default and have required lenders to undertake affirmative and
expensive actions to determine the causes for the default and the
likelihood of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure of a mortgage
--------------------
loan, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property, which right may diminish the
mortgagee's ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
-----------------------
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to
debtors, may interfere with or affect the ability of a secured mortgage
lender to enforce its security interest. For example, a bankruptcy court
may grant the debtor a reasonable time to cure a default on a mortgage
loan, including a payment default. The court in certain instances may also
reduce the monthly payments due under such mortgage loan, change the rate
of interest, reduce the principal balance of the loan to the then-current
appraised value of the related mortgaged property, alter the mortgage loan
repayment schedule and grant priority of certain liens over the lien of the
mortgage loan. If a court relieves a borrower's obligation to repay amounts
otherwise due on a mortgage loan, the mortgage loan servicer will not be
required to advance such amounts, and any loss may be borne by the holders
of securities backed by such loans. In addition, numerous federal and state
consumer protection laws impose penalties for failure to comply with
specific requirements in connection with origination and servicing of
mortgage loans.
4. "Due-on-Sale" Provisions. Fixed-rate mortgage loans may contain a so-
------------------------
called "due-on-sale" clause permitting acceleration of the maturity of the
mortgage loan if the borrower transfers the property. The Garn-St. Germain
Depository Institutions Act of 1982 sets forth nine specific instances in
which no mortgage lender covered by that Act may exercise a "due-on-sale"
clause upon a transfer of property. The inability to enforce a "due-on-
sale" clause or the lack of such a clause in mortgage loan documents may
result in a mortgage loan being assumed by a purchaser of the property that
bears an interest rate below the current market rate.
B-29
<PAGE>
5. Usury Laws. Some states prohibit charging interest on mortgage loans in
----------
excess of statutory limits. If such limits are exceeded, substantial
penalties may be incurred and, in some cases, enforceability of the
obligation to pay principal and interest may be affected.
Government Guaranteed Mortgage-Backed Securities. There are several types of
------------------------------------------------
guaranteed Mortgage-Backed Securities currently available, including guaranteed
mortgage pass-through certificates and multiple class securities, which include
guaranteed Real Estate Mortgage Investment Conduit Certificates ("REMIC
Certificates"), collateralized mortgage obligations and stripped Mortgage-Backed
Securities. An Underlying Fund is permitted to invest in other types of
Mortgage-Backed Securities that may be available in the future to the extent
consistent with its investment policies and objective.
An Underlying Fund's investments in Mortgage-Backed Securities may include
securities issued or guaranteed by the U.S. Government or one of its agencies,
authorities, instrumentalities or sponsored enterprises, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac").
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
-----------------------
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
Fannie Mae Certificates. Fannie Mae is a stockholder-owned corporation
-----------------------
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the FHA or guaranteed by the Veterans Administration ("VA").
However, the Mortgage Loans in Fannie Mae Pools are primarily conventional
Mortgage Loans. The lenders originating and servicing the Mortgage Loans are
subject to certain eligibility requirements established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to distribute
to holders of Certificates an amount equal to the full principal balance of any
foreclosed Mortgage Loan, whether or not such principal balance is actually
recovered. The obligations of Fannie Mae under its guaranty of the Fannie Mae
Certificates are obligations solely of Fannie Mae.
Freddie Mac Certificates. Freddie Mac is a publicly held U.S. Government
------------------------
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first
B-30
<PAGE>
lien, conventional, residential mortgage loans and participation interests in
such mortgage loans and their resale in the form of mortgage securities,
primarily Freddie Mac Certificates. A Freddie Mac Certificate represents a pro
rata interest in a group of mortgage loans or participation in mortgage loans (a
"Freddie Mac Certificate group") purchased by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac Certificate
the timely payment of interest at the rate provided for by such Freddie Mac
Certificate (whether or not received on the underlying loans). Freddie Mac also
guarantees to each registered Certificate holder ultimate collection of all
principal of the related mortgage loans, without any offset or deduction, but
does not, generally, guarantee the timely payment of scheduled principal. The
obligations of Freddie Mac under its guaranty of Freddie Mac Certificates are
obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans, undivided
interests in whole loans and participations comprising another Freddie Mac
Certificate group.
Conventional Mortgage Loans. The conventional mortgage loans underlying the
---------------------------
Freddie Mac and Fannie Mae Certificates consist of adjustable rate or fixed-rate
mortgage loans with original terms to maturity of between five and thirty years.
Substantially all of these mortgage loans are secured by first liens on one- to
four-family residential properties or multi-family projects. Each mortgage loan
must meet the applicable standards set forth in the law creating Freddie Mac or
Fannie Mae. A Freddie Mac Certificate group may include whole loans,
participation interests in whole loans, undivided interests in whole loans and
participations comprising another Freddie Mac Certificate group.
Mortgage Pass-Through Securities. As described in the Prospectus, the
--------------------------------
Underlying Funds may invest in both government guaranteed and privately issued
mortgage pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or
adjustable rate Mortgage-Backed Securities which provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
Description of Certificates. Mortgage Pass-Throughs may be issued in one or
---------------------------
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate.
Generally, each certificate will evidence the specified interest of the holder
thereof in the payments of principal or interest or both in respect of the
mortgage pool comprising part of the trust fund for such certificates.
B-31
<PAGE>
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
basis, or any combination thereof. The stated interest rate on any such
subclass of certificates may be a fixed rate or one which varies in direct or
inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to receive
its pro rata share of monthly distributions of all or a portion of principal of
the underlying mortgage loans or of interest on the principal balances thereof,
which accrues at the applicable mortgage pass-through rate, or both. The
difference between the mortgage interest rate and the related mortgage pass-
through rate (less the amount, if any, of retained yield) with respect to each
mortgage loan will generally be paid to the servicer as a servicing fee. Since
certain adjustable rate mortgage loans included in a mortgage pool may provide
for deferred interest (i.e., negative amortization), the amount of interest
actually paid by a mortgagor in any month may be less than the amount of
interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate-holders as principal of such mortgage loan
when paid by the mortgagor in subsequent monthly payments or at maturity.
Ratings. The ratings assigned by a rating organization to Mortgage Pass-
-------
Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
Credit Enhancement. Credit support falls generally into two categories: (i)
------------------
liquidity protection and (ii) protection against losses resulting from default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by, among other things,
payment guarantees, letters of credit, pool insurance, subordination, or any
combination thereof.
Subordination; Shifting of Interest; Reserve Fund. In order to achieve
-------------------------------------------------
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to
B-32
<PAGE>
receive any or a specified portion of distributions with respect to the
underlying mortgage loans may be subordinated to the rights of the senior
certificate-holders. If so structured, the subordination feature may be enhanced
by distributing to the senior certificate-holders on certain distribution dates,
as payment of principal, a specified percentage (which generally declines over
time) of all principal payments received during the preceding prepayment period
("shifting interest credit enhancement"). This will have the effect of
accelerating the amortization of the senior certificates while increasing the
interest in the trust fund evidenced by the subordinate certificates. Increasing
the interest of the subordinate certificates relative to that of the senior
certificates is intended to preserve the availability of the subordination
provided by the subordinate certificates. In addition, because the senior
certificate-holders in a shifting interest credit enhancement structure are
entitled to receive a percentage of principal prepayments which is greater than
their proportionate interest in the trust fund, the rate of principal
prepayments on the mortgage loans will have an even greater effect on the rate
of principal payments and the amount of interest payments on, and the yield to
maturity of, the senior certificates.
In addition to providing for a preferential right of the senior certificate-
holders to receive current distributions from the mortgage pool, a reserve fund
may be established relating to such certificates (the "Reserve Fund"). The
Reserve Fund may be created with an initial cash deposit by the originator or
servicer and augmented by the retention of distributions otherwise available to
the subordinate certificate-holders or by excess servicing fees until the
Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance the
likelihood of timely receipt by senior certificate-holders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificate-holders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated
amount is reduced to zero, senior certificate-holders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership interest of the subordinate
certificates in the mortgage pool. If the subordinated amount has been reduced
to zero, Realized Losses generally will be allocated pro rata among all
certificate-holders in proportion to their respective outstanding interests in
the mortgage pool.
Alternative Credit Enhancement. As an alternative, or in addition to the
------------------------------
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
Voluntary Advances. Generally, in the event of delinquencies in payments on
------------------
the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make
B-33
<PAGE>
advances of cash for the benefit of certificate-holders, but only to the extent
that it determines such voluntary advances will be recoverable from future
payments and collections on the mortgage loans or otherwise.
Optional Termination. Generally, the servicer may, at its option with respect
--------------------
to any certificates, repurchase all of the underlying mortgage loans remaining
outstanding at such time as the aggregate outstanding principal balance of such
mortgage loans is less than a specified percentage (generally 5-10%) of the
aggregate outstanding principal balance of the mortgage loans as of the cut-off
date specified with respect to such series.
Multiple Class Mortgage-Backed Securities and Collateralized Mortgage
---------------------------------------------------------------------
Obligations. An Underlying Fund may invest in multiple class securities
- -----------
including collateralized mortgage obligations ("CMOs") and REMIC Certificates.
These securities may be issued by U.S. Government agencies and instrumentalities
such as Fannie Mae or Freddie Mac or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
Mortgage-Backed Securities represent direct ownership interests in, a pool of
mortgage loans or Mortgage-Backed Securities the payments on which are used to
make payments on the CMOs or multiple class Mortgage-Backed Securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class Mortgage-Backed Securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Underlying Funds do not intend to purchase residual
interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed Mortgage-Backed Securities (the
"Mortgage Assets"). The obligations of Fannie Mae or Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae or Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or
B-34
<PAGE>
REMIC Certificates may cause some or all of the classes of CMOs or REMIC
Certificates to be retired substantially earlier than their final distribution
dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus, no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying mortgage assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
Stripped Mortgage-Backed Securities. Certain of the Underlying Funds may
-----------------------------------
invest in stripped mortgage-backed securities ("SMBS"), which are derivative
multiclass mortgage securities, issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by private issuers. Although the market for
such securities is increasingly liquid, privately issued SMBS may not be readily
marketable and will be considered illiquid for purposes of an Underlying Fund's
limitation on investments in illiquid securities. An Underlying Fund's
investment adviser may determine that SMBS which are U.S. Government Securities
are liquid for purposes of each Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market
B-35
<PAGE>
yields on other Mortgage-Backed Securities because their cash flow patterns are
more volatile and there is a greater risk that the initial investment will not
be fully recouped.
Asset-Backed Securities
Asset-backed securities represent participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property, receivables
from revolving credit (credit card) agreements and other categories of
receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may
be guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution unaffiliated
with the trust or corporation, or other credit enhancements may be present.
Like Mortgage-Backed Securities, asset-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of the pass-through of prepayments of principal on the underlying loans. During
periods of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, an Underlying Fund's
ability to maintain positions in such securities will be affected by reductions
in the principal amount of such securities resulting from prepayments, and its
ability to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. To the extent that an
Underlying Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by Mortgage-Backed Securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to Mortgage Assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
Futures Contracts and Options on Futures Contracts
Each Underlying Fund (other than Financial Square Prime Obligations Fund) may
purchase and sell futures contracts and may also purchase and write options on
futures contracts. CORE Large Cap Value and CORE Large Cap Growth Funds may
only enter into such transactions with respect to a representative index. CORE
U.S. Equity Fund may enter into futures transactions only with respect to the
S&P 500 Index. The other
B-36
<PAGE>
Funds may purchase and sell futures contracts based on various securities (such
as U.S. Government securities), securities indices, foreign currencies and other
financial instruments and indices. An Underlying Fund will engage in futures and
related options transactions, only for bona fide hedging purposes as defined
below or for purposes of seeking to increase total return to the extent
permitted by regulations of the Commodity Futures Trading Commission ("CFTC").
Futures contracts entered into by an Underlying Fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the CFTC or on
foreign exchanges. Neither the CFTC, National Futures Association nor any
domestic exchange regulates activities of any foreign exchange or boards of
trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign exchange or board of
trade or any applicable foreign law. This is true even if the exchange is
formally linked to a domestic market so that a position taken on the market may
be liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures or foreign options transaction occurs. For these reasons, persons who
trade foreign futures or foreign options contracts may not be afforded certain
of the protective measures provided by the Commodity Exchange Act, the CFTC's
regulations and the rules of the National Futures Association and any domestic
exchange, including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures Association or any
domestic futures exchange. In particular, an Underlying Fund's investments in
foreign futures or foreign options transactions may not be provided the same
protections in respect of transactions on United States futures exchanges.
Futures Contracts. A futures contract may generally be described as an
-----------------
agreement between two parties to buy and sell particular financial instruments
or currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
When interest rates are rising or securities prices are falling, an Underlying
Fund can seek through the sale of futures contracts to offset a decline in the
value of its current portfolio securities. When rates are falling or prices are
rising, an Underlying Fund, through the purchase of futures contracts, can
attempt to secure better rates or prices than might later be available in the
market when it effects anticipated purchases. Similarly, an Underlying Fund may
sell futures contracts on a specified currency to protect against a decline in
the value of such currency and its portfolio securities which are quoted or
denominated in such currency, or purchase futures contracts on foreign currency
to establish the price in U.S. dollars of a security quoted or denominated in
such currency that such Fund has acquired or expects to acquire. The Underlying
Fixed-Income Funds may also use futures contracts to manage their term
structure, sector selection and duration in accordance with their investment
objectives and policies.
Positions taken in the futures market are not normally held to maturity, but
are instead liquidated through offsetting transactions which may result in a
profit or a loss. While an Underlying Fund will usually liquidate futures
contracts on securities or currency in this manner, an Underlying Fund may
instead make or take delivery of the underlying securities or currency whenever
it appears economically advantageous for the Underlying Fund to do so. A
clearing corporation associated with the exchange on which futures are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
B-37
<PAGE>
Hedging Strategies. Hedging, by use of futures contracts, seeks to establish
------------------
with more certainty than would otherwise be possible the effective price, rate
of return or currency exchange rate on portfolio securities or securities that
an Underlying Fund owns or proposes to acquire. An Underlying Fund may, for
example, take a "short" position in the futures market by selling futures
contracts to seek to hedge against an anticipated rise in interest rates or a
decline in market prices or foreign currency rates that would adversely affect
the dollar value of such Fund's portfolio securities. Similarly, an Underlying
Fund may sell futures contracts on a currency in which its portfolio securities
are quoted or denominated or in one currency to seek to hedge against
fluctuations in the value of securities quoted or denominated in a different
currency if there is an established historical pattern of correlation between
the two currencies. If, in the opinion of an Underlying Fund's investment
adviser, there is a sufficient degree of correlation between price trends for an
Underlying Fund's portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, an Underlying Fund
may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in an Underlying Fund's
portfolio may be more or less volatile than prices of such futures contracts,
its investment adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having an Underlying Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting an Underlying Fund's portfolio securities. When hedging of this
character is successful, any depreciation in the value of portfolio securities
will be substantially offset by appreciation in the value of the futures
position. On the other hand, any unanticipated appreciation in the value of an
Underlying Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, an Underlying Fund may take a "long" position by
purchasing such futures contracts. This would be done, for example, when an
Underlying Fund anticipates the subsequent purchase of particular securities
when it has the necessary cash, but expects the prices or currency exchange
rates then available in the applicable market to be less favorable than prices
or rates that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
----------------------------
futures contracts will give an Underlying Fund the right (but not the
obligation), for a specified price, to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, an Underlying Fund obtains the
benefit of the futures position if prices move in a favorable direction but
limits its risk of loss in the event of an unfavorable price movement to the
loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which
may partially offset a decline in the value of an Underlying Fund's assets. By
writing a call option, an Underlying Fund becomes obligated, in exchange for the
premium, to sell a futures contract if the option is exercised, which may have a
value higher than the exercise price. Conversely, the writing of a put option
on a futures contract generates a premium, which may partially offset an
increase in the price of securities that an Underlying Fund intends to purchase.
However, an Underlying Fund becomes obligated upon exercise of the option to
purchase a futures contract if the option is exercised, which may have a value
lower than the exercise price. Thus, the loss incurred by an Underlying Fund in
writing
B-38
<PAGE>
options on futures is potentially unlimited and may exceed the amount of
the premium received. An Underlying Fund will incur transaction costs in
connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. An Underlying Fund's ability to establish and close out positions on
such options will be subject to the development and maintenance of a liquid
market.
Other Considerations. An Underlying Fund will engage in futures transactions
--------------------
and related options transactions only for bona fide hedging as defined in the
regulations of the CFTC or to seek to increase total return to the extent
permitted by such regulations.
In addition to bona fide hedging, a CFTC regulation permits an Underlying Fund
to engage in other futures transactions if the aggregate initial margin and
premiums required to establish such positions in futures contracts and options
on futures do not exceed 5% of the net asset value of such Fund's portfolio,
after taking into account unrealized profits and losses on any such positions
and excluding the amount by which such options were in-the-money at the time of
purchase. Transactions in futures contracts and related options may also be
limited by certain requirements that must be met in order for an Underlying Fund
to qualify as a regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in certain cases, require the Underlying
Fund to segregate cash or liquid assets in an amount equal to the underlying
value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for an Underlying Fund than if
it had not entered into any futures contracts or options transactions. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and an Underlying Fund may be exposed to risk of loss.
Perfect correlation between an Underlying Fund's futures positions and
portfolio positions will be difficult to achieve because no futures contracts
based on individual equity or corporate fixed-income securities are currently
available. In addition, it is not possible for an Underlying Fund to hedge
fully or perfectly against currency fluctuations affecting the value of
securities quoted or denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
The profitability of a Fund's trading in futures to seek to increase total
return depends upon the ability of its investment adviser to analyze correctly
the futures markets.
B-39
<PAGE>
Options on Securities and Securities Indices
Writing Covered Options. Certain of the Underlying Funds may write (sell)
-----------------------
covered call and put options on any securities in which they may invest. An
Underlying Fund may purchase and write such options on securities that are
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. A call option written by an
Underlying Fund obligates such Fund to sell specified securities to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. All call options written by an Underlying Fund are
covered, which means that such Fund will own the securities subject to the
option as long as the option is outstanding or such Fund will use the other
methods described below. An Underlying Fund's purpose in writing covered call
options is to realize greater income than would be realized on portfolio
securities transactions alone. However, an Underlying Fund may forego the
opportunity to profit from an increase in the market price of the underlying
security.
A put option written by an Underlying Fund would obligate such Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. All put options
written by an Underlying Fund would be covered, which means that such Fund would
have segregated cash or liquid assets with a value at least equal to the
exercise price of the put option. The purpose of writing such options is to
generate additional income for the Underlying Fund. However, in return for the
option premium, each Fund accepts the risk that it may be required to purchase
the underlying securities at a price in excess of the securities' market value
at the time of purchase.
Call and put options written by an Underlying Fund will also be considered to
be covered to the extent that the Underlying Fund's liabilities under such
options are wholly or partially offset by its rights under call and put options
purchased by the Underlying Fund.
In addition, a written call option or put option may be covered by segregating
cash or liquid assets (either of which may be quoted or denominated in any
currency), by entering into an offsetting forward contract and/or by purchasing
an offsetting option which, by virtue of its exercise price or otherwise,
reduces an Underlying Fund's net exposure on its written option position.
The Underlying Funds may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index
options are designed to reflect price fluctuations in a group of securities or
segment of the securities market rather than price fluctuations in a single
security.
An Underlying Fund may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration which has been segregated by the Underlying Fund) upon conversion
or exchange of other securities in its portfolio. An Underlying Fund may cover
call and put options on a securities index by segregating cash
B-40
<PAGE>
or liquid assets with a value equal to the exercise price or by using the other
methods described above.
An Underlying Fund may terminate its obligations under an exchange-traded call
or put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."
Purchasing Options. Each Underlying Fund (other than CORE Large Cap Value,
------------------
CORE U.S. Equity, CORE Large Cap Growth and Financial Square Prime Obligations
Funds) may purchase put and call options on any securities in which it may
invest or options on any securities index composed of securities in which it may
invest. An Underlying Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
purchased.
An Underlying Fund would normally purchase call options in anticipation of an
increase in the market value of securities of the type in which it may invest.
The purchase of a call option would entitle an Underlying Fund, in return for
the premium paid, to purchase specified securities at a specified price during
the option period. An Underlying Fund would ordinarily realize a gain if,
during the option period, the value of such securities exceeded the sum of the
exercise price, the premium paid and transaction costs; otherwise such an
Underlying Fund would realize either no gain or a loss on the purchase of the
call option.
An Underlying Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts"),
or in securities in which it may invest. The purchase of a put option would
entitle an Underlying Fund, in exchange for the premium paid, to sell specified
securities at a specified price during the option period. The purchase of
protective puts is designed to offset or hedge against a decline in the market
value of an Underlying Fund's securities. Put options may also be purchased by
an Underlying Fund for the purpose of affirmatively benefiting from a decline in
the price of securities which it does not own. An Underlying Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to more
than cover the premium and transaction costs; otherwise such an Underlying Fund
would realize either no gain or a loss on the purchase of the put option. Gains
and losses on the purchase of protective put options would tend to be offset by
countervailing changes in the value of the underlying portfolio securities.
An Underlying Fund would purchase put and call options on securities indices
for the same purposes as it would purchase options on individual securities.
For a description of options on securities indices, see "Writing Covered
Options" above.
Yield Curve Options. Each Underlying Fixed-Income Fund may enter into options
-------------------
on the yield "spread" or differential between two securities. Such transactions
are referred to as "yield curve" options. In contrast to other types of
options, a yield curve option is based on the difference between the yields of
designated securities, rather than the prices of the individual securities, and
is settled through cash payments. Accordingly, a yield curve option is
profitable to the holder if this differential widens (in the case of a call) or
narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.
B-41
<PAGE>
An Underlying Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, an Underlying Fund may
purchase a call option on the yield spread between two securities if the
Underlying Fund owns one of the securities and anticipates purchasing the other
security and wants to hedge against an adverse change in the yield spread
between the two securities. An Underlying Fund may also purchase or write yield
curve options in an effort to increase current income if, in the judgment of its
investment adviser, the Underlying Fund will be able to profit from movements in
the spread between the yields of the underlying securities. The trading of
yield curve options is subject to all of the risks associated with the trading
of other types of options. In addition, however, such options present risk of
loss even if the yield of one of the underlying securities remains constant, or
if the spread moves in a direction or to an extent which was not anticipated.
Yield curve options written by an Underlying Fund will be "covered." A call
(or put) option is covered if an Underlying Fund holds another call (or put)
option on the spread between the same two securities and segregates cash or
liquid assets sufficient to cover the Underlying Fund's net liability under the
two options. Therefore, an Underlying Fund's liability for such a covered
option is generally limited to the difference between the amount of the
Underlying Fund's liability under the option written by the Underlying Fund less
the value of the option held by the Underlying Fund. Yield curve options may
also be covered in such other manner as may be in accordance with the
requirements of the counterparty with which the option is traded and applicable
laws and regulations. Yield curve options are traded over-the-counter, and the
trading markets for these options may not be as developed.
Risks Associated with Options Transactions. There is no assurance that a
------------------------------------------
liquid secondary market on a domestic or foreign options exchange will exist for
any particular exchange-traded option or at any particular time. If an
Underlying Fund is unable to effect a closing purchase transaction with respect
to covered options it has written, the Underlying Fund will not be able to sell
the underlying securities or dispose of segregated assets until the options
expire or are exercised. Similarly, if an Underlying Fund is unable to effect a
closing sale transaction with respect to options it has purchased, it will have
to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
B-42
<PAGE>
An Underlying Fund may purchase and sell both options that are traded on U.S.
and foreign exchanges and options traded over-the-counter with broker-dealers
who make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations.
Transactions by an Underlying Fund in options will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities governing the maximum number of options in each class which may be
written or purchased by a single investor or group of investors acting in
concert. Thus, the number of options which an Underlying Fund may write or
purchase may be affected by options written or purchased by other investment
advisory clients of the Underlying Funds' investment advisers. An exchange,
board of trade or other trading facility may order the liquidation of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if an investment adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of an investment adviser to predict future price fluctuations and
the degree of correlation between the options and securities markets. If the an
investment adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
Warrants and Stock Purchase Rights
Certain of the Underlying Funds may invest a portion of their assets in
warrants or rights (including those acquired in units or attached to other
securities) which entitle the holder to buy equity securities at a specific
price for a specific period of time. An Underlying Fund will invest in warrants
and rights only if such securities are deemed appropriate by its investment
adviser for investment by the Underlying Fund. Warrants and rights have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Foreign Investments
Investments in foreign securities may offer potential benefits not available
from investments solely in U.S. dollar-denominated or quoted securities of
domestic issuers. Such benefits may include the opportunity to invest in
foreign issuers that appear, in the opinion of an Underlying Fund's investment
adviser, to offer the potential for long-term growth of capital and income than
investments in U.S. securities, the opportunity to invest in foreign countries
with economic policies or business cycles different from those of the United
States and the opportunity to reduce fluctuations in portfolio value by taking
advantage of foreign securities markets that do not necessarily move in a manner
parallel to U.S. markets.
B-43
<PAGE>
Investing in foreign securities also involves, however, certain special
considerations, including those set forth below, which are not typically
associated with investing in U.S. dollar-denominated or quoted securities of
U.S. issuers. Investments in foreign securities usually involve currencies of
foreign countries. Accordingly, any Underlying Fund that invests in foreign
securities may be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations and may incur costs in connection with
conversions between various currencies. An Underlying Fund may be subject to
currency exposure independent of its securities positions. To the extent that a
Fund is fully invested in foreign securities while also maintaining currency
positions, it may be exposed to greater combined risk.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency controls
or political developments in the United States or abroad. To the extent that a
substantial portion of an Underlying Fund's total assets, adjusted to reflect
the Underlying Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Underlying
Fund will be more susceptible to the risk of adverse economic and political
developments within those countries. In addition, if the currency in which an
Underlying Fund receives dividends, interest or other payment declines in value
against the U.S. dollar before such income is distributed as dividends to
shareholders or converted to U.S. dollars, the Underlying Fund may have to sell
portfolio securities to obtain sufficient cash to pay such dividends.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Underlying Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of foreign securities exchanges, brokers,
dealers and listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of an Underlying Fund's assets are uninvested and no return is
earned on such assets. The inability of an Underlying Fund to make intended
security purchases due to settlement problems could cause the Underlying Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to an
Underlying Fund due to subsequent declines in value of the portfolio securities
or, if the Underlying Fund has entered into a contract to sell the securities,
could result in possible liability to the purchaser. In addition, with respect
to certain foreign countries, there is the possibility of expropriation
B-44
<PAGE>
or confiscatory taxation, political or social instability, or diplomatic
developments which could affect an Underlying Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Investments in foreign securities may take the form of sponsored and
unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts
("GDRs"), European Depository Receipts ("EDRs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts").
ADRs represent the right to receive securities of foreign issuers deposited in
a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges
or in the U.S. over-the-counter market and, generally, are in registered form.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in the non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
To the extent an Underlying Fund acquires Depository Receipts through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the Depository Receipts to issue and service such Depository
Receipts (unsponsored), there may be an increased possibility that the
Underlying Fund would not become aware of and be able to respond to corporate
actions such as stock splits or rights offerings involving the foreign issuer in
a timely manner. In addition, the lack of information may result in
inefficiencies in the valuation of such instruments.
Certain of the Underlying Funds may invest in countries with emerging
economies or securities markets. Political and economic structures in many of
such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks described above, including the risks of nationalization or expropriation
of assets, may be heightened. See "Investing in Emerging Markets" below.
Investing in Emerging Markets. CORE International Equity, International
-----------------------------
Equity, European Equity, Japanese Equity, International Small Cap, Asia Growth
and Emerging Markets Equity Funds are intended for long-term investors who can
accept the risks associated with investing primarily in equity and equity-
related securities of foreign issuers, including (for certain Funds) emerging
country issuers, as well as the risks associated with investments quoted or
denominated in foreign currencies. Growth and Income, Small Cap Value,
Mid Cap Value and Capital Growth Funds may invest, to a lesser extent, in equity
and equity-related securities of foreign issuers, including emerging country
issuers. The Core Fixed Income, Global Income and High Yield Funds may invest in
debt securities of foreign issuers, including emerging country issuers. In
addition, certain of the potential investment and management techniques of these
Funds entail special risks.
B-45
<PAGE>
Each of the securities markets of the emerging countries is less liquid and
subject to greater price volatility and has a smaller market capitalization than
the U.S. securities markets. Issuers and securities markets in such countries
are not subject to as extensive and frequent accounting, financial and other
reporting requirements or as comprehensive government regulations as are issuers
and securities markets in the U.S. In particular, the assets and profits
appearing on the financial statements of emerging country issuers may not
reflect their financial position or results of operations in the same manner as
financial statements for U.S. issuers. Substantially less information may be
publicly available about emerging country issuers than is available about
issuers in the United States.
Emerging country securities markets are typically marked by a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
The markets for securities in certain emerging countries are in the earliest
stages of their development. A Fund's investments in emerging countries are
subject to the risk that the liquidity of particular instruments, or instruments
generally in such countries, will shrink or disappear suddenly and without
warning as a result of adverse economic, market or political conditions, or
adverse investing perceptions, whether or not accurate. Even the markets for
relatively widely traded securities in emerging countries may not be able to
absorb, without price disruptions, a significant increase in trading volume or
trades of a size customarily undertaken by institutional investors in the
securities markets of developed countries. Additionally, market making and
arbitrage activities are generally less extensive in such markets, which may
contribute to increased volatility and reduced liquidity of such markets. The
limited liquidity of emerging country securities may also affect an Underlying
Fund's ability to accurately value its portfolio securities or to acquire or
dispose of such securities at the price and times it wishes to do so. The risks
associated with reduced liquidity may be particularly acute to the extent that
an Underlying Fund needs cash to meet redemption requests, to pay dividends and
other distributions or to pay its expenses.
Transaction costs, including brokerage commissions or dealer mark-ups, in
emerging countries may be higher than in the United States and other developed
securities markets. In addition, existing laws and regulations are often
inconsistently applied. As legal systems in emerging countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
Foreign investment in the securities markets of certain emerging countries is
restricted or controlled to varying degrees. These restrictions may limit an
Underlying Fund's investment in certain emerging countries and may increase the
expenses of the Underlying Fund. Certain emerging countries require
governmental approval prior to investments by foreign persons or limit
investment by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. In addition, the repatriation of both investment
income and capital from several of the emerging countries is subject to
restrictions which require governmental consents or prohibit repatriation
entirely for a period of time. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of an Underlying Fund. An Underlying Fund may be
B-46
<PAGE>
required to establish special custodial or other arrangements before investing
in certain emerging countries.
Each of the emerging countries may be subject to a greater degree of economic,
political and social instability than is the case in the United States, Japan
and most Western European countries. This instability may result from, among
other things, the following: (i) authoritarian governments or military
involvement in political and economic decision making, including changes or
attempted changes in governments through extra-constitutional means; (ii)
popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which the Underlying Funds may invest and
adversely affect the value of the Underlying Funds' assets.
The economies of emerging countries may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments. Many
emerging countries have experienced in the past, and continue to experience,
high rates of inflation. In certain countries inflation has at times
accelerated rapidly to hyperinflationary levels, creating a negative interest
rate environment and sharply eroding the value of outstanding financial assets
in those countries. The economies of many emerging countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners. In
addition, the economies of some emerging countries are vulnerable to weakness in
world prices for their commodity exports.
An Underlying Fund's income and, in some cases, capital gains from foreign
stocks and securities will be subject to applicable taxation in certain of the
countries in which it invests, and treaties between the U.S. and such countries
may not be available in some cases to reduce the otherwise applicable tax rates.
Foreign markets may also have different clearance and settlement procedures
and in certain U.S. markets, there have been times when settlements have been
unable to keep pace with the volume of securities transactions making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of an Underlying Fund's assets is uninvested
and no return is earned thereon. The inability of an Underlying Fund to make
intended security purchases or sales due to settlement problems could result
either in losses to the Underlying Fund due to subsequent declines in value of
the portfolio securities or, if the Underlying Fund has entered into a contract
to sell the securities, could result in possible liability of the Underlying
Fund to the purchaser. The creditworthiness of the local securities firms used
by a Fund in emerging countries may not be as sound as the creditworthiness of
firms used in more developed countries, thus subjecting the Fund to a greater
risk if a securities firm defaults in the performance of its
responsibilities.
Investing in Japan. The Japanese Equity Fund invests in the equity securities
------------------
of Japanese companies. Japan's economy, the second-largest in the world, has
grown substantially over the last three decades. The boom in Japan's equity and
property markets during the expansion of the late 1980's supported high rates of
investment and consumer spending on durable goods, but both of these components
of demand have now retreated
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sharply following the decline in asset prices. Profits have fallen sharply,
unemployment has reached a historical high and consumer confidence is low. The
banking sector continues to suffer from non-performing loans and this economy is
subject to deflationary pressures. Numerous discount-rate cuts since its peak in
1991, a succession of fiscal stimulus packages, support plans for the debt-
burdened financial system and spending for reconstruction following the Kobe
earthquake may help to contain the recessionary forces, but substantial
uncertainties remain.
In addition to the cyclical downturn, Japan is suffering through structural
adjustments. The Japanese have seen a deterioration of their competitiveness
due to high wages, a strong currency and structural rigidities. Finally, Japan
is reforming its political process and deregulating its economy. This has
brought about turmoil, uncertainty and a crisis of confidence.
While the Japanese governmental system itself seems stable, the dynamics of
the country's politics have been unpredictable in recent years. The economic
crisis of 1990-92 brought the downfall of the conservative Liberal Democratic
Party, which had ruled since 1955. Since then, the country has seen a series of
unstable multi-party coalitions and several prime ministers come and go, because
of politics as well as personal scandals. While there appears to be no reason
for anticipating civic unrest, it is impossible to know when the political
instability will end and what trade and fiscal policies might be pursued by the
government that emerges.
Japan's heavy dependence on international trade has been adversely affected by
trade tariffs and other protectionist measures as well as the economic condition
of its trading partners. While Japan subsidizes its agricultural industry, only
19% of its land is suitable for cultivation and it is only 50% self-sufficient
in food production. Accordingly, it is highly dependent on large imports of
wheat, sorghum and soybeans. In addition, industry, its most important economic
sector, depends on imported raw materials and fuels, including iron ore, copper,
oil and many forest products. Japan's high volume of exports, such as
automobiles, machine tools and semiconductors, have caused trade tensions,
particularly with the United States. Some trade agreements, however, have been
implemented to reduce these tensions. The relaxing of official and de facto
barriers to imports, or hardships created by any pressures brought by trading
partners, could adversely affect Japan's economy. A substantial rise in world
oil or commodity prices could also have a negative affect. The strength of the
yen itself may prove an impediment to strong continued exports and economic
recovery, because it makes Japanese goods sold in other countries more expensive
and reduces the value of foreign earnings repatriated to Japan. Because the
Japanese economy is so dependent on exports, any fall-off in exports may be seen
as a sign of economic weakness, which may adversely affect the market.
Geologically, Japan is located in a volatile area of the world, and has
historically been vulnerable to earthquakes, volcanoes and other natural
disasters. As demonstrated by the Kobe earthquake in January of 1995, in which
5,000 people were killed and billions of dollars of damage was sustained, these
natural disasters can be significant enough to affect the country's economy.
Sovereign Debt Obligations. Investments in sovereign debt obligations involve
special risks not present in corporate debt obligations. The issuer of the
sovereign debt or the governmental authorities that control the repayment of the
debt may be unable or unwilling to
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repay principal or interest when due, and an Underlying Fund may have limited
recourse in the event of a default. During periods of economic uncertainty, the
market prices of sovereign debt, and an Underlying Fund's net asset value, may
be more volatile than prices of debt obligations of U.S. issuers. In the past,
the governments of certain emerging markets have encountered difficulties in
servicing their debt obligations, withheld payments of principal and interest
and declared moratoria on the payment of principal and interest on their
sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multinational agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of the third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to timely
service its debts.
Forward Foreign Currency Exchange Contracts. Certain of the Underlying Funds
may enter into forward foreign currency exchange contracts for hedging purposes.
CORE International Equity, International Equity, European Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity, Asia Growth, Global
Income, Core Fixed Income and High Yield Funds may also enter into forward
foreign currency exchange contracts to seek to increase total return. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
generally charged at any stage for trades.
At the maturity of a forward contract an Underlying Fund may either accept or
make delivery of the currency specified in the contract or, at or prior to
maturity, enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
often, but not always, effected with the currency trader who is a party to the
original forward contract.
An Underlying Fund may enter into forward foreign currency exchange contracts
in several circumstances. First, when an Underlying Fund enters into a contract
for the purchase or sale of a security denominated or quoted in a foreign
currency, or when an Underlying Fund anticipates the receipt in a foreign
currency of dividend or interest payments on such a security which it holds, the
Underlying Fund may desire to "lock in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such dividend or interest payment, as the case may
be. By entering into a forward contract for the purchase or sale, for a fixed
amount of dollars, of the amount of foreign currency involved in the underlying
transactions, the Underlying Fund will attempt to protect itself against an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
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Additionally, when an Underlying Fund's investment adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell, for a
fixed amount of U.S. dollars, the amount of foreign currency approximating the
value of some or all of an Underlying Fund's portfolio securities quoted or
denominated in such foreign currency. The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date on which the contract is entered into and the date it matures.
Using forward contracts to protect the value of an Underlying Fund's portfolio
securities against a decline in the value of a currency does not eliminate
fluctuations in the underlying prices of the securities. It simply establishes
a rate of exchange which an Underlying Fund can achieve at some future point in
time. The precise projection of short-term currency market movements is not
possible, and short-term hedging provides a means of fixing the U.S. dollar
value of only a portion of an Underlying Fund's foreign assets.
The CORE International Equity, International Equity, European Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity, Asia Growth, Core
Fixed Income, Global Income and High Yield Funds may engage in cross-hedging by
using forward contracts in one currency to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if an
Underlying Fund's investment adviser determines that there is a pattern of
correlation between the two currencies. These Funds may also purchase and sell
forward contracts to seek to increase total return when an Underlying Fund's
investment adviser anticipates that the foreign currency will appreciate or
depreciate in value, but securities quoted or denominated in that currency do
not present attractive investment opportunities and are not held in the
Underlying Fund's portfolio.
Unless otherwise covered, cash or liquid assets of an Underlying Fund will be
segregated in an amount equal to the value of the Underlying Fund's total assets
committed to the consummation of forward foreign currency exchange contracts
requiring the Fund to purchase foreign currencies and forward contracts entered
into to seek to increase total return. The segregated assets will be marked-to-
market on a daily basis. If the value of the segregated assets declines,
additional liquid assets will be segregated so that the value will equal the
amount of an Underlying Fund's commitments with respect to such contracts.
Although the contracts are not presently regulated by the CFTC, the CFTC may in
the future assert authority to regulate these contracts. In such event, an
Underlying Fund's ability to utilize forward foreign currency exchange contracts
may be restricted. The Core Fixed-Income, Global Income and High Yield Funds
will not enter into a forward contract with a term of greater than one
year.
While an Underlying Fund may enter into forward contracts to reduce currency
exchange rate risks, transactions in such contracts involve certain other risks.
Thus, while an Underlying Fund may benefit from such transactions, unanticipated
changes in currency prices may result in a poorer overall performance for the
Underlying Fund than if it had not engaged in any such transactions. Moreover,
there may be imperfect correlation between an Underlying Fund's portfolio
holdings of securities quoted or denominated in a particular currency and
forward contracts entered into by such Fund. Such imperfect correlation may
cause an Underlying Fund to sustain losses which will prevent the Underlying
Fund from achieving a complete hedge or expose the Underlying Fund to risk of
foreign exchange loss.
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Markets for trading foreign forward currency contracts offer less protection
against defaults than is available when trading in currency instruments on an
exchange. Forward contracts are subject to the risk that the counterparty to
such contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive an Underlying Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Underlying
Fund to cover its purchase or sale commitments, if any, at the current market
price.
Forward contracts are subject to the risk that the counterparty to such
contract will default on its obligations. Since a forward foreign currency
exchange contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive an Underlying Fund of unrealized profits,
transaction costs or the benefits of a currency hedge or force the Underlying
Fund to cover its purchase or sale commitments, if any, at the current market
price. An Underlying Fund will not enter into such transactions unless the
credit quality of the unsecured senior debt or the claims-paying ability of the
counterparty is considered to be investment grade by its investment adviser.
Writing and Purchasing Currency Call and Put Options. Certain of the
Underlying Funds may write covered put and call options and purchase put and
call options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired. As with
other kinds of option transactions, however, the writing of an option on foreign
currency will constitute only a partial hedge, up to the amount of the premium
received. If and when an Underlying Fund seeks to close out an option, the
Underlying Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to
an Underlying Fund's position, the Underlying Fund may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign currencies
written or purchased by an Underlying Fund will be traded on U.S. and foreign
exchanges or over-the-counter.
CORE International Equity, International Equity, European Equity, Japanese
Equity, International Small Cap, Emerging Markets Equity, Asia Growth, Core
Fixed Income, Global Income and High Yield Funds may use options on currency to
cross-hedge, which involves writing or purchasing options on one currency to
hedge against changes in exchange rates for a different currency with a pattern
of correlation. In addition, certain Underlying Funds may purchase call or put
options on currency to seek to increase total return when an Underlying Fund's
investment adviser anticipates that the currency will appreciate or depreciate
in value, but the securities quoted or denominated in that currency do not
present attractive investment opportunities and are not included in the
Underlying Fund's portfolio.
A call option written by an Underlying Fund obligates an Underlying Fund to
sell specified currency to the holder of the option at a specified price if the
option is exercised before the expiration date. A put option written by an
Underlying Fund would obligate an Underlying Fund to purchase specified currency
from the option holder at a specified price if the option is exercised at any
time before the expiration date. The writing of currency options involves a
risk that an Underlying Fund will, upon exercise of the option, be required
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to sell currency subject to a call at a price that is less than the currency's
market value or be required to purchase currency subject to a put at a price
that exceeds the currency's market value. For a description of how to cover
written put and call options, see "Writing Covered Options" above.
An Underlying Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." An Underlying Fund may enter
into closing sale transactions in order to realize gains or minimize losses on
options purchased by the Underlying Fund.
An Underlying Fund would normally purchase call options on foreign currency in
anticipation of an increase in the U.S. dollar value of currency in which
securities to be acquired by an Underlying Fund are quoted or denominated. The
purchase of a call option would entitle the Underlying Fund, in return for the
premium paid, to purchase specified currency at a specified price during the
option period. An Underlying Fund would ordinarily realize a gain if, during
the option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the Underlying Fund
would realize either no gain or a loss on the purchase of the call option.
An Underlying Fund would normally purchase put options in anticipation of a
decline in the U.S. dollar value of currency in which securities in its
portfolio are quoted or denominated ("protective puts"). The purchase of a put
option would entitle an Underlying Fund, in exchange for the premium paid, to
sell specified currency at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the dollar value of an Underlying Fund's portfolio securities due to
currency exchange rate fluctuations. An Underlying Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
currency decreased below the exercise price sufficiently to more than cover the
premium and transaction costs; otherwise the Underlying Fund would realize
either no gain or a loss on the purchase of the put option. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying currency or portfolio securities.
In addition to using options for the hedging purposes described above, certain
Underlying Funds may use options on currency to seek to increase total return.
These Funds may write (sell) covered put and call options on any currency in
order to realize greater income than would be realized on portfolio securities
transactions alone. However, in writing covered call options for additional
income, an Underlying Fund may forego the opportunity to profit from an increase
in the market value of the underlying currency. Also, when writing put
options, an Underlying Fund accepts, in return for the option premium, the risk
that it may be required to purchase the underlying currency at a price in excess
of the currency's market value at the time of purchase.
Special Risks Associated With Options on Currency. An exchange traded option
position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. In such event, it might not be possible to effect
closing transactions in particular options, with the result that an Underlying
Fund would have to exercise its options in order to realize any profit and would
incur transaction costs upon the sale of underlying securities pursuant to the
exercise of put
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options. If an Underlying Fund as a covered call option writer is unable to
effect a closing purchase transaction in a secondary market, it may not be able
to sell the underlying currency (or security quoted or denominated in that
currency) until the option expires or it delivers the underlying currency upon
exercise.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of the
Options Clearing Corporation inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
An Underlying Fund may purchase and write over-the-counter options to the
extent consistent with its limitation on investments in illiquid securities.
Trading in over-the-counter options is subject to the risk that the other party
will be unable or unwilling to close out options purchased or written by an
Underlying Fund.
The amount of the premiums which an Underlying Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing activities.
Mortgage Dollar Rolls
Certain of the Underlying Fixed-Income Funds may enter into mortgage "dollar
rolls" in which an Underlying Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity), but not identical securities on a
specified future date. During the roll period, an Underlying Fund loses the
right to receive principal and interest paid on the securities sold. However,
an Underlying Fund would benefit to the extent of any difference between the
price received for the securities sold and the lower forward price for the
future purchase (often referred to as the "drop") or fee income plus the
interest earned on the cash proceeds of the securities sold until the settlement
date of the forward purchase. Unless such benefits exceed the income, capital
appreciation and gain or loss due to mortgage prepayments that would have been
realized on the securities sold as part of the mortgage dollar roll, the use of
this technique will diminish the investment performance of an Underlying Fund
compared with what such performance would have been without the use of mortgage
dollar rolls. All cash proceeds will be invested in instruments that are
permissible investments for the applicable Fund. An Underlying Fund segregate
until the settlement date cash or liquid assets, as permitted by applicable law,
in an amount equal to its forward purchase price.
For financial reporting and tax purposes, the Underlying Funds treat mortgage
dollar rolls as two separate transactions; one involving the purchase of a
security and a separate transaction involving a sale. The Underlying Funds do
not currently intend to enter into mortgage dollar rolls that are accounted for
as a financing.
Mortgage dollar rolls involve certain risks including the following: if the
broker-dealer to whom an Underlying Fund sells the security becomes insolvent,
an Underlying Fund's right to purchase or repurchase the mortgage-related
securities subject to the mortgage dollar roll may be restricted and the
instrument which an Underlying Fund is required to repurchase may be worth less
than an instrument which an Underlying Fund originally held. Successful use of
mortgage dollar rolls will depend upon the ability of an
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Underlying Fund's investment adviser to manage an Underlying Fund's interest
rate and mortgage prepayments exposure. For these reasons, there is no assurance
that mortgage dollar rolls can be successfully employed.
Convertible Securities
Convertible securities include corporate notes or preferred stock but are
ordinarily long-term debt obligations of the issuer convertible at a stated
exchange rate into common stock of the issuer. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. Convertible
securities generally offer lower interest or dividend yields than non-
convertible securities of similar quality. However, when the market price of
the common stock underlying a convertible security exceeds the conversion price,
the price of the convertible security tends to reflect the value of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security tends to trade increasingly on a yield basis,
and thus may not depreciate to the same extent as the underlying common stock.
Convertible securities rank senior to common stocks in an issuer's capital
structure and consequently entail less risk than the issuer's common stock.
Currency Swaps, Mortgage Swaps, Credit Swaps, Index Swaps and Interest Rate
Swaps, Caps, Floors and Collars
The CORE International Equity, International Equity, Emerging Markets Equity,
European Equity, Japanese Equity, Asia Growth, International Small Cap, Core
Fixed Income, Global Income and High Yield Funds may enter into currency swaps
for both hedging purposes and to seek to increase total return. In addition,
the Underlying Fixed-Income Funds and Real Estate Securities Fund may enter into
mortgage, credit, index and interest rate swaps and other interest rate swap
arrangements such as rate caps, floors and collars, for hedging purposes or to
seek to increase total return. Currency swaps involve the exchange by an
Underlying Fund with another party of their respective rights to make or receive
payments in specified currencies. Interest rate swaps involve the exchange by
an Underlying Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index swaps
involve the exchange by an Underlying Fund with another party of the respective
amounts payable with respect to a notional principal amount at interest rates
equal to two specified indices. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate cap. Credit swaps involve the receipt
of floating or fixed rate payments in exchange for assuming potential credit
losses of an underlying security. Credit swaps give one party to a transaction
the right to dispose of or acquire an asset (or group of assets), or the right
to receive or make a payment from the other party, upon the occurrence of
specified credit events. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling the interest rate floor. An interest rate collar is the
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates. Since interest rate, mortgage and
currency swaps and interest rate caps, floors and collars are individually
negotiated, each Fund expects to achieve an
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acceptable degree of correlation between its portfolio investments and its swap,
cap, floor and collar positions.
An Underlying Fund will enter into interest rate, mortgage and index swaps
only on a net basis, which means that the two payment streams are netted out,
with the Underlying Fund receiving or paying, as the case may be, only the net
amount of the two payments. Interest rate, index and mortgage swaps do not
involve the delivery of securities, other underlying assets or principal.
Accordingly, the risk of loss with respect to interest rate, index and mortgage
swaps is limited to the net amount of interest payments that the Underlying Fund
is contractually obligated to make. If the other party to an interest rate,
index or mortgage swap defaults, the Underlying Fund's risk of loss consists of
the net amount of interest payments that the Underlying Fund is contractually
entitled to receive, if any. In contrast, currency swaps usually involve the
delivery of the entire principal amount of one designated currency in exchange
for the other designated currency. Therefore, the entire principal value of a
currency swap is subject to the risk that the other party to the swap will
default on its contractual delivery obligations. To the extent that the net
amount payable under an interest rate, index or mortgage swap and the entire
amount of the payment stream payable by an Underlying Fund under a currency swap
or an interest rate floor, cap or collar are covered by segregated cash or
liquid assets, the Underlying Funds and their investment advisers believe that
transactions do not constitute senior securities under the Act and, accordingly,
will not treat them as being subject to an Underlying Fund's borrowing
restrictions.
An Underlying Equity Fund will not enter into swap transactions unless the
unsecured commercial paper, senior debt or claims paying ability of the other
party thereto is considered to be investment grade by its investment adviser.
The Underlying Fixed-Income Funds will not enter into any interest rate,
mortgage or credit swap transactions unless the unsecured commercial paper,
senior debt or claims-paying ability of the other party is rated either AA or A-
1 or better by Standard & Poor's or Aa or P-1 or better by Moody's or, if
unrated by such rating agencies, determined to be of comparable quality by the
applicable investment adviser. The Core Fixed Income, Global Income and High
Yield Funds will not enter into any currency swap transactions unless the
unsecured commercial paper, senior debt or claims-paying ability of the other
party thereto is rated investment grade by Standard & Poor's or Moody's or their
equivalent ratings or, if unrated by such rating agencies, determined to be of
comparable quality by the applicable investment adviser. If there is a default
by the other party to such a transaction, an Underlying Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the interbank market. The investment advisers,
under the supervision of the Board of Trustees, are responsible for determining
and monitoring the liquidity of the Underlying Funds' transactions in swaps,
caps, floors and collars.
The use of interest rate, mortgage, credit, index and currency swaps, as well
as interest rate caps, floors and collars, is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If an Underlying Fund's
investment adviser is incorrect in its forecasts of market values, interest
rates and currency exchange rates, the investment
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performance of an Underlying Fund would be less favorable than it would have
been if this investment technique were not used.
Equity Swaps
Each Underlying Equity Fund may enter into equity swap contracts to invest in
a market without owning or taking physical custody of securities in
circumstances in which direct investment is restricted for legal reasons or is
otherwise impracticable. The counterparty to an equity swap contract will
typically be a bank, investment banking firm or broker/dealer. The counterparty
will generally agree to pay the Underlying Fund the amount, if any, by which the
notional amount of the equity swap contract would have increased in value had it
been invested in the particular stocks, plus the dividends that would have been
received on those stocks. The Underlying Fund will agree to pay to the
counterparty a floating rate of interest on the notional amount of the equity
swap contract plus the amount, if any, by which that notional amount would have
decreased in value had it been invested in such stocks. Therefore, the return
to the Underlying Fund on any equity swap contract should be the gain or loss on
the notional amount plus dividends on the stocks less the interest paid by the
Underlying Fund on the notional amount.
An Underlying Fund will enter into equity swaps only on a net basis, which
means that the two payment streams are netted out, with the Underlying Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Payments may be made at the conclusion of an equity swap contract or
periodically during its term. Equity swaps do not involve the delivery of
securities or other underlying assets. Accordingly, the risk of loss with
respect to equity swaps is limited to the net amount of payments that an
Underlying Fund is contractually obligated to make. If the other party to an
equity swap defaults, an Underlying Fund's risk of loss consists of the net
amount of payments that such Fund is contractually entitled to receive, if any.
The net amount of the excess, if any, of an Underlying Fund's obligations over
its entitlements with respect to each equity swap will be accrued on a daily
basis and an amount of cash or liquid assets, having an aggregate net asset
value at least equal to such accrued excess will be segregated. Inasmuch as
these transactions are entered into for hedging purposes or are offset by
segregated cash or liquid assets, as permitted by applicable law, the Underlying
Funds and their investment advisers believe that transactions do not constitute
senior securities under the Act and, accordingly, will not treat them as being
subject to an Underlying Fund's borrowing restrictions.
Real Estate Investment Trusts
The Underlying Equity Funds may invest in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interest. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Like regulated investment
companies such as the Underlying Funds, REITs are not taxed on income
distributed to shareholders provided they comply with certain requirements under
the Code. An Underlying Fund will indirectly
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<PAGE>
bear its proportionate share of any expenses paid by REITs in which it invests
in addition to the expenses paid by an Underlying Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Act. REITs (especially mortgage REITs) are also subject to
interest rate risks.
Lending of Portfolio Securities
The Underlying Funds may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. An
Underlying Fund would be required to have the right to call a loan and obtain
the securities loaned at any time on five days' notice. For the duration of a
loan, an Underlying Fund would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities loaned and would also
receive compensation from investment of the collateral. An Underlying Fund
would not have the right to vote any securities having voting rights during the
existence of the loan, but an Underlying Fund would call the loan in
anticipation of an important vote to be taken among holders of the securities or
the giving or withholding of their consent on a material matter affecting the
investment. As with other extensions of credit there are risks of delay in
recovering, or even loss of rights in, the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by an Underlying Fund's investment adviser to be of good standing, and
when, in the judgment of an Underlying Fund's investment adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If an investment adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed one-third of the value of the total assets of an Underlying Fund
(including the loan collateral).
When-Issued Securities and Forward Commitments
Each Underlying Fund may purchase securities on a when-issued basis or
purchase or sell securities on a forward commitment basis. These transactions
involve a commitment by an Underlying Fund to purchase or sell securities at a
future date. The price of the underlying securities (usually expressed in terms
of yield) and the date when the securities will be delivered and paid for (the
settlement date) are fixed at the time the transaction is negotiated. When-
issued purchases and forward commitment transactions are negotiated directly
with the other party, and such commitments are not traded on exchanges. An
Underlying Fund will purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, an Underlying
Fund may dispose of or negotiate a commitment after entering into it. The
Underlying Funds may also realize a capital gain or loss in connection with
these
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<PAGE>
transactions. For purposes of determining an Underlying Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. An Underlying Fund is required to segregate until three
days prior to the settlement date, cash and liquid assets in an amount
sufficient to meet the purchase price. Alternatively, an Underlying Fund may
enter into offsetting contracts for the forward sale of other securities that it
owns. Securities purchased or sold on a when-issued or forward commitment basis
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date or if the value of the security to be sold
increases prior to the settlement date.
Investment in Unseasoned Companies
The Underlying Funds may invest a portion of their net assets in companies
(including predecessors) which have operated less than three years, except that
this limitation does not apply to debt securities which have been rated
investment grade or better by at least one NRSRO. The securities of such
companies may have limited liquidity, which can result in their being priced
higher or lower than might otherwise be the case. In addition, investments in
unseasoned companies are more speculative and entail greater risk than do
investments in companies with an established operating record.
Other Investment Companies
Each of the Underlying Funds may make limited investments in the securities of
other investment companies including, pursuant to an exemptive order obtained
from the SEC, money market funds for which the Adviser or any of its affiliates
serves as investment adviser. An Underlying Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by investment
companies in which it invests in addition to the advisory and administration
fees paid by the Underlying Fund. However, to the extent that the Underlying
Fund invests in a money market fund for which the Adviser or any of its
affiliates acts as adviser, the advisory and administration fees payable by the
Underlying Fund to the investment adviser or its affiliates will be reduced by
an amount equal to the Underlying Fund's proportionate share of the advisory and
administration fees paid by such money market fund to the investment adviser or
its affiliates.
Each Underlying Equity Fund may also invest in SPDRs. SPDRs are interests in
a unit investment trust ("UIT") that may be obtained from the UIT or purchased
in the secondary market (SPDRs are listed on the American Stock Exchange). The
UIT will issue SPDRs in aggregations known as "Creation Units" in exchange for a
"Portfolio Deposit" consisting of (a) a portfolio of securities substantially
similar to the component securities ("Index Securities") of the Standard &
Poor's 500 Composite Stock Price Index (the "S&P Index"), (b) a cash payment
equal to a pro rata portion of the dividends accrued on the UIT's portfolio
securities since the last dividend payment by the UIT, net of expenses and
liabilities, and (c) a cash payment or credit ("Balancing Amount") designed to
equalize the net asset value of the S&P Index and the net asset value of a
Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT. To
redeem, the Underlying Fund must accumulate enough SPDRs to reconstitute a
Creation Unit. The liquidity of small holdings of SPDRs, therefore, will depend
upon the existence of a secondary market. Upon redemption of a Creation Unit,
the Underlying Fund will receive Index Securities and cash identical to the
Portfolio Deposit required of an investor wishing to purchase a Creation Unit
that day.
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<PAGE>
The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Underlying Funds could result in losses on SPDRs.
Certain Underlying Funds may also purchase shares of investment companies
investing primarily in foreign securities, including "country funds." Country
funds have portfolios consisting primarily of securities of issuers located in
one foreign country or region. Certain Underlying Funds may also invest in
World Equity Benchmark Shares ("WEBS") and similar securities that invest in
securities included in foreign securities indices.
Repurchase Agreements
Each Underlying Fund may enter into repurchase agreements with selected
broker-dealers, banks and other financial institutions. A repurchase agreement
is an arrangement under which an Underlying Fund purchases securities and the
seller agrees to repurchase the securities within a particular time and at a
specified price. Custody of the securities is maintained by an Underlying
Fund's custodian. The repurchase price may be higher than the purchase price,
the difference being income to an Underlying Fund, or the purchase and
repurchase prices may be the same, with interest at a stated rate due to an
Underlying Fund together with the repurchase price on repurchase. In either
case, the income to an Underlying Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and generally for tax purposes, a repurchase agreement
is deemed to be a loan from an Underlying Fund to the seller of the security.
For other purposes, it is not always clear whether a court would consider the
security purchased by an Underlying Fund subject to a repurchase agreement as
being owned by an Underlying Fund or as being collateral for a loan by an
Underlying Fund to the seller. In the event of commencement of bankruptcy or
insolvency proceedings with respect to the seller of the security before
repurchase of the security under a repurchase agreement, an Underlying Fund may
encounter delay and incur costs before being able to sell the security. Such a
delay may involve loss of interest or a decline in price of the security. If
the court characterizes the transaction as a loan and an Underlying Fund has
not perfected a security interest in the security, an Underlying Fund may be
required to return the security to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, an Underlying Fund
would be at risk of losing some or all of the principal and interest involved in
the transaction.
The Underlying Fund's investment adviser seeks to minimize the risk of loss
from repurchase agreements by analyzing the creditworthiness of the obligor, in
this case the seller of the security. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security. However, if the market value of the security subject
to the repurchase agreement becomes less than the repurchase price (including
accrued interest), an Underlying Fund will direct the seller of the security to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement equals or exceeds the repurchase price. Certain
repurchase agreements which
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<PAGE>
provide for settlement in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
In addition, an Underlying Fund, together with other registered investment
companies having advisory agreements with the Adviser or its affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
Reverse Repurchase Agreements
Certain Underlying Funds may borrow money for temporary purposes by entering
into transactions called reverse repurchase agreements. Under these
arrangements, a Fund will sell portfolio securities to dealers in U.S.
Government Securities or members of the Federal Reserve System, with an
agreement to repurchase the security on an agreed date, price and interest
payment. The Core Fixed Income, Global Income and High Yield Funds may also
enter into reverse repurchase agreements involving certain foreign government
securities. Reverse repurchase agreements involve the possible risk that the
value of portfolio securities a Fund relinquishes may decline below the price a
Fund must pay when the transaction closes. Borrowings may magnify the potential
for gain or loss on amounts invested resulting in an increase in the speculative
character of a Fund's outstanding shares.
When a Fund enters into a reverse repurchase agreement, it segregates cash
or liquid assets that have a value equal to or greater than the repurchase
price. The account is then continuously monitored by its investment adviser to
make sure that an appropriate value is maintained. Reverse repurchase agreements
are considered to be borrowings under the Act.
Restricted and Illiquid Securities
The Underlying Funds may not invest more than 15% (10% in the case of
Financial Square Prime Obligations Fund) of their net assets in illiquid
investments, which include securities (both foreign and domestic) that are not
readily marketable, certain SMBS, certain municipal leases and participation
interests, certain over-the-counter options, repurchase agreements and time
deposits with a notice or demand period of more than seven days, and certain
restricted securities, unless it is determined, based upon a continuing review
of the trading markets for the specific instrument, that such instrument is
liquid. The Trustees have adopted guidelines under which the Underlying Funds'
investment advisers determine and monitor the liquidity of the Underlying Funds'
portfolio securities. This investment practice could have the effect of
increasing the level of illiquidity in an Underlying Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these instruments.
The purchase price and subsequent valuation of restricted securities may
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction may make them less liquid. The amount of
the discount from the prevailing market price is expected to vary depending upon
the type of security, the character of the issuer, the party who will bear the
expenses of registering the restricted securities and prevailing supply and
demand conditions.
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<PAGE>
Portfolio Turnover
Each Underlying Fund may engage in active short-term trading to benefit
from yield disparities among different issues of securities or among the markets
for fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority (as defined in the Act) of the outstanding voting
securities of the affected Portfolio. The investment objective of each
Portfolio and all other investment policies or practices of each Portfolio are
considered by the Trust not to be fundamental and accordingly may be changed
without shareholder approval. For purposes of the Act, "majority" means the
lesser of (a) 67% or more of the shares of the Trust or a Portfolio present at a
meeting, if the holders of more than 50% of the outstanding shares of the Trust
or a Portfolio are present or represented by proxy, or (b) more than 50% of the
shares of the Trust or a Portfolio. For purposes of the following limitations,
any limitation which involves a maximum percentage shall not be considered
violated unless an excess over the percentage occurs immediately after, and is
caused by, an acquisition or encumbrance of securities or assets of, or
borrowings by, a Portfolio. With respect to the Portfolios' fundamental
investment restriction no. 3, asset coverage of at least 300% (as defined in the
Act), inclusive of any amounts borrowed, must be maintained at all times.
As a matter of fundamental policy, a Portfolio may not:
(1) make any investment inconsistent with the Portfolio's
classification as a diversified company under the Act;
(2) invest 25% or more of its total assets in the securities of one
or more issuers conducting their principal business activities in
the same industry (excluding investment companies and the U.S.
Government or any of its agencies or instrumentalities). (For
the purposes of this restriction, state and municipal governments
and their agencies, authorities and instrumentalities are not
deemed to be industries; telephone companies are considered to be
a separate industry from water, gas or electric utilities;
personal credit finance companies and business credit finance
companies are deemed to be separate industries; and wholly-owned
finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing
the activities of their parents.) This restriction does not
apply to investments in municipal securities which have been pre-
refunded by the use of obligations of the U.S. government or any
of its agencies or instrumentalities;
(3) borrow money, except (a) the Portfolio may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in
amounts up to 33-1/3% of its total assets (including the amount
borrowed), (b) the Portfolio may, to the extent permitted by
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<PAGE>
applicable law, borrow up to an additional 5% of its total
assets for temporary purposes, (c) the Portfolio may obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities, (d) the Portfolio
may purchase securities on margin to the extent permitted by
applicable law and (e) the Portfolio may engage transactions in
mortgage dollar rolls which are accounted for as financings;
(4) make loans, except through (a) the purchase of debt obligations
in accordance with the Portfolio's investment objective and
policies, (b) repurchase agreements with banks, brokers, dealers
and other financial institutions and (c) loans of securities as
permitted by applicable law;
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Portfolio may be deemed
to be an underwriting;
(6) purchase, hold or deal in real estate, although a Portfolio may
purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts
and mortgage-related securities and may hold and sell real estate
acquired by a Portfolio as a result of the ownership of
securities;
(7) invest in commodities or commodity contracts, except that the
Portfolio may invest in currency and financial instruments and
contracts that are commodities or commodity contracts;
(8) issue senior securities to the extent such issuance would violate
applicable law.
Notwithstanding any other fundamental investment restriction or policy,
each Portfolio may invest some or all of its assets in a single open-end
investment company or series thereof with substantially the same investment
objective, restrictions and policies as the Portfolio.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
A Portfolio may not:
(a) Invest in companies for the purpose of exercising control or
management (but this does not prevent a Portfolio from purchasing
a controlling interest in one or more of the Underlying Funds
consistent with its investment objective and policies).
(b) Invest more than 15% of the Portfolio's net assets in illiquid
investments, including repurchase agreements maturing in more
than seven days, securities which are not readily marketable and
restricted
B-62
<PAGE>
securities not eligible for resale pursuant to Rule 144A under
the 1933 Act.
(c) Purchase additional securities if the Portfolio's borrowings
(excluding covered mortgage dollar rolls) exceed 5% of its net
assets.
(d) Make short sales of securities, except short sales against the
box.
The Underlying Funds in which the Portfolios may invest have adopted
certain investment restrictions which may be more or less restrictive than those
listed above, thereby allowing a Portfolio to participate in certain investment
strategies indirectly that are prohibited under the fundamental and non-
fundamental investment restrictions and policies listed above. The investment
restrictions of these Underlying Funds are set forth in their respective
Additional Statements.
MANAGEMENT
The Trustees of the Trust are responsible for deciding matters of general
policy and reviewing the actions of the Adviser, distributor and transfer agent.
The officers of the Trust conduct and supervise each Fund's daily business
operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below together with their respective positions and a brief statement of
their principal occupations during the past five years. 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 Chairman of the Board of Trustees -
1325 Ave. of the Americas & Trustee Goldman Sachs Variable Insurance Trust
New York, NY 10019 (registered investment company) (since
1997); Executive Vice President - Finance
and Administration and Chief Financial
Officer, Coty Inc. (since April 1996);
President, ABN Associates (July 1994
March 1996); Senior Vice President of
Scott Paper Company (until June 1994);
Director of Arkwright Mutual Insurance
Company (1994-Present); Trustee of
International House of Philadelphia
(1989-Present); Member of Cornell
University Council (1992-Present);
Trustee of the Walnut Street Theater
(1992-Present).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*David B. Ford, 52 Trustee Trustee - Goldman Sachs Variable Insurance
One New York Plaza Trust (registered investment company)
New York, NY 10004 (since 1997); Director, Commodities Corp.
LLC (since April 1997); Managing
Director, J. Aron & Company (since
November 1996); Managing Director,
Goldman, Sachs & Co. Investment Banking
Division (since November 1996); Director,
CIN Management (investment adviser)
(since August 1996); Chief Executive
Officer & Managing Director and Director,
Goldman Sachs Asset Management
International (since November 1995 and
December 1994, respectively); Co-Head,
Goldman, Sachs & Co. Asset Management
Division (since November 1995); Co-Head
and Director, Goldman Sachs Funds
Management Inc. (since November 1995 and
December 1994, respectively); Chairman
and Director, Goldman Sachs Asset
Management Japan Limited (since November
1994).
*Douglas C. Grip, 36 Trustee Trustee and President - Goldman Sachs
One New York Plaza & President Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Managing Director, Goldman, Sachs & Co.
Asset Management Division (since November
1997); President, Goldman Sachs Fund
Group (since April 1996); President, MFS
Retirement Services Inc., of
Massachusetts Financial Services (prior
thereto).
</TABLE>
B-64
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*John P. McNulty, 46 Trustee Trustee - Goldman Sachs Variable Insurance
One New York Plaza Trust (registered investment company)
New York, NY 10004 (since 1997); Managing Director, Goldman
Sachs (since 1996); General Partner, J.
Aron & Company (since November 1995);
Director and Co-Head, Goldman Sachs Funds
Management Inc. (since November 1995);
Director, Goldman Sachs Asset Management
International (since January 1996);
Director, Global Capital Reinsurance
(since 1989); Director, Commodities Corp.
LLC (since April 1997); Limited Partner
of Goldman, Sachs & Co. (1994 - November
1995).
Mary P. McPherson, 63 Trustee Trustee - Goldman Sachs Variable Insurance
The Andrew W. Mellon Foundation Trust (registered investment company)
140 East 62nd Street (since 1997); Vice President and Senior
New York, NY 10021 Program Officer, The Andrew W. Mellon
Foundation (since October 1997);
President of Bryn Mawr College
(1978-1997); Director of Josiah Macy, Jr.
Foundation (since 1977); Director of the
Philadelphia Contributionship (since
1985); Director of Amherst College (since
1986); Director of Dayton Hudson
Corporation (1988-1997); Director of the
Spenser Foundation (since 1993); and
member of PNC Advisory Board (since 1993).
</TABLE>
B-65
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Alan A. Shuch, 49 Trustee Trustee - Goldman Sachs Variable Insurance
One New York Plaza Trust (registered investment company)
New York, NY 10004 (since 1997); Limited Partner, Goldman,
Sachs & Co.(since 1994); Consultant to
Goldman Sachs Asset Management (since
1994); Director, Chief Operating Officer
and Vice President of Goldman Sachs Funds
Management Inc. (from November 1993 -
November 1994); President and Chief
Operating Officer, GSAM - Japan Limited
(November 1993 - November 1994); Director,
Goldman Sachs Asset Management
International (November 1993 November
1994); General Partner, Goldman, Sachs &
Co. Investment Banking (December 1986 -
November 1994).
Jackson W. Smart, Jr., 68 Trustee Trustee - Goldman Sachs Variable Insurance
One Northfield Plaza Suite 218 Trust (registered investment company)
Northfield, IL 60093 (since 1997); Chairman, Executive
Committee, First Commonwealth, Inc. (a
managed dental care company) (since
January 1996); Chairman and Chief
Executive Officer, MSP Communications
Inc. (a company engaged in radio
broadcasting) (November 1988 - December
1997); Director, Federal Express
Corporation (NYSE) (since 1976);
Director, Evanston Hospital Corporation
(since 1980).
William H. Springer, 69 Trustee Trustee - Goldman Sachs Variable Insurance
701 Morningside Drive Trust (registered investment company)
Lake Forest, IL 60045 (since 1997); Director, Walgreen Co. (a
retail drug store business) (since April
1998); Director of Baker, Fentress & Co.
(a closed-end, non-diversified management
investment company) (April 1992 -
present); Trustee, Northern Institutional
Funds (since April 1984).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
Richard P. Strubel, 59 Trustee Trustee - Goldman Sachs Variable Insurance
737 N. Michigan Ave., Suite 1405 Trust (registered investment company)
Chicago, IL 60611 (since 1997); Director of Kaynar
Technologies Inc. (since March 1997);
Managing Director, Tandem Partners, Inc.
(since 1990); President and Chief
Executive Officer, Microdot, Inc. (a
diversified manufacturer of fastening
systems and connectors) (January 1984 -
October 1994); Trustee, Northern
Institutional Funds (since December 1982).
*Nancy L. Mucker, 49 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President,
Goldman, Sachs & Co. (since April 1985);
Co-Manager of Shareholder Servicing of
GSAM (since November 1989).
*John M. Perlowski, 34 Treasurer Treasurer - Goldman Sachs Variable
One New York Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Vice President,
Goldman, Sachs & Co. Incorporated (since
July 1995); Investors Bank and Trust
(November 1993 - July 1995).
*James A. Fitzpatrick, 38 Vice President Vice President - Goldman Sach Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President of
Goldman Sachs Asset Management (since
April 1997); Vice President and General
Manager, First Data Corporation -
Investor Services Group (prior thereto).
</TABLE>
B-67
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Jesse Cole, 35 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company (since 1998); Vice President,
Goldman Sachs Asset Management (June 1998
to Present); Vice President, AIM
Management Group, Inc. (investment
advisor) (April 1996-June 1998);
Assistant Vice President, The Northern
Trust Company (June 1987-April 1996).
*Philip V. Giuca , Jr., 36 Assistant Treasurer Assistant Treasurer - Goldman Sachs
10 Hanover Square Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Vice
President, Goldman, Sachs & Co. (May
1992-Present); Tax Accountant, Goldman,
Sachs & Co. (December 1990-May 1992).
*Anne Marcel, 40 Vice President Vice President - Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1998); Vice President,
Goldman Sachs Asset Management (June
1998-Present); Vice President, Stein Roe
& Farnham, Inc. (October 1992-June 1998).
</TABLE>
B-68
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Michael J. Richman, 38 Secretary Secretary - Goldman Sach Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); General Counsel of
the Funds Group of Goldman Sachs Asset
Management (since December 1997);
Associate General Counsel of Goldman
Sachs Asset Management (February 1994 -
December 1997); Vice President and
Assistant General Counsel of Goldman,
Sachs & Co. (since June 1992); Counsel to
the Funds Group, GSAM (June 1992 -
December 1997); Partner, Hale and Dorr
(September 1991 - June 1992).
*Howard B. Surloff, 33 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, Goldman Sachs
Asset Management and Associate General
Counsel to the Funds Group (since
December 1997); Assistant General Counsel
and Vice President, Goldman, Sachs &
Co.(since November 1993 and May 1994,
respectively); Counsel to the Funds
Group, Goldman Sachs Asset Management
(November 1993 - December 1997); Associate
of Shereff, Friedman, Hoffman & Goodman
(prior thereto).
*Valerie A. Zondorak, 32 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Assistant General Counsel, Goldman Sachs
Asset Management and Assistant General
Counsel to the Funds Group (since
December 1997); Vice President and
Assistant General Counsel, Goldman, Sachs
& Co.(since March 1997 and December 1997,
respectively); Counsel to the Funds
Group, Goldman Sachs Asset Management
(March 1997 - December 1997); Associate
of Shereff, Friedman, Hoffman & Goodman
(prior thereto).
</TABLE>
B-69
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
And Address With Trust During Past 5 Years
- ----------- ---------- -----------------------
<S> <C> <C>
*Steven E. Hartstein, 35 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Associate, Goldman, Sachs & Co. (since
December 1998); Legal Products Analyst,
Goldman, Sachs & Co. (June 1993 - December
1998); Funds Compliance Officer, Citibank
Global Asset Management (August 1991 -
June 1993).
*Deborah A. Farrell, 27 Assistant Secretary Assistant Secretary - Goldman Sachs
85 Broad Street Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997); Legal
Products Analyst, Goldman, Sachs & Co.
(since December 1998); Legal Assistant,
Goldman, Sachs & Co. (January 1996 -
December 1998); Executive Secretary,
Goldman, Sachs & Co. (January 1994 -
January 1996); Legal Secretary, Cleary,
Gottlieb, Steen and Hamilton (September
1990 - January 1994).
*Kaysie P. Uniacke, 37 Assistant Secretary Assistant Secretary - Goldman Sachs
One New York Plaza Variable Insurance Trust (registered
New York, NY 10004 investment company) (since 1997);
Managing Director, Goldman Sachs Asset
Management (since 1997); Vice President
and Senior Portfolio Manager, Goldman
Sachs Asset Management (since 1988).
*Elizabeth D. Anderson, 29 Assistant Secretary Assistant Secretary - Goldman Sachs
One New York Plaza Variable Insurance Trust (reigstered
New York, NY 10004 investment company) (since 1997);
Portfolio Manager, Goldman Sachs Asset
Management (since April 1996); Junior
Portfolio Manager, Goldman Sachs Asset
Management (1995 - April 1996); Funds
Trading Assistant, Goldman Sachs Asset
Management (1993 - 1995); Compliance
Analyst, Prudential Insurance (1991 -
1993).
</TABLE>
Each interested Trustee and officer holds comparable positions with certain
other companies of which Goldman Sachs, Goldman Sachs Asset Management or an
affiliate
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thereof is the investment adviser, administrator and/or distributor. As of
__________, 1999, the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of beneficial interest of each Portfolio.
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.
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<PAGE>
B-72
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended December
31, 1998:
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from Goldman Sachs Trust
Benefits and the Goldman Sachs
Aggregate Accrued as Mutual Funds Complex
Compensation Part of (including the
Name of Trustee from the Portfolios Portfolios' Expenses Portfolios)2
- --------------- ------------------- -------------------- ------------------------
<S> <C> <C> <C>
Ashok N. Bakhru* $5,348 $0 $93,750
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPherson 3,735 0 70,500
Alan A. Shuch 0 0 0
Jackson W. Smart 3,735 0 70,500
William H. Springer 3,735 0 70,500
Richard P. Strubel 3,735 0 70,500
</TABLE>
* Includes compensation as Chairman of the Board of Trustees.
1 Reflects amount paid by Goldman Sachs trust during fiscal year ended
December 31, 1998.
2 The Goldman Sachs Funds complex consists of Goldman Sachs Trust and Goldman
Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of ____
mutual funds, including eight fixed-income funds, on December 31, 1998.
Goldman Sachs Variable Insurance Trust consisted of 8 mutual funds.
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<PAGE>
Class A Shares of the Fund may be sold at net asset value without payment
of any sales charge to Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any trustee or officer of the Trust and designated family members of any of the
above individuals. The sales load waivers are due to the nature of the
investors and the reduced sales effort that is needed to obtain such
investments.
Management Services
As stated in the Portfolios' Prospectus, Goldman Sachs Asset Management
serves as Adviser to the Portfolios and, except as noted, to each Underlying
Fund. Goldman Sachs Funds Management, L.P. serves as investment adviser to the
CORE U.S. Equity, Capital Growth, Adjustable Rate Government and Short Duration
Government Funds. Goldman Sachs Asset Management International ("GSAMI") serves
as investment adviser to the International Equity, Emerging Markets Equity, Asia
Growth, Global Income, European Equity, Japanese Equity and International Small
Cap Funds. As a company with unlimited liability under the laws of England,
GSAMI is regulated by the Investment Management Regulatory Organization Limited,
a United Kingdom self-regulatory organization, in the conduct of its investment
advisory business. See "Service Providers" in the Portfolios' Prospectus for a
description of the Adviser's duties to the Portfolios. Goldman Sachs has agreed
to permit the Funds to use the name "Goldman Sachs" or a derivative thereof as
part of each Fund's name for as long as a Fund's Management Agreement is in
effect.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the United States and in
Beijing, Brazil, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City,
Milan, Montreal, Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich. It has trading professionals
throughout the United States, as well as in London, Tokyo, Hong Kong and
Singapore. The active participation of Goldman Sachs in the world's financial
markets enhances its ability to identify attractive investments.
The Underlying Funds' investment advisers are able to draw on the
substantial research and market expertise of Goldman Sachs whose investment
research effort is one of the largest in the industry. With an annual equity
research budget approaching $200 million, the Goldman Sachs Global Investment
Research Department covers approximately 2,000 companies, including
approximately 1,000 U.S. corporations in 60 industries. The in-depth
information and analyses generated by Goldman Sachs' research analysts are
available to the investment advisers. For more than a decade, Goldman Sachs has
been among the top-ranked firms in Institutional Investor's annual "All-America
Research Team" survey. In addition, many of Goldman Sachs' economists,
securities analysts, portfolio strategists and credit analysts have consistently
been highly ranked in respected industry surveys conducted in the U.S. and
abroad. Goldman Sachs is also among the leading investment firms using
quantitative analytics (now used by a growing number of investors) to structure
and evaluate portfolios.
In managing the Underlying Funds, the Underlying Funds' investment advisers
have access to Goldman Sachs' economics research. The Economics Research
Department conducts economic, financial
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<PAGE>
and currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's annual
"All British Research Team Survey" in the following categories: Economics (U.K.)
1986-1993; Economics/International 1989- 1993; and Currency Forecasting
1986-1993. In addition, the team has also earned top rankings in the annual
"Extel Financial Survey" of U.K. investment managers in the following
categories: U.K. Economy 1989-1995; International Government Bond Market
1993-1995; International Economies 1986, 1988-1995; and Currency Movements
1986-1993.
In structuring Adjustable Rate Government Fund's and Short Duration
Government Fund's respective securities portfolios, their investment adviser
will review the existing overall economic and mortgage market trends. The
investment adviser will then study yield spreads, the implied volatility and the
shape of the yield curve. The investment adviser will then apply this analysis
to a list of eligible securities that meet the respective Fund's investment
guidelines. With respect to Adjustable Rate Government Fund, this analysis is
used to plan a two-part portfolio, which will consist of a "core" portfolio of
ARMs and a "relative value" portfolio of other mortgage assets that can enhance
portfolio returns and lower risk (such as investments in CMO floating-rate
tranches and interest only SMBS).
With respect to Adjustable Rate Government Fund, Short Duration Government
Fund, Government Income Fund, Core Fixed Income Fund and High Yield Fund, the
applicable investment advisers expect to utilize Goldman Sachs' sophisticated
option-adjusted analytics to help make strategic asset allocations within the
markets for U.S. government, Mortgage-Backed and other securities and to employ
this technology periodically to re-evaluate the Funds' investments as market
conditions change. Goldman Sachs has also developed a prepayment model designed
to estimate mortgage prepayments and cash flows under different interest rate
scenarios. Because a Mortgage-Backed Security incorporates the borrower's right
to prepay the mortgage, the investment advisers use a sophisticated option-
adjusted spread (OAS) model to measure expected returns. A security's OAS is a
function of the level and shape of the yield curve, volatility and the
particular investment adviser's expectation of how a change in interest rates
will affect prepayment levels. Since the OAS model assumes a relationship
between prepayments and interest rates, the investment advisers consider it a
better way to measure a security's expected return and absolute and relative
values than yield to maturity. In using OAS technology, the investment advisers
will first evaluate the absolute level of a security's OAS considering its
liquidity and its interest rate, volatility and prepayment sensitivity. The
investment advisers will then analyze its value relative to alternative
investments and to its own investments. The investment advisers will also
measure a security's interest rate risk by computing an option adjusted duration
(OAD). The investment advisers believe a security's OAD is a better measurement
of its price sensitivity than cash flow duration, which systematically misstates
portfolio duration. The investment advisers also evaluate returns for different
mortgage market sectors and evaluate the credit risk of individual securities.
This sophisticated technical analysis allows the investment advisers to develop
portfolio and trading strategies using Mortgage-Backed Securities that are
believed to be superior investments on a risk-adjusted basis and which provide
the flexibility to meet the respective Funds' duration targets and cash flow
pattern requirements.
Because the OAS is adjusted for the differing characteristics of the
underlying securities, the OAS of different Mortgage-Backed Securities can be
compared directly as an indication of their relative value in the market. The
investment advisers also expect to use OAS-based pricing methods to calculate
projected security returns under different, discrete interest rate scenarios,
and Goldman Sachs' proprietary
B-75
<PAGE>
prepayment model to generate yield estimates under these scenarios. The OAS,
scenario returns, expected returns, and yields of securities in the mortgage
market can be combined and analyzed in an optimal risk-return matching
framework.
The investment advisers will use OAS analytics to choose what they believe
is an appropriate portfolio of investments for an Underlying Fund from a
universe of eligible investments. In connection with initial portfolio
selections, in addition to using OAS analytics as an aid to meeting each Fund's
particular composition and performance targets, the investment advisers will
also take into account important market criteria like the available supply and
relative liquidity of various mortgage securities in structuring the portfolio.
The Underlying Funds' investment advisers also expect to use OAS analytics
to evaluate the mortgage market on an ongoing basis. Changes in the relative
value of various Mortgage-Backed Securities could suggest tactical trading
opportunities for the Underlying Funds. The investment advisers will have
access to both current market analysis as well as historical information on the
relative value relationships among different Mortgage-Backed Securities.
Current market analysis and historical information is available in the Goldman
Sachs database for most actively traded Mortgage-Backed Securities.
Goldman Sachs has agreed to provide the Underlying Funds' investment
advisers, on a non-exclusive basis, use of its mortgage prepayment model, OAS
model and any other proprietary services which it now has or may develop, to the
extent such services are made available to other similar customers. Use of
these services by the Underlying Funds' investment advisers with respect to an
Underlying Fund does not preclude Goldman Sachs from providing these services to
third parties or using such services as a basis for trading for its own account
or the account of others.
The fixed-income research capabilities of Goldman Sachs available to the
Underlying Funds' investment advisers include the Goldman Sachs Fixed-Income
Research Department and the Credit Department. The Fixed-Income Research
Department monitors developments in U.S. and foreign fixed-income markets,
assesses the outlooks for various sectors of the markets and provides relative
value comparisons, as well as analyzes trading opportunities within and across
market sectors. The Fixed-Income Research Department is at the forefront in
developing and using computer-based tools for analyzing fixed-income securities
and markets, developing new fixed-income products and structuring portfolio
strategies for investment policy and tactical asset allocation decisions. The
Credit Department tracks specific governments, regions and industries and from
time to time may review the credit quality of an Underlying Fund's investments.
In allocating assets among foreign countries and currencies for the
Underlying Funds which can invest in foreign securities, the Underlying Funds'
investment advisers will have access to the Global Asset Allocation Model. The
model is based on the observation that the prices of all financial assets,
including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, the
investment advisers will estimate the total returns from each currency sector
which are consistent with the average investor holding a portfolio equal to the
market capitalization of the financial assets among those currency sectors.
These estimated equilibrium returns are then combined with the expectations of
Goldman Sachs' research professionals to produce an optimal currency and asset
allocation for the level of risk suitable for an Underlying Fund given its
investment objectives and criteria.
B-76
<PAGE>
The management agreements for the Portfolios and the Underlying Funds
provide that the Adviser (and its affiliates) may render similar services to
others as long as the services provided by them thereunder are not impaired
thereby.
The Portfolios' management agreement was most recently approved by the
Trustees, including a majority of the Trustees who are not parties to the
management agreement or "interested persons" (as such term is defined in the
Act) of any party thereto (the "non-interested Trustees"), on April __, 1999
with respect to the Balanced Strategy, Growth and Income Strategy, Growth
Strategy and Aggressive Growth Strategy Fund, and January 22, 1999 with respect
to the Conservative Strategy Fund. These arrangements were approved by the sole
shareholder of the Balanced Strategy, Growth and Income Strategy, Growth
Strategy and Aggressive Growth Strategy Portfolios on January 1, 1998, and of
the Conservative Strategy Portfolio on February 3, 1999 by consent action to
satisfy conditions imposed by the SEC in connection with the registration of
shares of the Portfolio. The management agreement will remain in effect until
June 30, 2000 and from year to year thereafter provided such continuance is
specifically approved at least annually by (a) the vote of a majority of the
outstanding voting securities of such Portfolio or a majority of the Trustees,
and (b) the vote of a majority of the non-interested Trustees, cast in person at
a meeting called for the purpose of voting on such approval. The management
agreement will terminate automatically with respect to a Portfolio if assigned
(as defined in the Act) and is terminable at any time without penalty by the
Trustees or by vote of a majority of the outstanding voting securities of the
affected Portfolio on 60 days' written notice to the Adviser and by the Adviser
on 60 days' written notice to the Trust.
Under the management agreement, the Adviser also: (i) supervises all non-
advisory operations of each Portfolio; (ii) provides personnel to perform such
executive, administrative and clerical services as are reasonably necessary to
provide effective administration of each Portfolio; (iii) arranges for at each
Portfolio's expense (a) the preparation of all required tax returns, (b) the
preparation and submission of reports to existing shareholders, (c) the periodic
updating of prospectuses and statements of additional information and (d) the
preparation of reports to be filed with the SEC and other regulatory
authorities; (iv) maintains each Portfolio's records; and (v) provides office
space and all necessary office equipment and services.
Pursuant to the management agreement, the Advisers are entitled to receive
the contractual fees listed below, payable monthly of such Portfolio's average
daily net assets.
Asset Allocation Fee Asset Allocation Fee
Portfolio With Limitations Without Limitations
- ---------------- --------------------- --------------------
Conservative Strategy .15% .35%
Balanced Strategy .15% .35%
Growth and Income Strategy .15% .35%
Growth Strategy .15% .35%
Aggressive Growth Strategy .15% .35%
The amounts of the asset allocation fees for services rendered under the
management agreement were as follows (with and without the fee limitations that
were then in effect) for the period ended December 31: 1998
B-77
<PAGE>
With Fee Without Fee
Limitations Limitations
----------- -----------
Conservative Strategy1 N/A N/A
Balanced Strategy2 $78,025 $182,558
Growth and Income Strategy2 356,735 834,668
Growth Strategy2 253,545 593,231
Aggressive Growth Strategy2 94,065 219,795
___________________
1 Not operational.
2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
-------------------------------------------------------------------------
by Goldman Sachs. The involvement of the Adviser and Goldman Sachs and their
- ----------------
affiliates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect to
the Portfolios and the Underlying Funds 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 Portfolios and the Underlying Funds and/or
which engage in transactions in the same types of securities, currencies and
instruments. 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 Underlying Funds invest. Such activities
could affect the prices and availability of the securities, currencies and
instruments in which the Underlying Funds invest, which could have an adverse
impact on each Fund's (and, consequently, 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 Underlying
Funds' 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 Underlying Funds, the
assets actually purchased or sold may be allocated among the accounts on a basis
determined in its good faith discretion to be equitable. In some cases, this
system may adversely affect the size or the price of the assets purchased or
sold for the Underlying Funds.
From time to time, the Underlying Funds' activities may be restricted
because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. As a result, there may be periods, for example, when the 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 Underlying Funds, the Underlying
Funds' investment advisers may have access to certain fundamental analysis and
proprietary technical models developed by Goldman Sachs and other affiliates.
The investment advisers will not be under any obligation, however, to effect
transactions on behalf of the Underlying Funds in accordance with such analysis
and models. In addition, neither Goldman Sachs nor any of its affiliates will
have any obligation to make available any
B-78
<PAGE>
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 Underlying Funds and it is not anticipated that
the investment advisers will have access to such information for the purpose of
managing the Underlying Funds. The proprietary activities or portfolio
strategies of Goldman Sachs and its affiliates or the activities or strategies
used for accounts managed by them or other customer accounts could conflict with
the transactions and strategies employed by the investment advisers in managing
the Underlying Funds.
The results of each Underlying Fund's investment activities may differ
significantly from the results achieved by their investment advisers and
affiliates for their proprietary accounts or accounts (including investment
companies or collective investment vehicles) managed or advised by them. It is
possible that Goldman Sachs and its affiliates and such other accounts will
achieve investment results which are substantially more or less favorable than
the results achieved by an Underlying Fund. Moreover, it is possible that an
Underlying Fund will sustain losses during periods in which Goldman Sachs and
its affiliates achieve significant profits on their trading for proprietary or
other accounts. The opposite result is also possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Underlying Funds in certain emerging markets in
which limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding an Underlying
Fund's activities but will not be involved in the day-to-day management of such
Fund. In such instances, those individuals may, as a result, obtain information
regarding the Underlying Fund's proposed investment activities which is not
generally available to the public. In addition, by virtue of their affiliation
with Goldman Sachs, any such member of an investment policy committee will have
direct or indirect interests in the activities of Goldman Sachs and its
affiliates in securities currencies and investments similar to those in which
the Underlying Fund invests.
In addition, certain principals and certain of the employees of the
Underlying Funds' investment advisers are also principals or employees of
Goldman Sachs or their affiliated entities. As a result, the performance by
these principals and employees of their obligations to such other entities may
be a consideration of which investors in the Portfolios should be aware.
The Underlying Funds' investment advisers may enter into transactions and
invest in currencies or instruments on behalf of an Underlying Fund in which
customers of Goldman Sachs serve as the counterparty, principal or issuer. In
such cases, such party's interests in the transaction will be adverse to the
interests of an Underlying Fund, and such party may have no incentive to assure
that the Underlying Funds obtain the best possible prices or terms in connection
with the transactions. Goldman Sachs and its affiliates may also create, write
or issue derivative instruments for customers of Goldman Sachs or its
affiliates, the underlying securities, currencies or instruments of which may be
those in which an Underlying Fund invests or which may be based on the
performance of an Underlying Fund. The Underlying Funds may, subject to
applicable law, purchase investments which are the subject of an underwriting or
other distribution by Goldman Sachs or its affiliates and may also enter
transactions with other clients of Goldman Sachs or its affiliates where such
other clients have interests adverse to those of the Underlying Funds. At
times, these activities may cause departments of Goldman Sachs or its affiliates
to give advice to clients that may cause these clients to take actions adverse
to the interests of the
B-79
<PAGE>
Portfolios. To the extent affiliated transactions are permitted, the Underlying
Funds will deal with Goldman Sachs and its affiliates on an arms-length basis.
Each Underlying Fund will be required to establish business relationships
with its counterparties based on the Underlying Fund's own credit standing.
Neither Goldman Sachs nor its affiliates will have any obligation to allow their
credit to be used in connection with an Underlying Fund's establishment of its
business relationships, nor is it expected that an Underlying Fund's
counterparties will rely on the credit of Goldman Sachs or any of its affiliates
in evaluating the Underlying Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of an Underlying Fund in order to increase
the assets of the Underlying Fund. Increasing an Underlying Fund's assets may
enhance investment flexibility and diversification and may contribute to
economies of scale that tend to reduce the Underlying Fund's expense ratio.
Goldman Sachs reserves the right to redeem at any time some or all of the shares
of an Underlying Fund acquired for its own account. A large redemption of
shares of an Underlying Fund by Goldman Sachs could significantly reduce the
asset size of the Underlying Fund, which might have an adverse effect on the
Underlying Fund's investment flexibility, portfolio diversification and expense
ratio. Goldman Sachs will consider the effect of redemptions on an Underlying
Fund and other shareholders in deciding whether to redeem its shares.
It is possible that an Underlying Fund's holdings will include securities
of entities for which Goldman Sachs performs investment banking services as well
as securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Underlying Funds' flexibility in
purchases and sales of securities. When Goldman Sachs is engaged in an
underwriting or other distribution of securities of an entity, the Underlying
Funds' investment advisers may be prohibited from purchasing or recommending the
purchase of certain securities of that entity for the Underlying Funds.
Distributor and Transfer Agent
Goldman Sachs serves as the exclusive Distributor of shares of the
Portfolios pursuant to a "best efforts" arrangement as provided by a
distribution agreement with the Trust on behalf of each Portfolio. Shares of
the Portfolios are offered and sold on a continuous basis by Goldman Sachs,
acting as agent. Pursuant to the distribution agreement, after the Portfolios'
Prospectus and periodic reports have been prepared, set in type and mailed to
shareholders, Goldman Sachs will pay for the printing and distribution of copies
thereof used in connection with the offering to prospective investors. Goldman
Sachs will also pay for other supplementary sales literature and advertising
costs. Goldman Sachs has entered into sales agreements with certain investment
dealers and financial service firms (the "Authorized Dealers") to solicit
subscriptions for Class A, Class B and Class C Shares of each of the Portfolios
that offer such classes of shares. Goldman Sachs receives a portion of the
sales load imposed on the sale, in the case of Class A Shares, or redemption in
the case of Class B and Class C Shares, of such Portfolio shares.
Goldman Sachs retained approximately the following commissions on sales
of Class A, Class B and Class C Shares during the period ended December 31:
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<PAGE>
1998
====
Conservative Strategy1 N/A
Balanced Strategy2 $156,000
Growth and Income Strategy2 858,000
Growth Strategy2 593,000
Aggressive Growth Strategy2 243,000
___________________
1 Not operational.
2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
Goldman Sachs also serves as the Portfolios' transfer and dividend
disbursing agent. Under its transfer agency agreement with the Trust, Goldman
Sachs has undertaken with the Trust with respect to each Portfolio to (i) record
the issuance, transfer and redemption of shares, (ii) provide confirmations of
purchases and redemptions, and quarterly statements, as well as certain other
statements, (iii) provide certain information to the Trust's custodian and the
relevant subcustodian in connection with redemptions, (iv) provide dividend
crediting and certain disbursing agent services, (v) maintain shareholder
accounts, (vi) provide certain state Blue Sky and other information, (vii)
provide shareholders and certain regulatory authorities with tax-related
information, (viii) respond to shareholder inquiries, and (ix) render certain
other miscellaneous services. For its transfer agency services, Goldman Sachs is
entitled to receive a transfer agency fee equal, on an annual basis of 0.04% of
average daily net assets with respect to each Portfolio's Institutional and
Service Shares and 0.19% of average daily net assets with respect to each
Portfolio's Class A, Class B and Class C Shares.
As compensation for the services rendered to the Portfolios' by Goldman
Sachs as transfer and dividend disbursing agent and the assumption by Goldman
Sachs of the expenses related thereto, Goldman Sachs is entitled to receive fees
from each Portfolio as stated in the Prospectus. For the period ended December
31, 1998 the amounts paid to Goldman Sachs by each Portfolio were as follows
under the fee schedules then in effect:
1998
====
Conservative Strategy1 N/A
Balanced Strategy2 $157,025
Growth and Income Strategy2 414,136
Growth Strategy2 399,850
Aggressive Growth Strategy2 209,288
___________________
1 Not operational.
2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
The foregoing distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services each
provides thereunder to the Portfolios are not impaired thereby. Each such
agreement also provides that the Trust will indemnify Goldman Sachs against
certain liabilities.
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Expenses
The Trust, on behalf of each Portfolio, is responsible for the payment of
each Portfolio's respective expenses. The expenses include, without limitation,
the fees payable to the Adviser, service fees paid to Service Organizations, the
fees and expenses payable to the Trust's custodian and subcustodians, transfer
agent fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Trust's shares under federal or state securities laws,
expenses of the organization of the Trust, fees and expenses incurred by the
Trust in connection with membership in investment company organizations, taxes,
interest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Trust for violation of any law, legal and
auditing fees and expenses (including the cost of legal and certain accounting
services rendered by employees of GSAM and Goldman Sachs with respect to the
Trust), expenses of preparing and setting in type prospectuses, statements of
additional information, proxy material, reports and notices and the printing and
distributing of the same to the Trust's shareholders and regulatory authorities,
any expenses assumed by a Portfolio pursuant to its distribution and service
plans, compensation and expenses of its "non-interested" Trustees and
extraordinary expenses, if any, incurred by the Trust. Except for fees under any
distribution and service plans applicable to a particular class and transfer
agency fees, all Portfolio expenses are borne on a non-class specific basis.
The Adviser has voluntarily agreed to reduce or limit certain "Other Expenses"
(excluding management, distribution and service fees, taxes, transfer agency
fees, interest, brokerage, litigation, indemnification costs and other
extraordinary expenses) for the Portfolios to the extent such expenses exceed
the percentage of average daily net assets specified in the Portfolios'
Prospectuses.
Such reductions or limits, if any, are calculated monthly on a cumulative
basis and may be discontinued or modified by the Adviser in its discretion at
any time.
The amounts of certain "Other Expenses" of each Portfolio then in existence
that were reduced or otherwise limited were as follows under the expense
limitations that were then in effect for the period ended December 31:
1998
====
Conservative Strategy1 N/A
Balanced Strategy2 $224,065
Growth and Income Strategy2 372,932
Growth Strategy2 324,585
Aggressive Growth Strategy2 231,575
___________________
1 Not operational.
2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
Fees and expenses of legal counsel, registering shares of a Portfolio,
holding meetings and communicating with shareholders may include an allocable
portion of the cost of maintaining an internal legal and compliance department.
Each Portfolio may also bear an allocable portion of the Adviser's costs of
performing certain accounting services not being provided by a Portfolio's
custodian.
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<PAGE>
Custodian and Sub-Custodians
State Street, 1776 Heritage Drive, North Quincy, Massachusetts 02171, is
the custodian of the Trust's portfolio securities and cash. State Street also
maintains the Trust's accounting records. State Street may appoint sub-
custodians from time to time to hold certain securities purchased by the Trust
in domestic and foreign and to hold cash for the Trust.
Independent Public 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, LLP prepares the Trust's federal
and state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible with respect to the Portfolios (and the
particular investment adviser is responsible with respect to the Underlying
Funds) for decisions to buy and sell securities for the Underlying Fund, the
selection of brokers and dealers to effect the transactions and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Orders may be directed to any broker including, to the extent
and in the manner permitted by applicable law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
The portfolio transactions for the Underlying Fixed-Income Funds are
generally effected at a net price without a broker's commission (i.e., a dealer
is dealing with an Underlying Fund as principal and receives compensation equal
to the spread between the dealer's cost for a given security and the resale
price of such security). In certain foreign countries, debt securities are
traded on exchanges at fixed commission rates.
In placing orders for portfolio securities of an Underlying Fund, the
Underlying Funds' investment advisers are generally required to give primary
consideration to obtaining the most favorable price and net price available.
This means that an investment adviser will seek to execute each transaction at a
price and commission, if any, which provides the most favorable total cost or
proceeds reasonably attainable in the circumstances. As permitted by Section
28(e) of the Securities Exchange Act of 1934, the Underlying Fund may pay a
broker which provides brokerage and research services an amount of disclosed
commission in excess of the commission which another broker would have charged
for effecting that transaction. Such practice is subject to a good faith
determination by the Trustees that such commission is reasonable in light of the
services provided and to such policies as the Trustees may adopt from time to
time. While the Underlying Funds' investment advisers generally seek reasonably
competitive spreads or commissions, an Underlying Fund will not necessarily be
paying the lowest spread
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or commission available. Within the framework of this policy, the investment
advisers will consider research and investment services provided by brokers or
dealers who effect or are parties to portfolio transactions of an Underlying
Fund, the investment advisers and their affiliates, or their other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include research reports on particular
industries and companies, economic surveys and analyses, recommendations as to
specific securities and other products or services (e.g., quotation equipment
and computer related costs and expenses), advice concerning the value of
securities, the advisability of investing in, purchasing or selling securities,
the availability of securities or the purchasers or sellers of securities,
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts,
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement) and providing lawful and appropriate
assistance to the investment advisers in the performance of their
decision-making responsibilities. Such services are used by the investment
advisers in connection with all of their investment activities, and some of such
services obtained in connection with the execution of transactions for an
Underlying Fund may be used in managing other investment accounts. Conversely,
brokers furnishing such services may be selected for the execution of
transactions of such other accounts, whose aggregate assets are far larger than
those of an Underlying Fund, and the services furnished by such brokers may be
used by the investment advisers in providing management services for the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of an Underlying Fund as well as shares of other investment
companies or accounts managed by the Underlying Funds' investment advisers. This
policy does not imply a commitment to execute all portfolio transactions through
all broker-dealers that sell shares of the Underlying Fund.
On occasions when an Underlying Fund's investment adviser deems the
purchase or sale of a security to be in the best interest of an Underlying Fund
as well as its other customers (including any other fund or other investment
company or advisory account for which such investment adviser acts as investment
adviser or subadviser), the investment adviser, to the extent permitted by
applicable laws and regulations, may aggregate the securities to be sold or
purchased for the Underlying Fund with those to be sold or purchased for such
other customers in order to obtain the best net price and most favorable
execution under the circumstances. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the particular investment adviser in the manner it considers to be
equitable and consistent with its fiduciary obligations to such Fund and such
other customers. In some instances, this procedure may adversely affect the
price and size of the position obtainable for an Underlying Fund.
Commission rates in the U.S. are established pursuant to negotiations with
the broker based on the quality and quantity of execution services provided by
the broker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Trustees.
Subject to the above considerations, the Underlying Funds' investment
advisers may use Goldman Sachs as a broker for an Underlying Fund. In order for
Goldman Sachs to effect any portfolio transactions for an Underlying Fund, the
commissions, fees or other remuneration received by Goldman Sachs must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
instruments being purchased or sold on an exchange during a comparable period of
time. This standard would allow Goldman Sachs to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a
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commensurate arm's-length transaction. Furthermore, the Trustees, including a
majority of the Trustees who are not "interested" Trustees, have adopted
procedures which are reasonably designed to provide that any commissions, fees
or other remuneration paid to Goldman Sachs are consistent with the foregoing
standard. Brokerage transactions with Goldman Sachs are also subject to such
fiduciary standards as may be imposed upon Goldman Sachs by applicable law.
[During the fiscal year ended December 31, 1998, the Portfolios acquired
and sold securities of their regular broker-dealers: [complete] At December 21,
1998, the Portfolios held no securities of their regular broker-dealers as
defined in Rule 10b-1 under the Act or their parents.]
NET ASSET VALUE
Under the Act, the Trustees are responsible for determining in good faith
the fair value of securities of each Portfolio. In accordance with procedures
adopted by the Trustees, the net asset value per share of each class of each
Portfolio is calculated by determining the value of the net assets attributed to
each class of that Portfolio and dividing by the number of outstanding shares of
that class. All securities are valued as of the close of regular trading on the
New York Stock Exchange (normally, but not always, 4:00 p.m. New York time) on
each Business Day. The term "Business Day" means any day the New York Stock
Exchange is open for trading which is Monday through Friday except for holidays.
The New York Stock Exchange is closed on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day (observed), Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Thanksgiving Day and
Christmas Day (observed).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Portfolio may compute its
net asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
In determining the net asset value of a Portfolio, the net asset value of
the Underlying Funds' shares held by the Portfolio will be their net asset value
at the time of computation. Financial Square Prime Obligations Fund values all
of its portfolio securities using the amortized cost valuation method pursuant
to Rule 2a-7 under the Act. Other portfolio securities for which accurate market
quotations are available are valued by a Portfolio or Underlying Fund as
follows: (a) securities listed on any U.S. or foreign stock exchange or on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ") will be valued at the last sale price on the exchange or system in
which they are principally traded, on the valuation date. If there is no sale on
the valuation day, securities traded will be valued at the mean between the
closing bid and asked prices, or if closing bid and asked prices are not
available, at the exchange defined close price on the exchange or system in
which such securities are principally traded. If the relevant exchange or system
has not closed by the above-mentioned time for determining the Underlying Fund's
net asset value, the securities will be valued at the mean between the bid and
the asked prices at the time the net asset value is determined; (b)
over-the-counter securities not quoted on NASDAQ will be valued at the last sale
price on the valuation day or, if no sale occurs, at the mean between the last
bid and asked price; (c) equity securities for which no prices are obtained
under sections (a) or (b) hereof, including those for which a pricing service
supplies no exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate, will be valued at their fair value in
accordance with procedures approved by the Board of Trustees; (d) fixed-income
securities with a remaining maturity of 60 days or more for which accurate
market quotations are readily available will be valued according to dealer-
supplied bid quotations or bid quotations from a recognized pricing service
(e.g., Merrill Lynch, J.J. Kenny, Muller Data Corp., Bloonberg, EJV, Reuters or
Standard & Poor's); (e) fixed-income securities for which
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quotations are not readily available are valued by the investment adviser based
on valuation models that take into account spread and daily yield changes on
government securities in the appropriate market (i.e. matrix pricing); (f) debt
securities with a remaining maturity of 60 days or less are valued by the
particular investment adviser at amortized cost, which the Trustees have
determined to approximate fair value; and (g) all other instruments, including
those for which a pricing service supplies no exchange quotation or a quotation
that is believed by the portfolio manager/trader to be inaccurate, will be
valued at fair value in accordance with the valuation procedures approved by the
Board of Trustees.
The value of all assets and liabilities expressed in foreign
currencies will be converted into U.S. dollar values at current exchange rates
of such currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Trustees.
Generally, trading in securities on European and Far Eastern
securities exchanges and on over-the-counter markets is substantially completed
at various times prior to the close of business on each Business Day in New York
(i.e., a day on which the New York Stock Exchange is open for trading). In
addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all Business Days in New
York. Furthermore, trading takes place in various foreign markets on days which
are not Business Days in New York and days on which the Underlying Funds' net
asset values are not calculated. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities used in such calculation. The impact of events that occur
after the publication of market quotations used by a Fund to price its
securities but before the close of regular trading on the New York Stock
Exchange will normally not be reflected in an Underlying Fund's next determined
net asset value unless the Trust, in its discretion, makes an adjustment in
light of the nature and materiality of the event, its effect on Fund operations
and other relevant factors.
The proceeds received by each Portfolio and each other series of the
Trust from the issue or sale of its shares, and all net investment income,
realized and unrealized gain and proceeds thereof, subject only to the rights of
creditors, will be specifically allocated to such Portfolio and constitute the
underlying assets of that Portfolio or series. The underlying assets of each
Portfolio will be segregated on the books of account, and will be charged with
the liabilities in respect of such Portfolio and with a share of the general
liabilities of the Trust. Expenses of the Trust with respect to the Portfolios
and the other series of the Trust are generally allocated in proportion to the
net asset values of the respective Portfolios or series except where allocations
of direct expenses can otherwise be fairly made.
PERFORMANCE INFORMATION
A Portfolio may from time to time quote or otherwise use total return,
yield and/or distribution rate information in advertisements, shareholder
reports or sales literature. Average annual total return and yield are computed
pursuant to formulas specified by the SEC.
Yield is computed by dividing net investment income earned during a
recent thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the
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period. The calculation of net investment income for these purposes may differ
from the net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by
annualizing distributions of net investment income for such period and dividing
this amount by the net asset value per share or maximum public offering price on
the last day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price applicable to the relevant
class (i.e., net asset value in the case of each class other than Class A) at
the beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount, assuming a redemption (and payment of
any contingent deferred sales charge) at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period.
Total return calculations for Class A Shares reflect the effect of
paying the maximum initial sales charge. Investment at a lower sales charge
would result in higher performance figures. Total return calculations for Class
B and Class C Shares reflect deduction of the applicable CDSC imposed upon
redemption of Class B and Class C Shares held for the applicable period. Each
Portfolio may also from time to time advertise total return on a cumulative,
average, year-by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules. In addition, each Portfolio may
furnish total return calculations based on investments at various sales charge
levels or at NAV. Any performance information which is based on a Portfolio's
net asset value per share would be reduced if any applicable sales charge were
taken into account. In addition to the above, each Portfolio may from time to
time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance information
is available. The Portfolios' performance quotations do not reflect any fees
charged by an Authorized Dealer, Service Organization or other financial
intermediary to its customer accounts in connection with investments in the
Portfolios.
Thirty-day yield, distribution rate and average annual total return
are calculated separately for each class of shares of each Portfolio. Each
class of shares of each Portfolio is subject to different fees and expenses and
may have different returns for the same period.
Occasionally, statistics may be used to specify Portfolio volatility
or risk. Measures of volatility or risk are generally used to compare a
Portfolio's net asset value or performance relative to a market index. One
measure of volatility is beta. Beta is the volatility of a Portfolio relative
to the total market. A beta of more than 1.00 indicates volatility greater than
the market, and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average, over a specified period of time. The premise is that greater
volatility connotes greater risk undertaken in achieving performance.
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From time to time the Trust may publish an indication of a Portfolio's
past performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Consumer's Digest, Consumer's Report, Investors Business Daily,
The New York Times, Kiplinger's Personal Finance Magazine, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Trust may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Trust may from time to time advertise a
Portfolio's performance relative to certain indices and benchmark investments,
including: (a) the Lipper Analytical Services, Inc. Mutual Fund Performance
Analysis, Fixed-Income Analysis and Mutual Fund Indices (which measure total
return and average current yield for the mutual fund industry and rank mutual
fund performance); (b) the CDA Mutual Fund Report published by CDA Investment
Technologies, Inc. (which analyzes price, risk and various measures of return
for the mutual fund industry); (c) the Consumer Price Index published by the
U.S. Bureau of Labor Statistics (which measures changes in the price of goods
and services); (d) Stocks, Bonds, Bills and Inflation published by Ibbotson
Associates (which provides historical performance figures for stocks, government
securities and inflation); (e) the Salomon Brothers' World Bond Index (which
measures the total return in U.S. dollar terms of government bonds, Eurobonds
and foreign bonds of ten countries, with all such bonds having a minimum
maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or its
component indices; (g) the Standard & Poor's Bond Indices (which measure yield
and price of corporate, municipal and U.S. Government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds, commercial paper and
repurchase agreements; (j) Donoghues' Money Fund Report (which provides industry
averages for 7-day annualized and compounded yields of taxable, tax-free and
U.S. Government money funds); (k) the Hambrecht & Quist Growth Stock Index; (l)
the NASDAQ OTC Composite Prime Return; (m) the Russell Midcap Index; (n) the
Russell 2000 Index - Total Return; (o) Russell 1000 Growth Index-Total Return;
(p) the Value-Line Composite-Price Return; (q) the Wilshire 4500 Index; (r) the
FT-Actuaries Europe and Pacific Index; (s) historical investment data supplied
by the research departments of Goldman Sachs, Lehman Brothers, First Boston
Corporation, Morgan Stanley (including the EAFE Indices, the Morgan Stanley
Capital International Combined Asia ex Japan Free Index and the Morgan Stanley
Capital International Emerging Markets Free Index), Salomon Brothers, Merrill
Lynch, Donaldson Lufkin and Jenrette or other providers of such data; (t)
CDA/Wiesenberger Investment Companies Services or Wiesenberger Investment
Companies Service; (u) The Goldman Sachs Commodities Index; (v) information
produced by Micropal, Inc.; (w) the Shearson Lehman Government/Corporate (Total)
Index; (x) Shearson Lehman Government Index; (y) Merrill Lynch 1-3 Year Treasury
Index; (z) Merrill Lynch 2-Year Treasury Curve Index; (aa) the Salomon Brothers
Treasury Yield Curve Rate of Return Index; (bb) the Payden & Rygel 2-Year
Treasury Note Index; (cc) 1 through 3 year U.S. Treasury Notes; (dd) constant
maturity U.S. Treasury yield indices; (ee) the London Interbank Offered Rate;
(ff) historical data concerning the performance of adjustable and fixed-rate
mortgage loans; and (gg) the Tokyo Price Index. The composition of the
investments in such indices and the characteristics of such benchmark
investments are not identical to, and in some cases are very different from,
those of the Portfolios and the Underlying Funds. These indices and averages
are generally unmanaged and the items included in the calculations of such
indices and averages may not be identical to the formulas used by a Portfolio to
calculate its performance figures.
Information used in advertisements and materials furnished to present
and prospective investors may include statements or illustrations relating to
the appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
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. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance);
. retirement (including the availability of social security benefits,
the tax treatment of such benefits and statistics and other
information relating to maintaining a particular standard of living
and outliving existing assets);
. asset allocation strategies and the benefits of diversifying among
asset classes;
. the benefits of international and emerging market investments;
. the effects of inflation on investing and saving;
. the benefits of establishing and maintaining a regular pattern of
investing and the benefits of dollar-cost averaging; and
. measures of portfolio risk, including but not limited to, alpha, beta
and standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (for example,
common stocks, small company stocks, taxable money market funds,
U.S. Treasury securities, adjustable rate mortgage securities,
government securities and municipal bonds) over time. However,
the characteristics of these securities are not identical to, and
may be very different from, those of a Portfolio;
. the dollar and non-dollar based returns of various market indices
(i.e., Morgan Stanley Capital International EAFE Index, FT-
Actuaries Europe & Pacific Index and the Standard & Poor's Index
of 500 Common Stocks) over varying periods of time;
. total stock market capitalizations of specific countries and
regions on a global basis;
. performance of securities markets of specific countries and
regions;
. value of a dollar amount invested in a particular market or type
of security over different periods of time;
. volatility of total return of various market indices (i.e. Lehman
Government Bond Index, S&P 500, IBC/Donoghue's Money Fund
Average/ All Taxable Index) over varying periods of time;
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<PAGE>
. credit ratings of domestic government bonds in various countries;
. price volatility comparisons of types of securities over
different periods of time; and
. price and yield comparisons of a particular security over
different periods of time.
In addition, the Trust may from time to time include rankings of Goldman,
Sachs & Co.'s research department by publications such as the Institutional
Investor and the Wall Street Journal in advertisements.
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<PAGE>
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no voluntary
waiver of fees and no
expense reimbursements
-----------
Assumes Assumes
Maximum Maximum
Applicable Assumes Applicable Assumes
Sales No sales Sales No Sales
Portfolio Class Time Period Charge* Charge Charge* Charge
--------- ----- ----------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Strategy A 1/2/98-12/31/98 - Since inception 0.55% 6.38% (0.37)% 5.42%
Balanced Strategy B 1/2/98-12/31/98 - Since inception 0.62% 5.75% (0.26)% 4.87%
Balanced Strategy C 1/2/98-12/31/98 - Since inception 4.81% 5.83% 3.93% 4.95%
Balanced Strategy Institutional 1/2/98-12/31/98 - Since inception N/A 6.99% N/A 6.10%
Balanced Strategy Service 1/2/98-12/31/98 - Since inception N/A N/A
Growth and Income Strategy A 1/2/98-12/31/98 - Since inception 0.71% 6.55% 0.23% 6.05%
Growth and Income Strategy B 1/2/98-12/31/98 - Since inception 0.71% 5.82% 0.29% 5.40%
Growth and Income Strategy C 1/2/98-12/31/98 - Since inception 4.78% 5.80% 4.35% 5.37%
Growth and Income Strategy Institutional 1/2/98-12/31/98 - Since inception N/A 6.96% N/A 6.55%
Growth and Income Strategy Service 1/2/98-12/31/98 - Since inception N/A N/A
Growth Strategy A 1/2/98-12/31/98 - Since inception (1.11)% 4.62% (1.68)% 4.03%
Growth Strategy B 1/2/98-12/31/98 - Since inception (1.07)% 3.98% (1.59)% 3.46%
Growth Strategy C 1/2/98-12/31/98 - Since inception 2.95% 3.96% 2.42% 3.43%
Growth Strategy Institutional 1/2/98-12/31/98 - Since inception N/A 4.92% N/A 4.41%
Growth Strategy Service 1/2/98-12/31/98 - Since inception N/A 4.45% N/A 3.92%
</TABLE>
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93
<PAGE>
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum Maximum
Applicable Assumes Applicable Assumes
Sales No sales Sales No Sales
Fund Class Time Period Charge* Charge Charge* Charge
----- ----- ------------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
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<PAGE>
VALUE OF $1,000 INVESTMENT
(AVERAGE ANNUAL TOTAL RETURN)
<TABLE>
<CAPTION>
Assuming no voluntary
waiver of fees and no
expense reimbursements
----------------------
Assumes Assumes
Maximum Maximum
Applicable Assumes Applicable Assumes
Sales No sales Sales No Sales
Fund Class Time Period Charge* Charge Charge* Charge
---- ----- ----------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Aggressive Growth Strategy A 1/2/98-12/31/98 - Since inception (3.05)% 2.57% (3.89)% 1.69%
Aggressive Growth Strategy B 1/2/98-12/31/98 - Since inception (3.09)% 1.93% (3.90)% 1.12%
Aggressive Growth Strategy C 1/2/98-12/31/98 - Since inception 1.04% 2.04% 0.22% 1.22%
Aggressive Growth Strategy Institutional 1/2/98-12/31/98 - Since inception N/A 2.80% N/A 1.97%
Aggressive Growth Strategy Service 1/2/98-12/31/98 - Since inception N/A 2.54% N/A 1.72%
</TABLE>
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<PAGE>
- --------------------
All returns are average annual total returns.
* Total return reflects a maximum initial sales charge of 5.5% for Class A
Shares, the assumed deferred sales charge for Class B Shares (5% maximum
declining to 0% after six years) and the assumed deferred sales charge for
Class C Shares (1% if redeemed within 12 months of purchase).
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From time to time, advertisements or information may include a
discussion of certain attributes or benefits to be derived by an investment in a
Portfolio. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Adviser's
views as to markets, the rationale for a Portfolio's investments and discussions
of a Portfolio's current asset allocation.
In addition, from time to time, advertisements or information may
include a discussion of asset allocation models developed by the Adviser and/or
its affiliates, certain attributes or benefits to be derived from asset
allocation strategies and the Goldman Sachs mutual funds that may be offered as
investment options for the strategic asset allocations. Such advertisements and
information may also include the Adviser's current economic outlook and domestic
and international market views to suggest periodic tactical modifications to
current asset allocation strategies. Such advertisements and information may
include other materials which highlight or summarize the services provided in
support of an asset allocation program.
A Portfolio's performance data will be based on historical results and
will not be intended to indicate future performance. A Portfolio's total
return, yield and distribution rate will vary based on market conditions,
portfolio expenses, portfolio investments and other factors. The value of a
Portfolio's shares will fluctuate and an investor's shares may be worth more or
less than their original cost upon redemption.
The Trust may, at its discretion, from time to time make a list of a
Portfolio's holdings available to investors upon request.
SHARES OF THE TRUST
Each Portfolio is a series of Goldman Sachs Trust, which was formed
under the laws of the state of Delaware on January 28, 1997. The Trustees have
authority under the Trust's Declaration of Trust to create and classify shares
of beneficial interest in separate series, without further action by
shareholders. The Trustees also have authority to classify and reclassify the
shares of the Portfolios into one or more classes of shares. As of the date of
this Additional Statement, the Trustees have authorized the issuance of five
classes of shares in each Portfolio: Institutional Shares, Service Shares,
Class A Shares, Class B Shares and Class C Shares.
Each Institutional Share, Service Share, Class A Share, Class B Share
and Class C Share of a Portfolio represents a proportionate interest in the
assets belonging to the applicable class of the Portfolio. All expenses of a
Portfolio are borne at the same rate by each class of shares, except that fees
under Service Plan are borne exclusively by Service Shares, fees under the
Distribution and Service Plan are borne exclusively by Class A Shares, Class B
Shares or Class C Shares, and transfer agency fees may be borne at different
rates by different share classes. The Trustees may determine in the future that
it is appropriate to
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allocate other expenses differently between classes of shares and may do so to
the extent consistent with the rules of the SEC and positions of the Internal
Revenue Service. Each class of shares may have different minimum investment
requirements and be entitled to different shareholder services. With limited
exceptions, shares of a class may only be exchanged for shares of the same or an
equivalent class of another series. See "Shareholder Guide" in the
Prospectus.
Institutional Shares may be purchased at net asset value without a
sales charge for accounts in the name of an investor or institution that is not
compensated by a Portfolio under a Plan for services provided to the
institution's customers.
Service Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that, directly or
indirectly, provides certain account administration and shareholder liaison
services to its customers, including maintenance of account records and
processing orders to purchase, redeem and exchange Service Shares. Service
Shares bear the cost of account administration fees at the annual rate of up to
0.50% of the average daily net assets of the Portfolio attributable to Service
Shares.
Class A Shares are sold, with an initial sales charge, through brokers
and dealers who are members of the National Association of Securities Dealers,
Inc. and certain other financial service firms that have sales agreements with
Goldman Sachs. Class A Shares of the Portfolios bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average daily net
assets of such Class A Shares. With respect to Class A Shares, the Distributor
at its discretion may use compensation for distribution services paid under the
Distribution and Services Plan for personal and account maintenance services and
expenses so long as such total compensation under the Plan does not exceed the
maximum cap on "service fees" imposed by the NASD.
Class B Shares and Class C Shares of the Portfolios are sold subject
to a contingent deferred sales charge through brokers and dealers who are
members of the National Association of Securities Dealers, Inc. and certain
other financial services firms that have sales arrangements with Goldman Sachs.
Class B Shares and Class C Shares bear the cost of distribution (Rule 12b-1)
fees at the aggregate rate of up to 0.75% of the average daily net assets
attributed to Class B Shares and Class C Shares. Class B Shares and Class C
Shares also bear the cost of a service fee at an annual rate of up to 0.25% of
the average daily net assets attributed to Class B Shares and Class C
Shares.
It is possible that an institution or its affiliate may offer
different classes of shares (i.e., Institutional, Service, Class A, Class B and
Class C Shares) to its customers and thus receive different compensation with
respect to different classes of shares of each Portfolio. Dividends paid by
each Portfolio, if any, with respect to each class of shares will be calculated
in the same manner, at the same time on the same day and will be in the same
amount, except for differences caused by the differences in expenses discussed
above. Similarly, the net asset value per share may differ depending upon the
class of shares purchased.
Certain aspects of the shares may be altered after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
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When issued, shares are fully paid and non-assessable. In the event
of liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the relevant Portfolio available for distribution to
such shareholders. All shares are freely transferable and have no preemptive,
subscription or conversion rights.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Portfolios' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent.
Portfolio shares and any dividends and distributions paid by the Portfolios are
reflected in account statements from the Transfer Agent.
[UPDATE 5% SHAREHOLDERS]
As of November 20, 1998, Merrill Lynch Pierce Fenner & Smith, Attn:
Service Team 97TM4, 4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL
32246-6484, (beneficially for its customers) was recordholder of 7% of the
Balanced Strategy Portfolio's outstanding Class B shares; Merrill Lynch Pierce
Fenner & Smith, Attn: Service Team 97TM4, 4800 Deer Lake Drive, East 3rd Floor,
Jacksonville, FL 32246-6484, (beneficially for its customers) was recordholder
of 9% of the Balanced Strategy Portfolio's outstanding Class C shares; Merrill
Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4, 4800 Deer Lake Drive,
East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially for its customers)
was recordholder of 5% of the Growth and Income Strategy Portfolio's outstanding
Class B shares; Merrill Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4,
4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially
for its customers) was recordholder of 9% of the Growth and Income Strategy
Portfolio's outstanding Class C shares; Kentucky Wesleyan College, Endowment
Account, c/o Cindra Stiff, 3000 Frederica Street, Owensboro, KY 42301-6055, was
recordholder of 5% of the Growth Strategy Portfolio's outstanding Class A
shares; Merrill Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4, 4800 Deer
Lake Drive, East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially for its
customers) was recordholder of 5% of the Growth Strategy Portfolio's outstanding
Class B shares; Merrill Lynch Pierce Fenner & Smith, Attn: Service Team 97TM4,
4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL 32246-6484, (beneficially
for its customers) was recordholder of 11% of the Growth Strategy Portfolio's
outstanding Class C shares; and Merrill Lynch Pierce Fenner & Smith, Attn:
Service Team 97TM4, 4800 Deer Lake Drive, East 3rd Floor, Jacksonville, FL
32246-6484, (beneficially for its customers) was recordholder of 9% of the
Aggressive Growth Strategy Portfolio's outstanding Class C shares.
The Act requires that where more than one class or series of shares
exists, each class or series must be preferred over all other classes or series
in respect to assets specifically allocated to such class or series. In
addition, Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise, to
the holders of the outstanding voting securities of an investment company such
as the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series.
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However, Rule 18f-2 exempts the selection of independent public accountants, the
approval of principal distribution contracts and the election of trustees from
the separate voting requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and
does not intend to hold such meetings. In the event that a meeting of
shareholders is held, each share of the Trust will be entitled, as determined by
the Trustees, either to one vote for each share or to one vote for each dollar
of net asset value represented by such shares on all matters presented to
shareholders including the elections of Trustees (this method of voting being
referred to as "dollar based voting"). However, to the extent required by the
Act or otherwise determined by the Trustees, series and classes of the Trust
will vote separately from each other. Shareholders of the Trust do not have
cumulative voting rights in the election of Trustees. Meetings of shareholders
of the Trust, or any series or class thereof, may be called by the Trustees,
certain officers or upon the written request of holders of 10% or more of the
shares entitled to vote at such meetings. The Trustees will call a special
meeting of shareholders for the purpose of electing Trustees if, at any time,
less than a majority of Trustees holding office at the time were elected by
shareholders. The shareholders of the Trust will have voting rights only with
respect to the limited number of matters specified in the Declaration of Trust
and such other matters as the Trustees may determine or may be required by
law.
The Declaration of Trust provides for indemnification of Trustees,
officers, employees 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, series or its respective
shareholders. The factors and events that the Trustees may take into account in
making such determination include (i) the inability of the Trust or any
successor series or class to maintain its assets at an appropriate size; (ii)
changes in laws or regulations governing the Trust, series or class or affecting
assets of the type in which it invests; or (iii) economic developments or trends
having a significant adverse impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without
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shareholder approval, may adopt a master-feeder structure by investing all or a
portion of the assets of a series of the Trust in the securities of another
open-end investment company with substantially the same investment objective,
restrictions and policies.
The Declaration of Trust permits the Trustees to amend the Declaration
of Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would adversely affect the voting rights
of shareholders; (ii) that is required by law to be approved by shareholders;
(iii) that would amend the provisions of the Declaration of Trust regarding
amendments and supplements thereto; or (iv) that the Trustees determine to
submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Delaware Trust, all the powers and authorities of Trustees under
the Trust Instrument with respect to any other series or class.
Shareholder and Trustee Liability
Under Delaware law, the shareholders of the Portfolios are not
generally subject to liability for the debts or obligations of the Trust.
Similarly, Delaware law provides that a series of the Trust will not be liable
for the debts or obligations of any other series of the Trust. However, no
similar statutory or other authority limiting business trust shareholder
liability exists in other states. As a result, to the extent that a Delaware
business trust or a shareholder is subject to the jurisdiction of courts of such
other states, the courts may not apply Delaware law and may thereby subject the
Delaware business trust shareholders to liability. To guard this risk, the
Declaration of Trust contains an express disclaimer of shareholder liability for
acts or obligations of a Portfolio. Notice of such disclaimer will normally be
given in each agreement, obligation or instrument entered into or executed by a
series or the Trustees. The Declaration of Trust provides for indemnification
by the relevant Portfolio for all loss suffered by a shareholder as a result of
an obligation of the series. The Declaration of Trust also provides that a
series shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders
of a Delaware business trust is remote.
In addition to the requirements under Delaware law, the Declaration of
Trust provides that shareholders of a series may bring a derivative action on
behalf of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis and to employ other advisers in considering the merits of
the request and shall require an undertaking by the shareholders making such
request to reimburse the Portfolio for the expense of any such advisers in the
event that the Trustees determine not to bring such action.
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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.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Portfolio. This summary does not address
special tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his or her own tax adviser with respect to the
specific federal, state, local and foreign tax consequences of investing in each
Portfolio. The summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
General
Each Portfolio is a separate taxable entity. Each of the Portfolios
intends to qualify for each taxable year as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended (the "Code"). To qualify
as such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Portfolio derive at least 90% of its
gross income for its taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stocks or securities or foreign currencies, or other income (including but not
limited to gains from options, futures, and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "90% gross income test"); and (b) such Portfolio diversify its holdings so
that, at the close of each quarter of its taxable year, (i) at least 50% of the
market value of such Portfolio's total (gross) assets is comprised of cash, cash
items, U.S. Government securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to an amount
not greater in value than 5% of the value of such Portfolio's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its total (gross) assets is invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or two or more issuers
controlled by the Portfolio and engaged in the same, similar or related trades
or businesses.
If a Portfolio complies with such provisions, then in any taxable year
in which such Portfolio distributes, in compliance with the Code's timing and
other requirements, at least
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90% of its "investment company taxable income" (which includes dividends,
taxable interest, taxable accrued original issue discount and market discount
income, income from securities lending, any net short-term capital gain in
excess of net long-term capital loss, certain net realized foreign exchange
gains and any other taxable income other than "net capital gain," as defined
below, and is reduced by deductible expenses), and at least 90% of the excess of
its gross tax-exempt interest income (if any) over certain disallowed
deductions, such Portfolio (but not its shareholders) will be relieved of
federal income tax on any income of the Portfolio, including long- term capital
gains, distributed to shareholders. In this connection, dividends received by a
Portfolio from an Underlying Fund, other than capital gain distributions, are
treated as ordinary income to the Portfolio. Distributions from an Underlying
Fund designated as capital gain distributions are treated as long-term capital
gains. Such long-term capital gain will generally be 20% rate gain. In addition,
upon the sale or other disposition by a Portfolio of shares of an Underlying
Fund or other investment, the Portfolio will generally realize a capital gain or
loss which will be long-term or short-term, generally depending upon the
Portfolio's holding period.
If a Portfolio retains any investment company taxable income or "net
capital gain" (the excess of net long-term capital gain over net short-term
capital loss), it will be subject to a tax at regular corporate rates on the
amount retained. If a Portfolio retains any net capital gain, the Portfolio may
designate the retained amount as undistributed capital gains in a notice to its
shareholders who, if subject to U.S. federal income tax on long-term capital
gains, (i) will be required to include in income for federal income tax
purposes, as long-term rate capital gain, as the case may be, their shares of
such undistributed amount, and (ii) will be entitled to credit their
proportionate shares of the tax paid by the Portfolio against their U.S. federal
income tax liabilities, if any, and to claim refunds to the extent the credit
exceeds such liabilities. For U.S. federal income tax purposes, the tax basis
of shares owned by a shareholder of the Portfolio will be increased by an amount
equal to a percentage of the amount of undistributed net capital gain included
in the shareholder's gross income. Each Portfolio intends to distribute for
each taxable year to its shareholders all or substantially all of its investment
company taxable income, net capital gain and any net tax-exempt interest.
Exchange control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors such as the CORE International Equity, International
Equity, European Equity, Japanese Equity, International Small Cap, Emerging
Markets Equity, Asia Growth or Global Income Funds and may therefore make it
more difficult for such a Fund to satisfy the distribution requirements
described above, as well as the excise tax distribution requirements described
below. However, each Fund generally expects to be able to obtain sufficient
cash to satisfy such requirements from new investors, the sale of securities or
other sources. If for any taxable year a Portfolio does not qualify as a
regulated investment company, it will be taxed on all of its investment company
taxable income and net capital gain at corporate rates, and its distributions to
shareholders will be taxable as ordinary dividends to the extent of its current
and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Portfolio must
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its taxable ordinary income for such year, at least 98% of
the excess of its capital gains over its capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year), and all
taxable ordinary income and the excess of capital gains over capital losses for
the previous year that were not distributed for such year and on which the
Portfolio paid no
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federal income tax. For federal income tax purposes, dividends declared by a
Portfolio in October, November or December to shareholders of record on a
specified date in such a month and paid during January of the following year are
taxable to such shareholders as if received on December 31 of the year declared.
The Portfolios anticipate that they will generally make timely distributions of
income and capital gains in compliance with these requirements so that they will
generally not be required to pay the excise tax. For federal income tax
purposes, each Portfolio is permitted to carry forward a net capital loss in any
year to offset its own capital gains, if any, during the eight years following
the year of the loss.
Gains and losses on the sale, lapse, or other termination of options
and futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by an Underlying Fund will be
required to be "marked-to-market" for federal income tax purposes, that is,
treated as having been sold at their fair market value on the last day of the
Fund's taxable year. These provisions may require an Underlying Fund to
recognize income or gains without a concurrent receipt of cash. Any gain or
loss recognized on actual or deemed sales of these futures contracts, forward
contracts, or options will (except for certain foreign currency options, forward
contracts, and futures contracts) be treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. As a result of certain hedging
transactions entered into by an Underlying Fund, the Fund may be required to
defer the recognition of losses on futures contracts, forward contracts, and
options or underlying securities or foreign currencies to the extent of any
unrecognized gains on related positions held by such Underlying Fund and the
characterization of gains or losses as long-term or short-term may be changed.
The tax provisions described above applicable to options, futures and forward
contracts may affect the amount, timing and character of an Underlying Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and an Underlying Fund may therefore be
required to limit its participation in such transactions. Certain tax elections
may be available to an Underlying Fund to mitigate some of the unfavorable
consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to
certain foreign currency transactions and instruments that may affect the
amount, timing and character of income, gain or loss recognized by an Underlying
Fund. Under these rules, foreign exchange gain or loss realized with respect to
foreign currencies and certain futures and options thereon, foreign currency-
denominated debt instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed an Underlying Fund's
investment company taxable income (computed without regard to such loss) for a
taxable year, the resulting loss would not be deductible by the Fund or its
shareholders in future years. Net loss, if any, from certain of the foregoing
currency transactions or instruments could exceed net investment income
otherwise calculated for accounting purposes with the result being either no
dividends being paid or a portion of an Underlying Fund's dividends being
treated as a return of capital for tax
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purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
An Underlying Fund's investment in zero coupon securities, deferred
interest securities, certain structured securities or other securities bearing
original issue discount or, if an Underlying Fund elects to include market
discount in income currently, market discount, as well as any "mark to market"
gain from certain options, futures or forward contracts, as described above,
will generally cause it to realize income or gain prior to the receipt of cash
payments with respect to these securities or contracts. In order to obtain cash
to enable it to distribute this income or gain, maintain its qualification as a
regulated investment company and avoid federal income or excise taxes, the
Underlying Fund may be required to liquidate portfolio securities that it might
otherwise have continued to hold.
Each Underlying Fund also intends to qualify annually and elect to be
treated as a regulated investment company under Subchapter M of the Code. In
any year in which an Underlying Fund so qualifies and timely distributes all of
its taxable income, the Underlying Fund generally will not pay any federal
income or excise tax. If, as may occur for certain of the Underlying Funds,
more than 50% of an Underlying Fund's total assets at the close of any taxable
year consists of stock or securities of foreign corporations, the Underlying
Fund may file an election with the Internal Revenue Service pursuant to which
shareholders of the Underlying Fund would be required to (i) include in ordinary
gross income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Underlying Fund that are treated as
income taxes under U.S. tax regulations (which excludes, for example, stamp
taxes, securities transaction taxes, and similar taxes) even though not actually
received by such shareholders, and (ii) treat such respective pro rata portions
as foreign income taxes paid by them.
If an Underlying Fund makes this election, its shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by an Underlying
Fund, although such shareholders will be required to include their shares of
such taxes in gross income if the election is made.
While a Portfolio will be able to deduct the foreign taxes that it
will be treated as receiving from an Underlying Fund if the election is made,
the Portfolio will not itself be able to elect to treat its foreign taxes as
paid by its shareholders. Accordingly, the shareholders of the Portfolio will
not have an option of claiming a foreign tax credit for foreign taxes paid by
the Underlying Funds, while persons who invest directly in such Underlying Funds
may have that option.
If an Underlying Fund acquires stock (including, under proposed
regulations, an option to acquire stock such as is inherent in a convertible
bond) in certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, rents, royalties
or capital gain) or hold at least 50% of their assets in investments producing
such passive income ("passive foreign investment companies"), the Underlying
Fund could be subject to federal income tax and additional interest charges on
"excess distributions" received from such companies or gain from the sale of
stock in such
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companies, even if all income or gain actually received by the Underlying Fund
is timely distributed to its shareholders. The Underlying Fund would not be able
to pass through to its shareholders any credit or deduction for such a tax. In
some cases, elections may be available that would ameliorate these adverse tax
consequences, but such elections would require the Underlying Fund to include
certain amounts as income or gain (subject to the distribution requirements
described above) without a concurrent receipt of cash. Each Fund may limit
and/or manage its holdings in passive foreign investment companies to minimize
its tax liability or maximize its return from these investments.
Investments in lower-rated securities may present special tax issues
for an Underlying Fund to the extent actual or anticipated defaults may be more
likely with respect to such securities. Tax rules are not entirely clear about
issues such as when an Underlying Fund may cease to accrue interest, original
issue discount, or market discount; when and to what extent deductions may be
taken for bad debts or worthless securities; how payments received on
obligations in default should be allocated between principal and income; and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by an Underlying Fund, in the event it
invests in such securities, in order to seek to eliminate or minimize any
adverse tax consequences.
Taxable U.S. Shareholders - Distributions
For U.S. federal income tax purposes, distributions by a Portfolio
generally will be taxable to shareholders who are subject to tax. Shareholders
receiving a distribution in the form of newly issued shares will be treated for
U.S. federal income tax purposes as receiving a distribution in an amount equal
to the amount of cash they would have received had they elected to receive cash
and will have a cost basis in each share received equal to such amount divided
by the number of shares received.
Distributions from investment company taxable income for the year will
be taxable as ordinary income. Distributions designated as derived from a
Portfolio's dividend income, if any, that would be eligible for the dividends
received deduction if such Portfolio's were not a regulated investment company
may be eligible for the dividends-received deduction for corporate shareholders.
The dividends-received deduction, if available, is reduced to the extent the
shares with respect to which the dividends are received are treated as debt-
financed under federal income tax law and is eliminated if the shares are deemed
to have been held for less than a minimum period, generally 46 days. The entire
dividend, including the deducted amount, is considered in determining the
excess, if any, of a corporate shareholder's adjusted current earnings over its
alternative minimum taxable income, which may increase its liability for the
federal alternative minimum tax, and the dividend may, if it is treated as an
"extraordinary dividend" under the Code, reduce such shareholder's tax basis in
its shares of a Portfolio. Capital gain dividends (i.e., dividends from net
capital gain), if designated as such in a written notice to shareholders mailed
not later than 60 days after a Portfolio's taxable year closes, will be taxed to
shareholders as long-term capital gain regardless of how long shares have been
held by shareholders, but are not eligible for the dividends-received deduction
for corporations. Such long-term capital gain will generally be 20% rate gain.
Distributions, if any, that are in excess of a Portfolio's current and
accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will generally constitute
capital gains to a shareholder who holds his shares as capital assets.
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Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Taxable U.S. Shareholders - Sale of Shares
When a shareholder's shares are sold, redeemed or otherwise disposed
of in a transaction that is treated as a sale for tax purposes, the shareholder
will generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming the shareholder holds the shares as a
capital asset at the time of such sale, such gain or loss should be capital in
character, and long-term if the shareholder has a tax holding period for the
shares of more than one year, otherwise short-term. In general, the maximum
long-term capital gain rate will be 20% for gains on assets held more than one
year. Shareholders should consult their own tax advisers with reference to
their particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Portfolio shares is properly treated as a sale
for tax purposes, as is assumed in this discussion. If a shareholder receives a
capital gain dividend with respect to shares and such shares have a tax holding
period of six months or less at the time of a sale or redemption of such shares,
then any loss the shareholder realizes on the sale or redemption will be treated
as a long-term capital loss to the extent of such capital gain dividend. All or
a portion of any sales load paid upon the purchase of shares of a Portfolio will
not be taken into account in determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent the
redemption proceeds are reinvested, or the exchange is effected, without payment
of an additional sales load pursuant to the reinvestment or exchange privilege.
The load not taken into account will be added to the tax basis of the newly-
acquired shares. Additionally, any loss realized on a sale or redemption of
shares of a Portfolio may be disallowed under "wash sale" rules to the extent
the shares disposed of are replaced with other shares of the same Portfolio
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to a dividend reinvestment in shares of
such Portfolio. If disallowed, the loss will be reflected in an adjustment to
the basis of the shares acquired.
Each Portfolio may be required to withhold, as "backup withholding,"
federal income tax at a rate of 31% from dividends (including capital gain
dividends) and share redemption and exchange proceeds to individuals and other
non-exempt shareholders who fail to furnish such Portfolio with a correct
taxpayer identification number ("TIN") certified under penalties of perjury, or
if the Internal Revenue Service or a broker notifies the Portfolio that the
payee is subject to backup withholding as a result of failing to properly report
interest or dividend income to the Internal Revenue Service or that the TIN
furnished by the payee to the Portfolio is incorrect, or if (when required to do
so) the payee fails to certify under penalties of perjury that it is not subject
to backup withholding. A Portfolio may refuse to accept an application that
does not contain any required TIN or certification that the TIN provided is
correct. If the backup withholding provisions are applicable, any such dividends
and proceeds, whether paid in cash or reinvested in additional shares, will be
reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisers
B-106
<PAGE>
about the applicability of the banking withholding provisions. If you do not
have a TIN, you should apply for one immediately by contacting your local office
of the Social Security Administration or the Internal Revenue Services. Backup
withholding could apply to payments relating to your account while you are
waiting receipt of a TIN. Special rules apply for certain entities. For example,
for an account established under a Uniform Gifts for Transfer to Minors Act, the
TIN of the minor should be furnished.
Non-U.S. Shareholders
The discussion above relates solely to U.S. federal income tax law as
it applies to "U.S. persons" subject to tax under such law. Shareholders who, as
to the United States, are not "U.S. persons" (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
a Portfolio which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Portfolio will not be subject to U.S. federal income
or withholding tax unless the gain is effectively connected with the
shareholder's trade or business in the U.S., or in the case of a shareholder who
is a nonresident alien individual, the shareholder is present in the U.S. for
183 days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Portfolio with an IRS Form W-8
or an acceptable substitute may be subject to backup withholding at the rate of
31% on capital gain dividends and the proceeds of redemptions and exchanges.
Each shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Portfolios.
State and Local
Each Portfolio may be subject to state or local taxes in jurisdictions
in which such Portfolio may be deemed to be doing business. In addition, in
those states or localities which have income tax laws, the treatment of such
Portfolio and its shareholders under such laws may differ from their treatment
under federal income tax laws, and investment in such Portfolio may have tax
consequences for shareholders different from those of a direct investment in the
securities held by the Portfolio. Shareholders should consult their own tax
advisers concerning these matters.
B-107
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements and related reports of Arthur
Andersen LLP, independent public accountants, for each Portfolio contained in
each Portfolio's 1998 Annual Report (except Conservative Strategy Portfolio)
are hereby incorporated by reference and attached hereto. A copy of the annual
reports may be obtained without charge by writing Goldman, Sachs & Co., 4900
Sears Tower, Chicago, Illinois 60606 or by calling Goldman, Sachs & Co., at the
telephone number on the back cover of each Portfolio's prospectus. No other
portions of the Portfolios' Annual Reports are incorporated hereby by
reference.
OTHER INFORMATION
Each Portfolio will redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day period
for any one shareholder. Each Portfolio, however, reserves the right to pay
redemptions exceeding $250,000 or 1% of the net asset value of the Portfolio at
the time of redemption by a distribution in kind of securities (instead of cash)
from such Portfolio. The securities distributed in kind would be readily
marketable and would be valued for this purpose using the same method employed
in calculating the Portfolio's net asset value per share. See "Net Asset
Value." If a shareholder receives redemption proceeds in kind, the shareholder
should expect to incur transaction costs upon the disposition of the securities
received in the redemption.
The right of a shareholder to redeem shares and the date of payment by
each Portfolio may be suspended for more than seven days for any period during
which the New York Stock Exchange is closed, other than the customary weekends
or holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Portfolio to dispose of securities owned
by it or fairly to determine the value of its net assets; or for such other
period as the SEC may by order permit for the protection of shareholders of such
Portfolio. (The Trust may also suspend or postpone the recordation of the
transfer of shares upon the occurrence of any of the foregoing conditions.)
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus and
this Additional Statement pursuant to the rules and regulations of the SEC. The
Registration Statement including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement
as to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their
B-108
<PAGE>
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 a Distribution and Service
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.
The Adviser, Distributor and/or their affiliates may pay, out of their
own assets, compensation to Authorized Dealers, Service Organizations and other
financial intermediaries ("Intermediaries") for the sale and distribution of
shares of the Portfolios and/or for the servicing of those shares. These
payments ("Additional Payments") would be in addition to the payments by the
Portfolios described in the Portfolios' Prospectus and this Additional Statement
for distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to Intermediaries as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Intermediary's examination of the Portfolios and payments for
providing extra employee training and information relating to the Portfolios;
"listing" fees for the placement of the Portfolios on an Intermediary's list of
mutual funds available for purchase by its customers; "finders" or "referral"
fees for directing investors to the Portfolios; "marketing support" fees for
providing assistance in promoting the sale of the Portfolios' 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 the shareholder servicing and processing fees
paid by the Portfolios. 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 Intermediary, or may be based
on a percentage of the value of shares sold to, or held by, customers of the
Intermediary involved, and may be different for different Intermediaries.
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. The Adviser, Distributor and their affiliates may also pay for the
travel expenses, meals, lodging and entertainment of Intermediaries 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.
B-109
<PAGE>
OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
(Class A, Class B and Class C Shares Only)
The following information supplements the information in the
Prospectus under the captions "Shareholder Guide" and "Dividends." Please see
the Prospectus for more complete information.
Maximum Sales Charges
=====================
Class A Shares of each Portfolio are sold at a maximum sales charge of
5.5%. Using the offering price per share, as of December 31, 1998 and $10.00 for
the Conservative Strategy Portfolio, the maximum offering price of each
Portfolio's Class A shares would be as follows:
<TABLE>
<CAPTION>
Net Asset Maximum Offering Price
Value Sales Charge to Public
----- ------------ ---------
<S> <C> <C> <C>
Conservative Strategy $10.00 5.5% $10.58
Balanced Strategy $10.31 5.5% $10.91
Growth and Income Strategy $10.38 5.5% $10.98
Growth Strategy $10.29 5.5% $10.89
Aggressive Growth Strategy $10.16 5.5% $10.75
</TABLE>
Other Purchase Information
==========================
The sales load waivers on the Portfolios' shares are due to the nature of the
investors involved and/or the reduced sales effort that is needed to obtain such
investments.
If shares of a Portfolio are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by a Portfolio and its Transfer Agent. Since the
Portfolios will have no record of the beneficial owner's transactions, a
beneficial owner should contact the Authorized Dealer to purchase, redeem or
exchange shares, to make changes in or give instructions concerning the account
or to obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with a
Portfolio involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Dealer.
Authorized Dealers and other financial intermediaries provide varying
arrangements for their clients to purchase and redeem Portfolio shares. Some may
establish higher minimum investment requirements and others may limit the
availability of certain privileges with respect to the purchase and redemption
of shares or the reinvestment of dividends. Firms may arrange with their clients
for other investment or administrative services and may independently establish
and charge additional amounts to their clients for such services, which charges
would reduce a client's return.
B-110
<PAGE>
Right of Accumulation - (Class A)
=================================
A Class A shareholder qualifies for cumulative quantity discounts if
the current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of the
Portfolios and Class A Shares of any other Goldman Sachs Fund (as defined in the
Prospectus) total the requisite amount for receiving a discount. For example, if
a shareholder owns shares with a current market value of $65,000 and purchases
additional Class A Shares of the Balanced Strategy Portfolio with a purchase
price of $45,000, the sales charge for the $45,000 purchase would be 3.0% (the
rate applicable to a single purchase of more than $100,000). Class A Shares
purchased without the imposition of a sales charge and shares of another class
of the Portfolios may not be aggregated with Class A Shares purchased subject to
a sales charge. Class A Shares of the Portfolios and any other Goldman Sachs
Fund purchased (i) by an individual, his spouse and his children, and (ii) by a
trustee, guardian or other fiduciary of a single trust estate or a single
fiduciary account, will be combined for the purpose of determining whether a
purchase will qualify for such right of accumulation and, if qualifying, the
applicable sales charge level. For purposes of applying the right of
accumulation, shares of the Portfolios and any other Goldman Sachs Fund
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A Shares held by any other Private
Client Services account. In addition, Class A Shares of the Portfolios and Class
A Shares of any other Goldman Sachs Fund purchased by partners, directors,
officers or employees of the same business organization or by groups of
individuals represented by and investing on the recommendation of the same
accounting firm, certain affinity groups or other similar organizations
(collectively, "eligible persons") may be combined for the purpose of
determining whether a purchase will qualify for the right of accumulation and,
if qualifying, the applicable sales charge level. This right of accumulation is
subject to the following conditions: (i) the business organization's, group's or
firm's agreement to cooperate in the offering of the Portfolios' shares to
eligible persons; and (ii) notification to the Portfolios at the time of
purchase that the investor is eligible for this right of accumulation.
Statement of Intention - (Class A)
==================================
If a shareholder anticipates purchasing at least $100,000 of Class A
Shares of a Portfolio alone or in combination with Class A Shares of any other
Goldman Sachs Fund within a 13-month period, the shareholder may purchase shares
of the Portfolio at a reduced sales charge by submitting a Statement of
Intention (the "Statement"). Shares purchased pursuant to a Statement will be
eligible for the same sales charge discount that would have been available if
all of the purchases had been made at the same time. The shareholder or his or
her Authorized Dealer must inform Goldman Sachs that the Statement is in effect
each time shares are purchased. There is no obligation to purchase the full
amount of shares indicated in the Statement. A shareholder may include the value
of all Class A Shares on which a sales charge has previously been paid as an
"accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A Shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested. For
purposes of satisfying the amount specified on the Statement, the gross amount
of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.
B-111
<PAGE>
Cross-Reinvestment of Dividends and Distributions
=================================================
You may receive dividends and distributions in additional shares of
the same class of the Portfolio in which you have invested or you may elect to
receive them in cash or shares of the same class of other mutual funds sponsored
by Goldman Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime
Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if you hold Class
A Shares of a Portfolio, or ILA Class B or Class C Units of the Prime
Obligations Portfolio, if you hold Class B or Class C Shares of a Portfolio (the
"ILA Portfolios").
A Portfolio shareholder should obtain and read the prospectus relating
to any other Goldman Sachs Fund or ILA Portfolio (as defined in the Prospectus)
and its shares or units and consider its investment objective, policies and
applicable fees before electing cross-reinvestment into that Fund or Portfolio.
The election to cross-reinvest dividends and capital gain distributions will not
affect the tax treatment of such dividends and distributions, which will be
treated as received by the shareholder and then used to purchase shares of the
acquired fund. Such reinvestment of dividends and distributions in shares of
other Goldman Sachs Funds or in units of ILA Portfolios is available only in
states where such reinvestment may legally be made.
Automatic Exchange Program
==========================
A Portfolio shareholder may elect to exchange automatically a
specified dollar amount of shares of a Portfolio into an identical account or an
account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Portfolio shareholder should obtain and read the prospectus relating to any
other Goldman Sachs Fund and its shares and consider its investment objective,
policies and applicable fees and expenses before electing an automatic exchange
into that Goldman Sachs Fund.
Systematic Withdrawal Plan
==========================
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Portfolio whose shares are worth at least $5,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Portfolio at net asset value. The Transfer Agent acts
as agent for the shareholder in redeeming sufficient full and fractional shares
to provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon thirty (30) days written
notice to the shareholder. Withdrawal payments should not be considered to be
dividends, yield or income. If periodic withdrawals continuously exceed new
purchases and reinvested dividends and capital gains distributions, the
shareholder's original investment will
B-112
<PAGE>
be correspondingly reduced and ultimately exhausted. The maintenance of a
withdrawal plan concurrently with purchases of additional Class A, Class B or
Class C Shares would be disadvantageous because of the sales charge imposed on
purchases of Class A Shares or the imposition of a CDSC on redemptions of Class
A, Class B and Class C Shares. The CDSC applicable to Class B and Class C Shares
redeemed under a systematic withdrawal plan may be waived. See "Shareholder
Guide" in the Prospectus. In addition, each withdrawal constitutes a redemption
of shares, and any gain or loss realized must be reported for federal and state
income tax purposes. A shareholder should consult his or her own tax adviser
with regard to the tax consequences of participating in the Systematic
Withdrawal Plan. For further information or to request a Systematic Withdrawal
Plan, please write or call the Transfer Agent.
DISTRIBUTION AND SERVICE PLANS
(Class A, Class B and Class C Shares Only)
As described in the Prospectus, the Trust has adopted, on behalf of
Class A, Class B and Class C Shares of each Portfolio, distribution and service
plans (each a "Plan") pursuant to Rule 12b-1 under the Act.
The Plans for each Portfolio were most recently approved on [April __,
1999] by a majority vote of the Trustees of the Trust, including a majority of
the non-interested Trustees of the Trust who have no direct or indirect
financial interest in the Plans, cast in person at a meeting called for the
purpose of approving the Plans.
The compensation for distribution services payable under a Plan may
not exceed 0.25%, 0.75% and 0.75% per annum of a Portfolio's average daily net
assets attributable to Class A, Class B and Class C Shares, respectively, of
such Portfolio. Under the Plans for Class B and Class C Shares, Goldman Sachs is
also entitled to receive a separate fee for personal and account maintenance
services equal to an annual basis of 0.25% of each Portfolio's average daily net
assets attributable to Class B or Class C Shares. With respect to Class A
Shares, the Distributor at its discretion may use compensation for distribution
services paid under the Plan for personal and account maintenance services and
expenses so long as such total compensation under the Plan does not exceed the
maximum cap on "service fees" imposed by the NASD.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and contingent deferred sales charge on Class A, Class B and Class C
Shares may be sold by Goldman Sachs as distributor to entities which provide
financing for payments to Authorized Dealers in respect of sales of Class A,
Class B and Class C Shares. To the extent such fees are not paid to such
dealers, Goldman Sachs may retain such fee as compensation for its services and
expenses of distributing the Portfolios' Class A, Class B and Class C
Shares.
Under each Plan, Goldman Sachs, as distributor of each Portfolio's
Class A, Class B and Class C Shares, will provide to the Trustees of the Trust
for their review, and the Trustees of the Trust will review at least quarterly a
written report of the services provided
B-113
<PAGE>
and amounts expended by Goldman Sachs under the Plans and the purposes for which
such services were performed and expenditures were made.
The Plans will remain in effect until [May 1, 2000] and from year to
year thereafter, provided that such continuance is approved annually by a
majority vote of the Trustees of the Trust, including a majority of the non-
interested Trustees of the Trust who have no direct or indirect financial
interest in the Plans. The Plans may not be amended to increase materially the
amount of distribution compensation described therein without approval of a
majority of the outstanding Class A, Class B or Class C Shares of the affected
Portfolio and share class. All material amendments of a Plan must also be
approved by the Trustees of the Trust in the manner described above. A Plan may
be terminated at any time as to any 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 Class A, Class B or Class C Shares, respectively, of
the applicable Portfolio and share class. If a Plan was terminated by the
Trustees of the Trust and no successor plan was adopted, the Portfolio would
cease to make payments to Goldman Sachs under the Plan and Goldman Sachs would
be unable to recover the amount of any of its unreimbursed expenditures. So long
as a Plan is in effect, the selection and nomination of non-interested Trustees
of the Trust will be committed to the discretion of the non-interested Trustees
of the Trust. The Trustees of the Trust have determined that in their judgment
there is a reasonable likelihood that the Plans will benefit the Portfolios and
their Class A, Class B and Class C Shareholders.
For the period ended December 31, 1998, the distribution fees paid to
Goldman Sachs by each Portfolio then in existence pursuant to the Class A, Class
B and Class C Plans were as follows:
<TABLE>
<CAPTION>
Period Ended December 31, 1998
------------------------------------------------------------------------------
Class A Plan Class B Plan Class C Plan
============ ============ ============
<S> <C> <C> <C>
Conservative Strategy1 N/A N/A N/A
Balanced Strategy2 $ 86,263 $ 156,644 $ 130,311
Growth and Income Strategy2 381,299 736,771 564,141
Growth Strategy2 267,938 587,857 366,555
Aggressive Growth Strategy2 94,953 240,609 125,878
</TABLE>
- ---------------------
1 Not operational.
2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
B-114
<PAGE>
During the period ended December 31, 1998, Goldman Sachs incurred the
following expenses in connection with distribution under the Class A Plan of
each applicable Portfolio with Class A Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & its Sales and Travel than Current Literature and
to Dealers Personnel Expenses Shareholders Advertising
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Period Ended December 31, 1998:
Conservative Strategy1
Balanced Strategy
Growth and Income Strategy
Growth Strategy
Aggressive Growth Strategy
</TABLE>
_____________________
1 Not operational.
B-115
<PAGE>
During the period ended December 31, 1998, Goldman Sachs incurred the
following expenses in connection with distribution under the Class B Plan of
each applicable Portfolio with Class B Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & its Sales and Travel than Current Literature and
To Dealers2 Personnel Expenses Shareholders Advertising
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Period Ended December 31, 1998:
Conservative Strategy1
Balanced Strategy
Growth and Income Strategy
Growth Strategy
Aggressive Growth Strategy
</TABLE>
____________________
1 Not operational.
2 Advance commissions paid to dealers of 5% on Class B shares are considered
deferred assets which are amortized over a period of six years; amounts
presented above reflect amortization expense recorded during the period
presented.
B-116
<PAGE>
During the period ended December 31, 1998, Goldman Sachs incurred the
following expenses in connection with distribution under the Class C Plan of
each applicable Portfolio with Class C Shares then in existence:
<TABLE>
<CAPTION>
Compensation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead, Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & its Sales and Travel than Current Literature and
to Dealers Personnel Expenses Shareholders Advertising
------------ ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Period Ended December 31, 1998:
Conservative Strategy1
Balanced Strategy
Growth and Income Strategy
Growth Strategy
Aggressive Growth Strategy
</TABLE>
______________________
1 Not operational.
2 Advance commissions paid to dealers of 1% on Class B shares are considered
deferred assets which are amortized over a period of six years; amounts
presented above reflect amortization expense recorded during the period
presented.
B-117
<PAGE>
For the period ended December 31, 1998, Goldman Sachs received service fees
from the Portfolio pursuant to the Plans then in existence at the rate of 0.25%
of each Portfolio's average daily net assets attributable to Class A, Class B,
or Class C Shares, which totaled:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
Conservative Strategy1 N/A N/A N/A
Balanced Strategy2 $ 0 $ 0 $ 0
Growth and Income Strategy2 0 0 0
Growth Strategy2 0 0 0
Aggressive Growth Strategy2 0 0 0
</TABLE>
_____________________
1 Not operational.
2 The Balanced Strategy Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
SERVICE PLAN
(Service Shares Only)
Each Portfolio has adopted a service plan (the "Plan") with respect to its
Service Shares which authorizes it to compensate Service Organizations for
providing certain administration services and personal and account maintenance
services to their customers who are or may become beneficial owners of such
Shares. Pursuant to the Plan, a Portfolio will enter into agreements with
Service Organizations which purchase Service Shares of the Portfolio on behalf
of their customers ("Service Agreements"). Under such Service Agreements the
Service Organizations may perform some or all of the following services: (a)
act, directly or through an agent, as the sole shareholder of record and nominee
for all customers, (b) maintain account records for each customer who
beneficially owns Service Shares of a Portfolio, (c) answer questions and handle
correspondence from customers regarding their accounts, (d) process customer
orders to purchase, redeem and exchange Service Shares of a Portfolio, and
handle the transmission of funds representing the customers' purchase price or
redemption proceeds, (e) issue confirmations for transactions in shares by
customers, (f) provide facilities to answer questions from prospective and
existing investors about Service Shares of a Portfolio, (g) receive and answer
investor correspondence, including requests for prospectuses and statements of
additional information, (h) display and make prospectuses available on the
Service Organization's premises, (i) assist customers in completing application
forms, selecting dividend and other account options and opening custody accounts
with the Service Organization and (j) act as liaison between customers and a
Portfolio, including obtaining information from a Portfolio, working with a
Portfolio to correct errors and resolve problems and providing statistical and
other information to a Portfolio. As compensation for such services, a
Portfolio will pay each Service Organization a service fee in an amount up to
0.50% (on an annualized basis) of the average daily net assets of the Service
Shares of such Portfolio attributable to or held in the
B-118
<PAGE>
name of such Service Organization; provided, however, that the fee paid for
personal and account maintenance services shall not exceed 0.25% such average
daily net assets.
The amount of the service fees paid by each Portfolio then in existence to
Service Organizations was as follows for the period ended December 31:
<TABLE>
<CAPTION>
1998
====
<S> <C>
Conservative Strategy1 N/A
Balanced Strategy2 $1,358
Growth and Income Strategy2 3,734
Growth Strategy2 820
Aggressive Growth Strategy2 306
</TABLE>
___________________
1 Not operational.
2 The Balanced Strategy, Growth and Income Strategy, Growth Strategy and
Aggressive Growth Strategy Portfolios commenced operations on January 2,
1998.
Each Portfolio has adopted its Plan pursuant to Rule 12b-1 under the 1940
Act in order to avoid any possibility that payments to the Service Organizations
pursuant to the Service Agreements might violate the 1940 Act. Rule 12b-1,
which was adopted by the SEC under the Act, regulates the circumstances under
which an investment company or series thereof may bear expenses associated with
the distribution of its shares. In particular, such an investment company or
series thereof cannot engage directly or indirectly in financing any activity
which is primarily intended to result in the sale of shares issued by the
company unless it has adopted a plan pursuant to, and complies with the other
requirements of, such Rule. The Trust believes that fees paid for the services
provided in the Plan and described above are not expenses incurred primarily for
effecting the distribution of Service Shares. However, should such payments be
deemed by a court or the SEC to be distribution expenses, such payments would be
duly authorized by the Plan.
The Glass-Steagall Act prohibits all entities which receive deposits from
engaging to any extent in the business of issuing, underwriting, selling or
distributing securities, although institutions such as national banks are
permitted to purchase and sell securities upon the order and for the account of
their customers. In addition, under some state securities laws, banks and other
financial institutions purchasing Service Shares on behalf of their customers
may be required to register as dealers. Should future legislative or
administrative action or judicial or administrative decisions or interpretations
prohibit or restrict the activities of one or more of the Service Organizations
in connection with the Portfolios, such Service Organizations might be required
to alter materially or discontinue the services performed under their Service
Agreements. If one or more of the Service Organizations were restricted from
effecting purchases or sales of Service Shares automatically pursuant to pre-
authorized instructions, for example, effecting such transactions on a manual
basis might affect the size and/or growth of a Portfolio. Any such alteration
or discontinuance of services could require the Board of Trustees to consider
changing a Portfolio's method of operations or providing alternative means of
offering Service Shares of a Portfolio to customers of such Service
Organizations, in which case the operation of such Portfolio, its size and/or
its growth might be significantly altered. It is not anticipated, however, that
any alteration of a Portfolio's
B-119
<PAGE>
operations would have any effect on the net asset value per share or result in
financial losses to any shareholder.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Portfolio in connection with the investment of fiduciary
assets in Service Shares of such Portfolio. Service Organizations, including
banks regulated by the Comptroller of the Currency, the Federal Reserve Board or
the Federal Deposit Insurance Corporation, and investment advisers and other
money managers subject to the jurisdiction of the SEC, the Department of Labor
or state securities regulators, are urged to consult their legal advisers before
investing fiduciary assets in Service Shares of the Portfolios. In addition,
under some state securities laws, banks and other financial institutions
purchasing Service Shares on behalf of their customers may be required to
register as dealers.
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan or the related Service Agreements, most recently voted
to approve each Portfolio's Plan and related Service Agreements at a meeting
called for the purpose of voting on such Plan and Service Agreements on
________, 1999. The Plan and Service Agreements will remain in effect until
___________, 2000 and will continue in effect thereafter only if such
continuance is specifically approved annually by a vote of the Board of Trustees
in the manner described above. The Plan may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the Service Shareholders of the affected Portfolio, and all material
amendments of the Plan must also be approved by the Board of Trustees in the
manner described above. The Plan may be terminated at any time by a majority of
the Board of Trustees as described above or by vote of a majority of the
outstanding Service Shares of the affected Portfolio. 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 Service Shares of the affected Portfolio on not more than
sixty (60) days' written notice to any other party to the Service Agreements.
The Service Agreements will terminate automatically if assigned. So long as the
Plan is in effect, the selection and nomination of those Trustees who are not
interested persons will be committed to the discretion of the Trust's Nominating
Committee, which consists of all of the non-interested members of the Board of
Trustees. The Board of Trustees has determined that, in its judgment, there is
a reasonable likelihood that a Portfolio's Plan will benefit such Portfolio and
its holders of Service Shares.
B-120
<PAGE>
GOLDMAN SACHS BALANCED STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charges of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for the Institutional and Service Classes in Goldman Sachs Balanced
Strategy Portfolio (formerly, the Goldman Sachs Income Strategy Portfolio) on
February 1, 1998. For comparative purposes, the performance of the portfolio
benchmark (the S&P 500, Lehman High Yield Bond Index and two-year U.S. Trea-
sury Bills ("Two-Year T-Bill")) are also shown. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate with changes in market conditions. These
performance fluctuations will cause an investor's shares, when redeemed, to
be worth more or less than original cost.
Goldman Sachs Balanced Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Lehman High
Institutional Service Yield Bond
Class A Class B Class C Class Class S&P 500 Index Two-Year T-Bill
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9450 10000 10000 10000 10000 10000 10000 10000
2/28/98 9814 9879 10279 10401 10393 10721 10059 10000
3/98 9975 10041 10442 10575 10555 11270 10154 10035
4/98 10006 10067 10468 10610 10586 11384 10193 10077
5/98 9950 10003 10404 10554 10527 11188 10229 10128
6/98 9965 10012 10414 10573 10541 11642 10266 10177
7/98 9932 9961 10374 10541 10495 11518 10324 10221
8/98 9300 9304 9704 9873 9835 9852 9754 10370
9/98 9394 9402 9797 9975 9933 10484 9798 10512
10/98 9674 9679 10083 10277 10229 11336 9597 10567
11/98 9878 9886 10291 10496 10443 12023 9996 10517
12/98 10055 10062 10481 10699 10630 12715 10007 10546
</TABLE>
Average Annual Total Return through December 31, 1998(b)
Since Inception(c)
Class A
Excluding sales charges 6.38%
Including sales charges 0.55%
------------------------------------------
Class B
Excluding sales charges 5.75%
Including sales charges 0.62%
------------------------------------------
Class C
Excluding sales charges 5.83%
Including sales charges 4.80%
------------------------------------------
Institutional Class 6.99%
------------------------------------------
Service Class 6.30%
------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
9
<PAGE>
GOLDMAN SACHS GROWTH AND INCOME STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charges of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for the Institutional and Service Classes in Goldman Sachs Growth and In-
come Strategy Portfolio on February 1, 1998. For comparative purposes, the
performance of the portfolio benchmark (the S&P 500, Lehman High Yield Bond
Index, Lehman Aggregate Index and Morgan Stanley EAFE ("MSCI EAFE")) are also
shown. All performance data shown represents past performance and should not
be considered indicative of future performance which will fluctuate with
changes in market conditions. These performance fluctuations will cause an
investor's shares, when rendered, to be worth more or less than original
cost.
Goldman Sachs Growth and Income Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Lehman
High Lehman
Institutional Service Yield Aggregate MSCI
Class A Class B Class C Class Class S&P 500 Bond Index Index EAFE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9450 10000 10000 10000 10000 10000 10000 10000 10000
2/28/98 10113 10190 10580 10700 10700 10721 10059 9992 10644
3/98 10333 10426 10815 10937 10928 11270 10154 10027 10974
4/98 10380 10466 10855 10987 10978 11384 10193 10079 11063
5/98 10210 10276 10665 10807 10798 11188 10229 10175 11012
6/98 10180 10239 10630 10781 10755 11642 10266 10261 11098
7/98 10065 10109 10499 10660 10634 11518 10324 10283 11213
8/98 9001 9003 9381 9543 9508 9852 9754 10450 9826
9/98 9145 9142 9525 9694 9658 10484 9798 10695 9627
10/98 9526 9515 9914 10098 10062 11336 9597 10638 10523
11/98 9841 9855 10246 10453 10405 12023 9996 10699 11065
12/98 10071 10071 10478 10696 10643 12715 10007 10731 11504
</TABLE>
Average Annual Total Return through December 31, 1998(b)
Since Inception(c)
Class A
Excluding sales charges 6.55%
Including sales charges 0.71%
--------------------------------------------
Class B
Excluding sales charges 5.82%
Including sales charges 0.71%
--------------------------------------------
Class C
Excluding sales charges 5.80%
Including sales charges 4.78%
--------------------------------------------
Institutional Class 6.96%
--------------------------------------------
Service Class 6.43%
--------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
10
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Investments
December 31, 1998
GOLDMAN SACHS
BALANCED STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Mutual Funds (Institutional Shares) - 97.8%
Equity - 47.3%
2,231,018 Goldman Sachs CORE International Equity Fund - 22.6% $22,377,111
469,802 Goldman Sachs Growth and Income Fund - 11.5% 11,345,722
580,663 Goldman Sachs CORE Large Cap Growth Fund - 9.0% 8,913,177
218,948 Goldman Sachs CORE Small Cap Equity Fund - 2.2% 2,217,940
210,071 Goldman Sachs Real Estate Securities Fund - 2.0% 1,934,758
-----------
$46,788,708
-----------------------------------------------------------------------------
Fixed Income - 50.5%
3,416,079 Goldman Sachs Short Duration Government Fund - 33.8% $33,409,253
817,579 Goldman Sachs Global Income
Fund - 12.7% 12,549,837
411,188 Goldman Sachs High Yield Fund - 4.0% 3,955,624
-----------
$49,914,714
-----------------------------------------------------------------------------
TOTAL MUTUAL FUNDS
(Cost $96,020,771) $96,703,422
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Repurchase Agreement - 0.2%
Joint Repurchase Agreement Account
<S> <C> <C> <C>
$200,000 4.89% 01/04/1999 $ 200,000
--------------------------------------------
TOTAL REPURCHASE AGREEMENT ACCOUNT
(Cost $200,000) $ 200,000
--------------------------------------------
TOTAL INVESTMENTS
(Cost
$96,220,771)(a) $96,903,422
--------------------------------------------
Federal Income Tax
Information:
Gross unrealized gain for in-
vestments in which value ex-
ceeds cost $ 1,262,141
Gross unrealized loss for in-
vestments in which cost ex-
ceeds value (1,572,147)
--------------------------------------------
Net unrealized loss $ (310,006)
--------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $97,213,428.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
GOLDMAN SACHS
GROWTH AND INCOME STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
Mutual Funds (Institutional Shares) - 99.2%
<C> <S> <C>
Equity - 68.0%
11,468,937 Goldman Sachs CORE International Equity Fund -
26.7% $115,033,442
2,932,080 Goldman Sachs Growth and Income Fund - 16.4% 70,809,735
3,282,943 Goldman Sachs CORE Large Cap Growth Fund - 11.7% 50,393,179
2,951,373 Goldman Sachs Emerging Markets Equity Fund - 4.9% 21,308,912
1,803,648 Goldman Sachs CORE Small Cap Equity Fund - 4.2% 18,270,959
839,951 Goldman Sachs International Small Cap Fund - 2.0% 8,769,087
931,109 Goldman Sachs Real Estate Securities Fund - 2.0% 8,575,518
------------
$293,160,832
----------------------------------------------------------------------------
Fixed Income - 31.2%
4,161,501 Goldman Sachs Global Income Fund - 14.8% $ 63,879,045
4,670,459 Goldman Sachs Core Fixed Income Fund - 10.9% 46,938,114
2,477,074 Goldman Sachs High Yield Fund - 5.5% 23,829,452
------------
$134,646,611
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $433,474,629)(a) $427,807,443
----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Federal Income
Tax Information:
Gross unrealized
gain for invest-
ments in which
value exceeds
cost $ 7,824,638
Gross unrealized
loss for invest-
ments in which
cost exceeds
value (15,602,873)
--------------------------------
Net unrealized
loss $ (7,778,235)
--------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $435,585,678.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
For information on the underlying mutual funds, please call our toll free
Shareholder Services Line at
1-800-526-7384 or visit us on the web at www.gs.com/funds.
The accompanying notes are an
integral part of these financial
statements. 11
<PAGE>
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charge of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for Institutional and Service Classes in Goldman Sachs Growth Strategy
Portfolio on February 1, 1998. For comparative purposes, the performance of
the portfolio benchmark (the S&P 500, Morgan Stanley EAFE ("MSCI EAFE"), Rus-
sell 2000 and Morgan Stanley Emerging Market ("MSCI EMF")) are also shown.
All performance data shown represents past performance and should not be con-
sidered indicative of future performance which will fluctuate with changes in
market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than original cost.
Goldman Sachs Growth Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Class A Class B Class C Institutional Service S&P 500 MSCI EAFE Russell 2000 MSCI EMF
Class Class
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9450 10000 10000 10000 10000 10000 10000 10000 10000
2/28/98 10217 10310 10710 10810 10890 10721 10644 10739 11044
3/98 10491 10593 10991 11104 11190 11270 10974 11181 11523
4/98 10548 10643 11041 11164 11250 11384 11063 11243 11398
5/98 10283 10363 10761 10884 10880 11188 11012 10637 9836
6/98 10213 10275 10684 10816 10760 11642 11098 10659 8804
7/98 10024 10065 10474 10615 10520 11518 11213 9796 9083
8/98 8612 8621 8992 9120 8750 9852 9826 7894 6457
9/98 8760 8765 9141 9285 8910 10484 9527 8512 6867
10/98 9244 9240 9637 9798 9520 11336 10523 8859 7590
11/98 9614 9616 10014 10200 9940 12023 11065 9323 8221
12/98 9889 9893 10295 10492 10254 12715 11504 9900 8102
</TABLE>
Average Annual Total Return through December 31,
1998(b)
Since Inception(c)
Class A
Excluding sales charges 4.62%
Including sales charges -1.11%
----------------------------------------------------
Class B
Excluding sales charges 3.98%
Including sales charges -1.07%
----------------------------------------------------
Class c
Excluding sales charges 3.96%
Including sales charges 2.95%
----------------------------------------------------
Institutional Class 4.92%
----------------------------------------------------
Service Class 4.45%
----------------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
12
<PAGE>
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
Performance Summary
December 31, 1998
The following graph shows the value as of December 31, 1998, of a $10,000 in-
vestment made (with the maximum sales charges of 5.5% for Class A and redemp-
tion charges of 5.0% and 1.0% for Class B and Class C, respectively, and at
NAV for the Institutional and Service Classes in Goldman Sachs Aggressive
Growth Strategy Portfolio on February 1, 1998. For comparative purposes, the
performance of the portfolio benchmark (the S&P 500, Morgan Stanley EAFE
("MSCI EAFE"), Russell 2000 and Morgan Stanley Emerging Market ("MSCI EMF"))
are also shown. All performance data shown represents past performance and
should not be considered indicative of future performance which will fluctu-
ate with changes in market conditions. These performance fluctuations will
cause an investor's shares, when redeemed, to be worth more or less than
original cost.
Goldman Sachs Aggressive Growth Strategy Portfolio's Lifetime Performance
Performance of a $10,000 Investment, Distributions Reinvested February 1,
1998 to December 31, 1998.(a)
[THE FOLLOWING DATA WAS REPRESENTED BY A LINE GRAPH]
<TABLE>
<CAPTION>
Institutional Service
Class A Class B Class C Class Class S&P 500 MSCI EAFE Russell 2000 MSCI EMF
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/1/98 9450 10000 10000 10000 10000 10000 10000 10000 10000
2/28/98 10293 10390 10790 10890 10890 10721 10644 10739 11044
3/98 10577 10690 11090 11190 11190 11270 10974 11181 11523
4/98 10633 10740 11140 11250 11250 11384 11063 11243 11398
5/98 10284 10370 10770 10880 10880 11188 11012 10637 9836
6/98 10170 10240 10640 10760 10760 11642 11098 10659 8804
7/98 9943 10000 10390 10520 10520 11518 11213 9796 9083
8/98 8280 8294 8643 8760 8750 9852 9826 7894 6457
9/98 8422 8436 8791 8910 8910 10484 9527 8512 6867
10/98 8998 8997 9385 9520 9520 11336 10523 8859 7590
11/98 9395 9396 9801 9940 9940 12023 11065 9323 8221
12/98 9695 9691 10104 10280 10254 12715 11504 9900 8102
</TABLE>
Average Annual Total Return through December 31, 1998(b)
Since Inception(c)
Class A
Excluding sales charges 2.57%
Including sales charges -3.05%
---------------------------------------------
Class B
Excluding sales charges 1.93%
Including sales charges -3.09%
---------------------------------------------
Class C
Excluding sales charges 2.04%
Including sales charges 1.04%
---------------------------------------------
Institutional Class 2.80%
---------------------------------------------
Service Class 2.54%
---------------------------------------------
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following commencement of operations.
(b) All classes commenced operations on January 2, 1998.
(c) Represents the cumulative total return since the class has not been in
operation for a full 12 months.
13
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Investments
December 31, 1998
GOLDMAN SACHS GROWTH STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
Mutual Funds (Institutional Shares) - 99.9%
<C> <S> <C>
Equity - 88.2%
9,268,044 Goldman Sachs CORE International Equity Fund -
30.5% $ 92,958,486
3,029,881 Goldman Sachs Growth and Income Fund - 24.0% 73,171,629
3,247,155 Goldman Sachs CORE Large Cap Growth Fund -16.4% 49,843,822
2,872,947 Goldman Sachs Emerging Markets Equity Fund - 6.8% 20,742,674
1,623,281 Goldman Sachs CORE Small Cap Equity Fund - 5.4% 16,443,840
743,457 Goldman Sachs International Small Cap Fund - 2.6% 7,761,696
824,039 Goldman Sachs Real Estate Securities Fund - 2.5% 7,589,403
------------
$268,511,550
----------------------------------------------------------------------------
Fixed Income - 11.7%
1,000,717 Goldman Sachs Core Fixed Income Fund - 3.3% $ 10,057,210
1,229,432 Goldman Sachs Global Income Fund - 6.2% 18,871,775
707,924 Goldman Sachs High Yield Fund - 2.2% 6,810,226
------------
$ 35,739,211
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $309,339,607)(a) $304,250,761
----------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds
cost $ 6,520,352
Gross unrealized loss for investsments in which cost exceeds
value (14,122,153)
----------------------------------------------------------------------------
Net unrealized loss $ (7,601,801)
----------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $311,852,562.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
GOLDMAN SACHS AGGRESSIVE GROWTH STRATEGY PORTFOLIO
<TABLE>
<CAPTION>
Shares Description Value
<C> <S> <C>
Mutual Funds (Institutional Shares) - 99.7%
Equity - 99.7%
3,797,990 Goldman Sachs CORE International
Equity Fund - 34.5% $ 38,093,842
1,161,682 Goldman Sachs Growth and Income Fund - 25.5% 28,054,617
1,215,815 Goldman Sachs CORE Large Cap Growth Fund - 16.9% 18,662,763
1,454,891 Goldman Sachs Emerging Markets Equity Fund - 9.5% 10,504,311
679,684 Goldman Sachs CORE Small Cap Equity Fund - 6.2% 6,885,197
428,515 Goldman Sachs International Small Cap Fund - 4.1% 4,473,692
356,179 Goldman Sachs Real Estate Securities Fund - 3.0% 3,280,413
------------
$109,954,835
----------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $113,119,461)(a) $109,954,835
----------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds
cost $ 1,955,478
Gross unrealized loss for investsments in which cost exceeds
value (6,209,134)
----------------------------------------------------------------------------
Net unrealized loss $ (4,253,656)
----------------------------------------------------------------------------
</TABLE>
(a) The aggregate cost for federal income tax purposes is $114,208,491.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
For information on the underlying mutual funds, please call our toll free
Shareholder Services Line at
1-800-526-7384 or visit us on the web at www.gs.com/funds.
14 The accompanying notes are an integral part of these financial
statements.
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Assets and Liabilities
December 31, 1998
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio Strategy Portfolio Strategy Portfolio Strategy Portfolio
Assets:
<S> <C> <C> <C> <C> <C>
Investment in
securities, at value
(identified cost
$96,220,771,
$433,474,629,
$309,339,607,
$113,119,461,
respectively) $96,903,422 $427,807,443 $304,250,761 $109,954,835
Cash 315,106 1,415,394 201,452 --
Receivables:
Investment securities
sold -- 148,884 291,580 126,701
Dividends and interest 204,223 1,178,251 317,096 --
Fund shares sold 1,899,991 3,609,578 1,745,473 811,672
Reimbursement from
adviser 73,585 156,144 190,546 104,555
Deferred organization
expenses, net 12,508 12,508 12,508 12,508
Other assets -- 8,070 254 993
--------------------------------------------------------------------------------------------------------------
Total assets 99,408,835 434,336,272 307,009,670 111,011,264
--------------------------------------------------------------------------------------------------------------
Liabilities:
Due to Bank -- -- -- 126,701
Payables:
Investment securities
purchased 204,105 -- -- --
Fund shares repurchased 122,229 2,275,342 1,940,264 322,311
Amounts owed to
affiliates 84,035 357,588 258,255 110,107
Accrued expenses and
other liabilities 142,491 252,994 225,167 142,211
--------------------------------------------------------------------------------------------------------------
Total liabilities 552,860 2,885,924 2,423,686 701,330
--------------------------------------------------------------------------------------------------------------
Net Assets:
Paid-in capital 99,193,278 438,910,650 313,588,270 115,743,162
Accumulated
undistributed net
investment income 21,172 -- -- 15,311
Accumulated net realized
loss on investment
transactions (1,041,126) (1,793,116) (3,913,440) (2,283,913)
Net unrealized gain
(loss) on investments 682,651 (5,667,186) (5,088,846) (3,164,626)
--------------------------------------------------------------------------------------------------------------
NET ASSETS $98,855,975 $431,450,348 $304,585,984 $110,309,934
--------------------------------------------------------------------------------------------------------------
Net asset value per
share:(a)
Class A $10.31 $10.38 $10.29 $10.16
Class B $10.31 $10.36 $10.28 $10.14
Class C $10.32 $10.36 $10.28 $10.15
Institutional $10.32 $10.39 $10.29 $10.16
Service $10.31 $10.37 $10.29 $10.15
--------------------------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 3,901,387 17,472,321 12,518,008 4,638,495
Class B 3,274,954 13,402,760 10,630,600 4,061,821
Class C 2,345,641 9,722,378 6,216,695 2,139,879
Institutional 19,857 869,159 214,334 12,162
Service 44,171 130,588 36,710 11,886
--------------------------------------------------------------------------------------------------------------
Total shares
outstanding, $.001 par
value
(unlimited number of
shares authorized) 9,586,010 41,597,206 29,616,347 10,864,243
--------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share divided by 1 minus
maximum sales charge of 5.5%) for Class A shares of the Balanced, Growth
& Income, Growth and Aggressive Growth Strategy Portfolios is $10.91,
$10.98, 10.89, $10.75, respectively. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
15
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Operations
For the Period Ended December 31, 1998
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs
Balanced Growth and Income Growth
Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a)
<S> <C> <C> <C>
Investment income:
Income distributions from underlying
funds $1,877,900 $ 7,017,569 $ 3,503,789
Interest 21,198 91,521 64,645
------------------------------------------------------------------------------------------------------------
Total income 1,899,098 7,109,090 3,568,434
------------------------------------------------------------------------------------------------------------
Expenses:
Management fees 182,558 834,668 593,231
Distribution and Service fees(b) 373,218 1,682,211 1,222,350
Custodian fees 36,000 47,000 36,000
Transfer Agent fees 157,025 414,136 399,850
Registration fees 109,531 247,354 210,061
Professional fees 30,475 30,475 30,475
Trustee fees 5,448 5,417 5,483
Amortization of deferred
organization expenses 3,116 3,116 3,116
Service class fees 1,358 3,734 820
Other 39,495 39,570 39,450
------------------------------------------------------------------------------------------------------------
Total expenses 938,224 3,307,681 2,540,836
------------------------------------------------------------------------------------------------------------
Less--
expenses reimbursed and fees waived by
Goldman Sachs (422,724) (985,336) (861,810)
------------------------------------------------------------------------------------------------------------
Net expenses 515,500 2,322,345 1,679,026
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,383,598 4,786,745 1,889,408
------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss):
Capital gain distributions from
underlying funds 268,323 2,045,037 555,931
Net realized loss from investment
transactions (659,779) (104,094) (2,593,098)
Net change in unrealized gain (loss)
on investments 682,651 (5,667,186) (5,088,846)
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) 291,195 (3,726,243) (7,126,013)
------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $1,674,793 $ 1,060,502 $(5,236,605)
------------------------------------------------------------------------------------------------------------
<CAPTION>
Goldman Sachs
Aggressive Growth
Strategy Portfolio(a)
<S> <C>
Investment income:
Income distributions from underlying
funds $ 898,684
Interest 23,129
------------------------------------------------------------------------------------------------------------
Total income 921,813
------------------------------------------------------------------------------------------------------------
Expenses:
Management fees 219,795
Distribution and Service fees(b) 461,440
Custodian fees 36,000
Transfer Agent fees 209,288
Registration fees 118,413
Professional fees 30,475
Trustee fees 5,714
Amortization of deferred
organization expenses 3,116
Service class fees 306
Other 37,857
------------------------------------------------------------------------------------------------------------
Total expenses 1,122,404
------------------------------------------------------------------------------------------------------------
Less--
expenses reimbursed and fees waived by
Goldman Sachs (491,207)
------------------------------------------------------------------------------------------------------------
Net expenses 631,197
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 290,616
------------------------------------------------------------------------------------------------------------
Realized and unrealized gain (loss):
Capital gain distributions from
underlying funds 1,196
Net realized loss from investment
transactions (1,810,785)
Net change in unrealized gain (loss)
on investments (3,164,626)
------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) (4,974,215)
------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $(4,683,599)
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was January 2, 1998.
(b) Class A, Class B and Class C of the following funds had distribution and
service fees of:
Goldman Sachs Balanced Strategy Portfolio: $86,263, $156,644, and $130,311,
respectively.
Goldman Sachs Growth and Income Strategy Portfolio: $381,299, $736,771, and
$564,141, respectively.
Goldman Sachs Growth Strategy Portfolio: $267,938, $587,857, and $366,555,
respectively.
Goldman Sachs Aggressive Growth Strategy Portfolio: $94,953, $240,609, and
$125,878, respectively.
16 The accompanying notes are an integral part of these financial
statements.
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Statements of Changes in Net Assets
For the Period Ended December 31, 1998
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs Goldman Sachs
Balanced Growth and Income Growth Aggressive Growth
Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a) Strategy Portfolio(a)
<S> <C> <C> <C> <C>
From operations:
Net investment income $ 1,383,598 $ 4,786,745 $ 1,889,408 $ 290,616
Net realized gain (loss) (391,456) 1,940,943 (2,037,167) (1,809,589)
Net change in unrealized
gain (loss) on
investments 682,651 (5,667,186) (5,088,846) (3,164,626)
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 1,674,793 1,060,502 (5,236,605) (4,683,599)
----------------------------------------------------------------------------------------------------------------------
Distributions to share-
holders:
From net investment
income
Class A shares (675,433) (2,306,364) (1,028,555) (235,518)
Class B shares (389,882) (1,359,409) (531,921) (33,771)
Class C shares (308,560) (990,627) (309,463) (19,874)
Institutional shares (2,105) (112,462) (16,851) (830)
Service shares (7,619) (17,883) (2,618) (623)
In excess of net
investment income
Class A shares (113,394) (822,962) (291,624) (689)
Class B shares (65,455) (485,067) (150,814) (99)
Class C shares (51,802) (353,478) (87,742) (58)
Institutional shares (353) (40,129) (4,778) (2)
Service shares (1,279) (6,381) (742) (2)
From net realized gain
Class A shares (162,793) (867,706) (595,050) (201,675)
Class B shares (140,756) (672,087) (501,683) (176,608)
Class C shares (102,275) (483,928) (297,823) (93,875)
Institutional shares (747) (43,567) (9,965) (496)
Service shares (1,869) (6,591) (1,740) (474)
----------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (2,024,322) (8,568,641) (3,831,369) (764,594)
----------------------------------------------------------------------------------------------------------------------
From share transactions:
Net proceeds from sales
of shares 116,904,997 479,484,104 345,618,571 134,338,429
Reinvestment of
dividends and
distributions 1,726,504 7,902,811 3,614,716 736,661
Cost of shares
repurchased (19,425,997) (48,428,428) (35,579,329) (19,316,963)
----------------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
share transactions 99,205,504 438,958,487 313,653,958 115,758,127
----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE 98,855,975 431,450,348 304,585,984 110,309,934
----------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period -- -- -- --
----------------------------------------------------------------------------------------------------------------------
End of period $ 98,855,975 $431,450,348 $304,585,984 $110,309,934
----------------------------------------------------------------------------------------------------------------------
Accumulated
undistributed net
investment income $ 21,172 $ -- $ -- $ 15,311
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Commencement date of operations was January 2, 1998.
17
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes Goldman Sachs Balanced Strategy
Portfolio formerly, the Goldman Sachs Income Strategy Portfolio- (Balanced
Strategy), Goldman Sachs Growth and Income Strategy Portfolio (Growth and In-
come Strategy), Goldman Sachs Growth Strategy Portfolio (Growth Strategy) and
Goldman Sachs Aggressive Growth Strategy Portfolio (Aggressive Growth Strate-
gy), collectively, (the "Portfolios") or individually (a "Portfolio"). Effec-
tive February 8, 1999, the name of Goldman Sachs Income Strategy Portfolio
was changed to Goldman Sachs Balanced Strategy Portfolio. All of the Portfo-
lios offer five classes of shares --Class A, Class B, Class C, Institutional
and Service shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios. The preparation of financial statements in con-
formity with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts.
A. Investment Valuation -- Each Portfolio invests in a combination of Under-
lying Funds (the "Underlying Funds") for which Goldman Sachs Asset Management
("GSAM"), a separate operating division of Goldman Sachs & Co. ("Goldman
Sachs"), Goldman Sachs Funds Management L.P. ("GSFM"), an affiliate of
Goldman Sachs or Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, acts as investment adviser. Investments in the
Underlying Funds are valued at the closing net asset value per share of each
Underlying Fund on the day of valuation. Because each Portfolio invests pri-
marily in other mutual funds, which fluctuate in value, the Portfolios'
shares will correspondingly fluctuate in value. Short-term debt obligations
maturing in sixty days or less are valued at amortized cost.
B. Securities Transactions and Investment Income -- Security transactions are
recorded as of trade date. Realized gains and losses on sales of portfolio
securities are calculated on the identified cost basis. Dividend income and
capital gains distributions from the Underlying Funds are recorded on the ex-
dividend date. Interest income is determined on the basis of interest ac-
crued.
C. Federal Taxes -- It is each Portfolio's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment compa-
nies and to distribute each year substantially all of its investment company
taxable income and capital gains to its shareholders. Accordingly, no federal
tax provisions are required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of a Portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in-capital, de-
pending on the type of book/tax differences that may exist.
D. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual Portfolio of the Trust are allocated to the Portfolios based
on the nature of the expense.
Class A, Class B and Class C shareholders of the Portfolios bear all ex-
penses and fees relating to their respective distribution and service plans.
Shareholders of Service shares bear all expenses and fees paid to service or-
ganizations for their services with respect to such shares. Effective Septem-
ber 1, 1998, each Class of shares of the Funds now separately bears its
respective class-specific transfer agency fees.
E. Deferred Organization Expenses -- Organization-related costs are being am-
ortized on a straight line basis over a period of five years.
18
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as Portfolios' investment ad-
viser pursuant to the Investment Management Agreement (the "Agreement"). Un-
der the Agreement, GSAM, subject to the general supervision of the Trust's
Board of Trustees, manages the Portfolios. As compensation for the services
rendered pursuant to the Agreement, the assumption of the expenses related
thereto and administering the Portfolios' business affairs, including provid-
ing facilities, GSAM is entitled to a fee, computed daily and payable monthly
at an annual rate equal to .35% of average daily net assets of each Portfo-
lio.
During the period, GSAM has voluntarily agreed to limit "Other Expenses"
(excluding management fees, distribution and service fees, taxes, interest,
brokerage, litigation, service share fees, indemnification costs and other
extraordinary expenses) to the extent that such expenses exceed .10% of the
average daily net assets of each Portfolio. Effective September 1, 1998 this
expense limitation was modified to .00% (excluding management fees, distribu-
tion and service fees, transfer agent fees, taxes, interest, brokerage, liti-
gation, service share fees, indemnification costs and extraordinary expenses)
of the average daily net assets of each Fund until further notice.
Goldman Sachs serves as Distributor of the shares of the Portfolios pursu-
ant to Distribution Agreements. Goldman Sachs may receive a portion of the
Class A sales load and Class B and Class C contingent deferred sales charges
and has advised the Portfolios that it retained approximately $156,000,
$858,000, $593,000 and $243,000 for the period ended December 31, 1998 for
the Balanced, Growth and Income, Growth and Aggressive Growth Strategies,
respectively.
The Trust, on behalf of each Portfolio, has adopted Distribution Plans (the
"Distribution Plans") pursuant to Rule 12b-1. Under the Distribution Plans,
Goldman Sachs was entitled to a quarterly fee from each Portfolio for distri-
bution services equal, on an annual basis, to .25%, .75% and .75% of the av-
erage daily net assets attributable to Class A, Class B and Class C shares,
respectively.
The Trust, on behalf of each Portfolio, had adopted Authorized Dealer Serv-
ice Plans (the "Dealer Service Plans") pursuant to which Goldman Sachs and
Authorized Dealers were compensated for providing personal and account main-
tenance services. Each Portfolio paid a fee under the Dealer Service Plan
equal, on an annual basis, to .25% of its average daily net assets attribut-
able to Class A, Class B and Class C shares.
Effective September 1, 1998, the Distribution Plans and Authorized Dealer
Service Plans were combined into Distribution and Service Plans. Under the
Distribution and Service Plans, Goldman Sachs and/or Authorized Dealers are
entitled to a monthly fee from each Portfolio for distribution and service
fees equal, on an annual basis, to .25%, 1.00% and 1.00% of the average daily
net assets attributable to Class A, Class B and Class C shares, respectively.
Goldman Sachs also serves as Transfer Agent of the Portfolios for a fee.
Effective September 1, 1998 fees charged for such transfer agency services
are calculated daily and payable monthly at an annual rate as follows: 0.19%
of average daily net assets for Class A, Class B and Class C shares and .04%
of average daily net assets for Institutional and Service Class shares.
The Trust, on behalf of each Portfolio, has adopted Service Plans. These
plans allow for Service shares to compensate service organizations for pro-
viding varying levels of account administration and shareholder liaison serv-
ices to their customers, who are beneficial owners of such shares. The
Service Plan provides for compensation to the service organizations in an
amount up to .50% (on an annualized basis), respectively, of the average
daily net asset value of the Service shares.
19
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1998
For the period ended December 31, 1998, the adviser and distributor have
voluntarily agreed to waive certain fees and reimburse other expenses as fol-
lows (in thousands):
<TABLE>
<CAPTION>
Waivers
------------------
Class A Total Waivers
Portfolio Management 12b-1 Reimbursement and Reimbursement
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Strategy $105 $17 $301 $423
------------------------------------------------------------------------------
Growth & Income Strategy 478 74 433 985
------------------------------------------------------------------------------
Growth Strategy 340 51 471 862
------------------------------------------------------------------------------
Aggressive Growth Strategy 126 18 347 491
------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the "Amounts owed to affiliates" are as follows
(in thousands):
<TABLE>
<CAPTION>
Distribution
Management Transfer and Service
Portfolio Fees Agent Fees Fees Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Strategy $12 $17 $ 55 $ 84
----------------------------------------------------------------------------------
Growth & Income Strategy 53 70 235 358
----------------------------------------------------------------------------------
Growth Strategy 38 50 170 258
----------------------------------------------------------------------------------
Aggressive Growth Strategy 14 35 61 110
----------------------------------------------------------------------------------
</TABLE>
4. PORTFOLIO SECURITY TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
period ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
-----------------------------------------------------
<S> <C> <C>
Balanced Strategy $124,863,661 $ 28,183,111
-----------------------------------------------------
Growth and Income Strategy 537,922,179 104,343,456
-----------------------------------------------------
Growth Strategy 379,889,757 67,957,052
-----------------------------------------------------
Aggressive Growth Strategy 132,116,746 17,186,500
-----------------------------------------------------
</TABLE>
5. LINE OF CREDIT FACILITY
The Portfolios participate in a $250,000,000 uncommitted, unsecured revolving
line of credit facility and a $50,000,000 committed, unsecured revolving line
of credit facility. Both facilities are to be used solely for temporary or
emergency purposes. Under the most 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. The committed facility also requires a fee to be paid by each Portfolio
based on the amount of the commitment which has not been utilized. During the
period ended December 31, 1998, the Portfolios did not have any borrowings
under these facilities.
20
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
6. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping at the Portfolios' custodian.
7. JOINT REPURCHASE AGREEMENT ACCOUNT
The Portfolios, together with other registered investment companies having
management agreements with GSAM or their affiliates, transfer uninvested cash
into joint accounts, the daily aggregate balance of which is invested in one
or more repurchase agreements.
At December 31, 1998, Balanced Strategy had undivided interests in the re-
purchase agreements in the following joint account which equaled $200,000 in
principal amount. At December 31, 1998, the following repurchase agreements
held in this joint account were fully collateralized by Federal Agency obli-
gations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN/AMRO, Inc. $120,000,000 5.15% 01/04/1999 $ 120,000,000
---------------------------------------------------------------------------------------
Deutsche Bank 77,300,000 5.07 01/04/1999 77,300,000
---------------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette, Inc. 150,000,000 4.95 01/04/1999 150,000,000
---------------------------------------------------------------------------------------
J.P. Morgan Securities, Inc. 700,000,000 4.75 01/04/1999 700,000,000
---------------------------------------------------------------------------------------
Morgan Stanley & Co. 200,000,000 4.95 01/04/1999 200,000,000
---------------------------------------------------------------------------------------
NationsBanc Montgomery Securities LLC 125,000,000 5.15 01/04/1999 125,000,000
---------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $1,372,300,000
---------------------------------------------------------------------------------------
</TABLE>
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Balanced Strategy Portfo-
lio reclassified $12,226 and $241,230 from paid-in capital and accumulated
net realized loss, respectively, to accumulated undistributed net investment
income. The Growth and Income Strategy Portfolio reclassified $47,837 and
$1,660,180 from paid-in capital and accumulated net realized loss, respec-
tively, to accumulated undistributed net investment income. The Growth Strat-
egy Portfolio has reclassified $65,688 and $470,012 from paid-in capital and
accumulated net realized loss, respectively, to accumulated undistributed net
investment income. The Aggressive Growth Strategy has reclassified $14,965
and $1,196 from paid-in capital and accumulated net realized loss, respec-
tively, to accumulated undistributed net investment income. These reclassifi-
cations have no impact on the net asset value of the Funds and are designed
to present the Portfolio's capital accounts on a tax basis.
21
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Notes to Financial Statements
December 31, 1998
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the period ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
Goldman Sachs
Balanced Strategy Portfolio(a)
-----------------------------
Shares Dollars
-----------------------------
<S> <C> <C>
Class A Shares
Shares sold 4,997,152 $ 51,471,820
Reinvestment of dividends and distributions 82,247 838,318
Shares repurchased (1,178,013) (11,684,097)
-----------------------------
3,901,386 40,626,041
------------------------------------------------------------------------------
Class B Shares
Shares sold 3,444,665 35,434,153
Reinvestment of dividends and distributions 48,225 491,183
Shares repurchased (217,935) (2,216,520)
-----------------------------
3,274,955 33,708,816
------------------------------------------------------------------------------
Class C Shares
Shares sold 2,844,974 29,279,282
Reinvestment of dividends and distributions 38,221 389,643
Shares repurchased (537,554) (5,467,423)
-----------------------------
2,345,641 24,201,502
------------------------------------------------------------------------------
Institutional Shares
Shares sold 19,543 202,615
Reinvestment of dividends and distributions 314 3,204
Shares repurchased -- (28)
-----------------------------
19,857 205,791
------------------------------------------------------------------------------
Service Shares
Shares sold 49,317 517,127
Reinvestment of dividends and distributions 403 4,156
Shares repurchased (5,549) (57,929)
-----------------------------
44,171 463,354
------------------------------------------------------------------------------
NET INCREASE IN SHARES 9,586,010 $ 99,205,504
------------------------------------------------------------------------------
</TABLE>
(a) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
22
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Goldman Sachs Goldman Sachs Goldman Sachs
Growth and Income Strategy Portfolio(a) Growth Strategy Portfolio(a) Aggressive Growth Strategy Portfolio(a)
--------------------------------------------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
19,544,296 $ 205,404,749 14,105,119 $ 148,698,602 5,615,397 $ 58,906,369
371,985 3,793,531 186,185 1,875,658 43,646 434,720
(2,443,960) (24,540,186) (1,773,296) (17,687,486) (1,020,548) (10,034,193)
--------------------------------------------------------------------------------------------------------------------
17,472,321 184,658,094 12,518,008 132,886,774 4,638,495 49,306,896
--------------------------------------------------------------------------------------------------------------------
14,322,312 149,921,704 11,471,847 120,504,688 4,598,907 48,814,394
224,284 2,285,787 109,293 1,104,065 20,086 199,458
(1,143,836) (11,542,305) (950,540) (9,481,003) (557,172) (5,486,370)
--------------------------------------------------------------------------------------------------------------------
13,402,760 140,665,186 10,630,600 112,127,750 4,061,821 43,527,482
--------------------------------------------------------------------------------------------------------------------
10,771,031 113,315,585 7,001,932 73,846,842 2,517,693 26,370,878
159,052 1,620,876 59,550 601,742 10,102 100,417
(1,207,705) (12,060,724) (844,787) (8,390,385) (387,916) (3,796,390)
--------------------------------------------------------------------------------------------------------------------
9,722,378 102,875,737 6,216,695 66,058,199 2,139,879 22,674,905
--------------------------------------------------------------------------------------------------------------------
875,077 9,413,016 212,556 2,180,254 12,029 120,329
17,891 181,644 2,843 28,730 133 1,327
(23,809) (235,710) (1,065) (11,445) -- --
--------------------------------------------------------------------------------------------------------------------
869,159 9,358,950 214,334 2,197,539 12,162 121,656
--------------------------------------------------------------------------------------------------------------------
133,145 1,429,050 37,114 388,185 11,813 126,459
2,056 20,973 450 4,521 74 739
(4,613) (49,503) (854) (9,010) (1) (10)
--------------------------------------------------------------------------------------------------------------------
130,588 1,400,520 36,710 383,696 11,886 127,188
--------------------------------------------------------------------------------------------------------------------
41,597,206 $ 438,958,487 29,616,347 $ 313,653,958 10,864,243 $ 115,758,127
--------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
Financial Highlights
Selected Data for a Share Outstanding Throughout the Period
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Income from
investment operations(e) Distributions to shareholders
------------------------- -----------------------------------
Net asset In excess
value, Net Net realized From net of net Net increase
beginning investment and unrealized investment investment From net in net asset
of period income gain income income realized gain value
Goldman Sachs Balanced Strategy Portfolio for the Period Ended December
31,(b)
<S> <C> <C> <C> <C> <C> <C> <C>
1998 - Class A Shares $10.00 $0.25 $0.38 $(0.25) $(0.03) $(0.04) $0.31
1998 - Class B Shares 10.00 0.19 0.38 (0.19) (0.03) (0.04) 0.31
1998 - Class C Shares 10.00 0.19 0.39 (0.19) (0.03) (0.04) 0.32
1998 - Institutional
Shares 10.00 0.30 0.39 (0.30) (0.03) (0.04) 0.32
1998 - Service Shares 10.00 0.25 0.37 (0.25) (0.02) (0.04) 0.31
Goldman Sachs Growth and Income Strategy Portfolio for the Period Ended
December 31,(b)
1998--Class A Shares $10.00 $0.18 $0.47 $(0.18) $(0.04) $(0.05) $0.38
1998--Class B Shares 10.00 0.12 0.46 (0.12) (0.05) (0.05) 0.36
1998--Class C Shares 10.00 0.12 0.46 (0.12) (0.05) (0.05) 0.36
1998--Institutional
Shares 10.00 0.20 0.49 (0.20) (0.05) (0.05) 0.39
1998--Service Shares 10.00 0.16 0.48 (0.16) (0.06) (0.05) 0.37
Goldman Sachs Growth Strategy Portfolio for the Period Ended December 31,(b)
1998 - Class A Shares $10.00 $0.10 $0.36 $(0.10) $(0.02) $(0.05) $0.29
1998 - Class B Shares 10.00 0.05 0.35 (0.05) (0.02) (0.05) 0.28
1998 - Class C Shares 10.00 0.05 0.35 (0.05) (0.02) (0.05) 0.28
1998 - Institutional
Shares 10.00 0.12 0.37 (0.12) (0.03) (0.05) 0.29
1998 - Service Shares 10.00 0.09 0.35 (0.09) (0.01) (0.05) 0.29
Goldman Sachs Aggressive Growth Strategy Portfolio for the Period Ended
December 31,(b)
1998 - Class A Shares $10.00 $0.05 $0.20 $(0.05) $ -- $(0.04) $0.16
1998 - Class B Shares 10.00 0.01 0.18 (0.01) -- (0.04) 0.14
1998 - Class C Shares 10.00 0.01 0.19 (0.01) -- (0.04) 0.15
1998 - Institutional
Shares 10.00 0.07 0.20 (0.07) -- (0.04) 0.16
1998 - Service Shares 10.00 0.04 0.21 (0.04) (0.02) (0.04) 0.15
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales or redemption charges. Total return would be reduced if a sales or
redemption charge were taken into account.
(b) Class A, Class B, Class C, Institutional and Service share activity
commenced on January 2, 1998.
(c) Annualized.
(d) Not annualized.
(e) Includes the balancing effect of calculating per share amounts.
24
<PAGE>
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
Net assets Ratio of net investment Ratio of net investment
Net asset at end of net expenses income expenses to income to Portfolio
value, end Total period to average to average average net average turnover
of period return(a)(d) (in 000s) net assets(c) net assets(c) assets(c) net assets(c) rate(d)
<S> <C> <C> <C> <C> <C> <C> <C>
$10.31 6.38% $ 40,237 0.60% 3.03% 1.46% 2.17% 50.84%
10.31 5.75 33,763 1.30 2.38 2.08 1.60 50.84
10.32 5.83 24,195 1.30 2.34 2.08 1.56 50.84
10.32 6.99 205 0.24 3.55 1.02 2.77 50.84
10.31 6.30 456 0.74 2.90 1.52 2.12 50.84
$10.38 6.55% $181,441 0.60% 2.37% 1.05% 1.92% 41.91%
10.36 5.82 138,914 1.30 1.72 1.68 1.34 41.91
10.36 5.80 100,711 1.30 1.68 1.68 1.30 41.91
10.39 6.96 9,030 0.23 2.97 0.61 2.59 41.91
10.37 6.43 1,354 0.73 2.28 1.11 1.90 41.91
$10.29 4.62% $128,832 0.60% 1.50% 1.15% 0.95% 38.43%
10.28 3.98 109,246 1.30 0.83 1.78 0.35 38.43
10.28 3.96 63,925 1.30 0.79 1.78 0.31 38.43
10.29 4.92 2,205 0.23 2.88 0.71 2.40 38.43
10.29 4.45 378 0.73 1.63 1.21 1.15 38.43
$10.16 2.57% $ 47,135 0.60% 0.91% 1.42% 0.09% 26.27%
10.14 1.93 41,204 1.30 0.14 2.05 (0.61) 26.27
10.15 2.04 21,726 1.30 0.16 2.05 (0.59) 26.27
10.16 2.80 124 0.24 8.17 0.99 7.42 26.27
10.15 2.54 121 0.74 0.76 1.49 0.01 26.27
----------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
GOLDMAN SACHS TRUST -- ASSET ALLOCATION PORTFOLIOS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Asset Al-
location Portfolios:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Balanced Strategy Portfolio, Goldman Sachs Growth and Income
Strategy Portfolio, Goldman Sachs Growth Strategy Portfolio and Goldman Sachs
Aggressive Growth Strategy Portfolio, the portfolios constituting Goldman
Sachs Trust -- Asset Allocation Portfolios (a Delaware Business Trust), in-
cluding the statements of investments, as of December 31, 1998, and the re-
lated statements of operations and the statements of changes in net assets
and the financial highlights for the period presented. These financial state-
ments and the financial highlights are the responsibility of the Funds' man-
agement. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements and financial highlights. Our procedures included confirma-
tion of securities owned as of December 31, 1998 by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the over-
all financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Balanced Strategy Portfolio, Goldman Sachs Growth and
Income Strategy Portfolio, Goldman Sachs Growth Strategy Portfolio and
Goldman Sachs Aggressive Growth Strategy Portfolio constituting Goldman Sachs
Trust -- Asset Allocation Portfolios as of December 31, 1998, the results of
their operations and the changes in their net assets and the financial high-
lights for the periods presented, in conformity with generally accepted ac-
counting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 16, 1999
26
<PAGE>
APPENDIX A
Commercial Paper Ratings
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of no
more than 365 days. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the rating
categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: leading market
positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial
A-1
<PAGE>
charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
A-2
<PAGE>
"D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to insure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the strongest capacity for timely payment of financial commitments and
may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation indicates
that the capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates that
default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
A-3
<PAGE>
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal and interest of debt instruments with original maturities
of one year or less. The following summarizes the ratings used by Thomson
BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest category
and indicates a very high likelihood that principal and interest will be paid on
a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-highest
category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment- grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest rating
category and indicates that the obligation is regarded as non-investment grade
and therefore speculative.
Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
A-4
<PAGE>
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
A-5
<PAGE>
"Aaa" - Bonds are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa." The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A-6
<PAGE>
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
"BBB" - Debt possesses below-average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these ratings
is considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and indicate
very strong capacity for timely payment of financial commitments. This capacity
is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate that
there is a possibility of credit risk developing, particularly as the result of
adverse economic changes over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate that
significant credit risk is present, but a limited margin of safety remains.
Financial commitments are
A-7
<PAGE>
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
"CCC," "CC", "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not meeting
obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade category
and indicates an acceptable capacity to repay principal and interest. Issues
rated "BBB" are more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
A-8
<PAGE>
Municipal Note Ratings
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to
pay principal and interest. Those issues determined to possess very strong
characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity
to pay principal and interest, with some vulnerability to adverse financial and
economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity
to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins of
protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
"SG" - This designation denotes speculative quality. Debt instruments in
this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
A-9
<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 make an unusual effort to identify and recruit the very best person for
every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.
We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find limits to the responsibility
that our best people are able to assume. Advancement depends solely on ability,
performance and contribution to the Firm's success, without regard to race,
color, religion, sex, age, national origin, disability, sexual orientation, or
any impermissible criterion or circumstance.
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.
The dedication of our people to the Firm and the intense effort they give
their jobs are greater than one finds in most other organizations. We think
that this is an important part of our success.
We consider our size an asset that we try hard to preserve. We want to be
big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to maintain the loyalty, the intimacy and the
esprit de corps that we all treasure and that contribute greatly to our success.
1-B
<PAGE>
We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to distinction.
We regularly receive confidential information as part of our normal client
relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.
Our business is highly competitive, and we aggressively seek to expand our
client relationships. However, we must always be fair competitors and must
never denigrate other firms.
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.
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.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck & Co. public (longest-standing client
relationship)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first talking
film
1956 Goldman Sachs co-manages Ford's public offering, the largest to date
1970 London office opens
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1991 Provides advisory services for the largest privatization in the region
of the sale of Telefonos de Mexico
1995 Dow Jones Industrial Average breaks 5000
1996 Goldman Sachs takes Deutsche Telecom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs increases assets under management by 100% over 1996
3-B
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
The following exhibits relating to Goldman Sachs Trust are incorporated
herein by reference to Post-Effective Amendment No. 26 to Goldman Sachs Trust's
Registration Statement on Form N-1A (Accession No. 000950130-95-002856); to
Post-Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931); to Post-Effective Amendment No. 29 to such Registration
Statement (Accession No. 0000950130-97-000573); to Post-Effective Amendment No.
31 to such Registration Statement (Accession No. 0000950130-97-000805); to Post-
Effective Amendment No. 32 to such Registration Statement (Accession No.
0000950130-97-0001846); to Post-Effective Amendment No. 40 to such Registration
Statement (Accession No. 0000950130-97-004495); to Post-Effective Amendment No.
41 to such Registration Statement (Accession No 0000950130-98-000676); Post-
Effective Amendment No. 43 to such Registration Statement (Accession No.
0000950130-98-000965); to Post-Effective Amendment No. 44 to such Registration
Statement (Accession No. 0000950130-98-002160); to Post-Effective Amendment No.
46 to such Registration Statement (Accession No. 0000950130-98-003563); to Post-
Effective Amendment No. 47 to such Registration Statement (Accession No.
0000950130-98-004845), to Post-Effective Amendment No. 48 to such Registration
Statement (Accession No. 0000950109-98-005275); to Post-Effective Amendment No.
50 to such Registration Statement (Accession No. 0000950130-98-006081), to
Post-Effective Amendment No. 51 to such Registration Statement (Accession No.
0000950130-99-000178) and to Post-Effective Amendment No. 52 to such
Registration Statement (Accession No. 0000950130-99-000742).
(a)(1). Agreement and Declaration of Trust dated January 28, 1997.
(Accession No. 0000950130-97-000573).
(a)(2). Amendment No. 1 dated April 24, 1997 to Agreement and Declaration
of Trust January 28, 1997. (Accession No. 0000950130-97-004495).
(a)(3). Amendment No. 2 dated July 21, 1997 to Agreement and Declaration
of Trust, as amended, dated January 28, 1997. (Accession No.
0000950130-97-004495).
(a)(4). Amendment No.3 dated October 21, 1997 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676).
(a)(5). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676).
<PAGE>
(a)(6). Amendment No. 5 dated April 23, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845).
(a)(7). Amendment No. 6 dated July 22, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845).
(a)(8). Amendment No. 7 dated November 3, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997
(Accession No. 0000950130-98-006081).
(a)(9) Amendment No. 8 dated January 22, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997
(Accession No. 0000950130-99-000742).
(b). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997. (Accession No. 0000950130-97-000573).
(c). Not applicable.
(d)(1). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676).
(d)(2). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Adjustable Rate Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676).
(d)(3). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Tax-Free Fund, and Goldman
Sachs Asset Management. (Accession No. 0000950130-98-000676).
(d)(4). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Core Fixed Income Fund, and Goldman Sachs
Asset Management. (Accession No. 0000950130-98-000676).
(d)(5). Management Agreement dated April 30, 1997 between the Registrant,
on behalf of Goldman Sachs - Institutional Liquid Assets, and
Goldman Sachs Asset Management. (Accession No. 0000950130-98-
000676).
(d)(6). Management Agreement dated April 30, 1997 as amended November 3,
1998, between Registrant, Goldman Sachs Asset Management,
Goldman Sachs Fund Management L.P. and Goldman, Sachs Asset
<PAGE>
Management International (Accession No. 0000950109-98-005275).
(d)(7). Management Agreement dated January 1, 1998 on behalf of the
Goldman Sachs Asset Allocation Portfolios and Goldman Sachs
Asset Management (Accession No. 0000950130-98-000676).
(d)(8) Amended Annex A to Management Agreement dated January 1, 1998 on
behalf of the Goldman Sachs Asset Allocation Portfolios and
Goldman Sachs
(e)(1) Distribution Agreement dated April 30, 1997 as amended January
22, 1999 between Registrant and Goldman Sachs & Co. (Accession
No. 0000950130-99-000742)
(f). Not applicable.
(g)(1). Custodian Agreement dated July 15, 1991, between Registrant and
State Street Bank and Trust Company. (Accession No. 0000950130-
95-002856).
(g)(2). Custodian Agreement dated December 27, 1978 between Registrant
and State Street Bank and Trust Company, on behalf of Goldman
Sachs - Institutional Liquid Assets, filed as Exhibit 8(a).
(Accession No. 0000950130-98-000965).
(g)(3). Letter-Agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the fees payable by
Registrant pursuant to the Custodian Agreement, filed as Exhibit
8(b). (Accession No. 0000950130-98-000965).
(g)(4). Amendment dated May 28, 1981 to the Custodian Agreement referred
to above as Exhibit (g)(2) (Accession No. 0000950130-98-000965).
(g)(5). Fee schedule relating to the Custodian Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and State Street Bank and Trust Company. (Accession
No. 0000950130-97-004495).
(g)(6). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges under the Custodian Agreement, filed as Exhibit 8(d).
(Accession No. 0000950130-98-000965).
(g)(7). Letter Agreement dated March 29, 1983 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the latter's
designation of Bank of America, N.T. and
<PAGE>
S.A. as its subcustodian and certain other matters, filed as
Exhibit 8(f). (Accession No. 0000950130-98-000965).
(g)(8). Letter Agreement dated March 21, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the creation of a
joint repurchase agreement account, filed as Exhibit 8(g).
(Accession No. 0000950130-98-000965).
(g)(9). Letter Agreement dated November 7, 1985, with attachments,
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets,
authorizing State Street Bank and Trust Company to permit
redemption of units by check, filed as Exhibit 8(h). (Accession
No. 0000950130-98-000965).
(g)(10). Money Transfer Services Agreement dated November 14, 1985,
including attachment, between Registrant and State Street Bank
and Trust Company, on behalf of Goldman Sachs - Institutional
Liquid Assets, pertaining to transfers of funds on deposit with
State Street Bank and Trust Company, filed as Exhibit 8(i).
(Accession No. 0000950130-98-000965).
(g)(11). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965).
(g)(12). Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges. (Accession No. 0000950130-98-000965).
(g)(13). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965).
(g)(14). Letter Agreement between Registrant and State Street Bank and
Trust Company, on behalf of Goldman Sachs - Institutional Liquid
Assets,
<PAGE>
pertaining to the latter's designation of Security Pacific
National Bank as its sub-custodian and certain other matters.
(Accession No. 0000950130-98-000965).
(g)(15). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets. (Accession No.
0000950130-98-000965).
(g)(16). Amendment dated December 19, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets. (Accession
No. 0000950130-98-000965).
(g)(17). Custodian Agreement dated April 6, 1990 between Registrant and
State Street Bank and Trust Company on behalf of Goldman Sachs
Capital Growth Fund. (Accession No. 0000950130-98-006081).
(g)(18). Sub-Custodian Agreement dated March 29, 1983 between State Street
Bank and Trust Company and Bank of America, National Trust and
Savings Association on behalf of Goldman Sachs Institutional
Liquid Assets. (Accession No. 0000950130-98-006081).
(g)(19) Fee schedule dated January 8, 1999 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (Conservative Strategy Portfolio)
(Accession No. 0000950130-99-000742).
(h)(1). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust
Company. (Accession No. 0000950130-98-000965).
(h)(2). Letter Agreement dated June 20, 1987 regarding use of checking
account between Registrant and The Northern Trust Company.
(Accession No. 0000950130-98-000965).
(h)(3). Transfer Agency Agreement dated July 15, 1991 between Registrant
and Goldman, Sachs & Co. (Accession No. 0000950130-95-002856).
(h)(4). Fee schedule relating to Transfer Agency Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and Goldman, Sachs & Co. (Accession No. 0000950130-
97-004495).
(h)(7). Fee schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of all Funds of Goldman Sachs Trust other than the Institutional
Liquid Assets and Financial Square Money Market Funds.
(Accession No. 0000950130-98-004845).
<PAGE>
(h)(8). Transfer Agency Agreement dated May 1, 1988 between Goldman Sachs
Institutional Liquid Assets and Goldman, Sachs & Co. (Accession
No. 0000950130-98-006081).
(h)(9). Fee Schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of ILA Money Market Funds. (Accession No. 0000950130-98-006081).
(h)(10). Transfer Agency Agreement dated April 30, 1997 between Registrant
and Goldman, Sachs & Co. on behalf of the Financial Square Funds.
(Accession No. 0000950130-98-006081).
(h)(11). Transfer Agency Agreement dated April 6, 1990 between GS-Capital
Growth Fund, Inc. and Goldman Sachs & Co. (Accession No.
0000950130-98-006081).
(h)(12). Goldman Sachs - Institutional Liquid Assets Administration Class
Administration Plan dated April 22, 1998. (Accession No.
0000950130-98-006081).
(h)(13). FST Administration Class Administration Plan dated April 22,
1998. (Accession No. 0000950130-98-006081).
(h)(14). Goldman Sachs - Institutional Liquid Assets Service Class Service
Plan dated April 22, 1998. (Accession No. 0000950130-98-006081).
(h)(15). FST Service Class Service Plan dated April 22, 1998. (Accession
No. 0000950130-98-006081).
(h)(16). FST Preferred Class Preferred Administration Plan dated April 22,
1998. (Accession No. 0000950130-98-006081).
(h)(17). Goldman Sachs Trust Administration Class Administration Plan
dated April 23, 1998. (Accession No. 0000950130-98-006081).
(h)(18). Goldman Sachs Trust Service Class Service Plan dated April 22,
1998 (Accession No. 0000950130-98-006081).
(h)(19). Cash Management Shares Service Plan dated May 1, 1998.
(Accession No. 0000950130-98-006081).
<PAGE>
(h)(20). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to Class A Shares of Goldman Sachs Asset Allocation
Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds and Goldman Sachs International Equity
Funds. (Accession No. 0000950130-98-006081).
(h)(21). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to the Preferred Class, Administration Class, Service
Class and Cash Management Class, as applicable, of Goldman Sachs
Financial Square Funds, Goldman Sachs - International Liquid
Asset Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds, Goldman Sachs International Equity Funds
and Goldman Sachs Asset Allocation Portfolios. (Accession No.
0000950130-98-006081).
(h)(22). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the Administrative Class, Service Class and
Cash Management Class of Goldman Sachs - Institutional Liquid
Assets Portfolios. (Accession No. 0000950130-98-006081).
(h)(23). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the FST Shares, FST Preferred Shares, FST
Administration Shares and FST Service Shares of Goldman Sachs
Financial Square Funds. (Accession No. 0000950130-98-006081).
(i)(1). Opinion of Drinker, Biddle & Reath LLP. (With respect to the
Asset Allocation Portfolios). (Accession No. 0000950130-97-
004495).
(i)(2). Opinion of Morris, Nichols, Arsht & Tunnell. (Accession No.
0000950130-97-001846)
(i)(3). Opinion of Drinker Biddle & Reath LLP.(With respect to Japanese
Equity and International Small Cap). (Accession No. 0000950130-
98-003563).
(i)(4). Opinion of Drinker Biddle & Reath LLP. (With respect to Cash
Management Shares). (Accession No. 0000950130-98-003563)
<PAGE>
(i)(5). Opinion of Drinker Biddle & Reath LLP. (With respect to the
European Equity Fund). (Accession No. 0000950130-98-006081).
(i)(6). Opinion of Drinker Biddle & Reath LLP. (With respect to the CORE
Large Cap Value Fund). (Accession No. 0000950130-98-006081).
(k). Not applicable.
(l). Not applicable.
(m)(1). Class A Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(2). Class B Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(3). Class C Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845)
(m)(4). Cash Management Shares Plan of Distribution pursuant to Rule 12b-
1 dated May 1, 1998. (Accession No. 0000950130-98-006081).
(o). Plan dated September 1, 1998 entered into by Registrant pursuant
to Rule 18f-3. (Accession No. 0000950130-98-004845)
(p)(1). Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Springer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor. (Accession No.
0000950130-97-000805)
(p)(2). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak. (Accession No. 0000950130-
98-000676)
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
(j) Consent of Independent Auditors.
(n) Financial Data Schedules.
(i)(7) Opinion of Drinker Biddle & Reath LLP
(with respect to the Conservative Strategy Portfolio)
<PAGE>
Asset Management (Conservative Strategy Portfolio) (Accession No.
0000950130-99-000742).
Item 24. Persons Controlled by or Under Common Control with Registrant.
-------------------------------------------------------------
Not Applicable.
Item 25. Indemnification
---------------
Article IV of the Declaration of Trust of Goldman Sachs Trust, Delaware business
trust, provides for indemnification of the Trustees, officers and agents of the
Trust, subject to certain limitations. The Declaration of Trust is incorporated
by reference to Exhibit (a)(1).
The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Investment Adviser or from reckless disregard by the Investment Adviser of
its obligations or duties under the Management Agreement. Section 7 of the
Management Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by reason of its
willful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Management Agreement. The Management
Agreements are incorporated by reference to Exhibits (d)(1) through (d)(7);
Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs
dated April 30, 1997, as amended January 22, 1999 and Section 7 of the Transfer
Agency Agreements between the Registrant and Goldman, Sachs & Co. dated July 15,
1991, May 1, 1988, April 30, 1997 and April 6, 1990 each provide that the
Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A
copy of the Distribution Agreement is incorporated by reference to Exhibit
(e)(1). The Transfer Agency Agreements are
<PAGE>
incorporated by reference as Exhibits (h)(3), (h)(8), (h)(10) and (h)(11),
respectively, to the Registrant's Registration Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Trust for Credit Unions, The Northern Institutional Funds
(formerly The Benchmark Funds), Goldman Sachs Variable Insurance Trust and The
Commerce Funds insure such persons and their respective trustees, partners,
officers and employees, subject to the policies' coverage limits and exclusions
and varying deductibles, against loss resulting from claims by reason of any
act, error, omission, misstatement, misleading statement, neglect or breach of
duty.
Item 26. Business and Other Connections of Investment Adviser.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the texts of which are hereby incorporated by reference.
Item 27. Principal Underwriters.
----------------------
(a) Goldman, Sachs & Co. or an affiliate or a division thereof currently serves
as investment adviser and distributor of the units of Trust for Credit Unions,
for shares of Goldman Sachs Trust and for shares of Goldman Sachs Variable
Insurance Trust. Goldman, Sachs & Co., or a division thereof currently serves as
administrator and distributor of the units or shares of Northern Institutional
Funds (formerly The Benchmark Funds) and The Commerce Funds.
(b) Set forth below is certain information pertaining to the Managing Directors
of Goldman, Sachs & Co., the Registrant's principal underwriter, who are members
of Goldman, Sachs & Co.'s Executive Committee. None of the members of the
executive committee holds a position or office with the Registrant.
GOLDMAN SACHS EXECUTIVE COMMITTEE
Name and Principal
Business Address Position
---------------- --------
Jon S. Corzine (1) Co-Chairman
Robert J. Hurst (1) Managing Director
Henry M. Paulson, Jr. (1) Chief Executive Officer,
Co-Chairman
John A. Thain (1)(3) Co-Chief Operating Officer
<PAGE>
John L. Thornton (3) Co-ChiefOperating Officer
Roy J. Zuckerberg (2) Managing Director
_______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(c) Not Applicable.
Item 28. Location of Accounts and Records.
--------------------------------
The Declaration of Trust, By-laws and minute books of the Registrant and certain
investment adviser records are in the physical possession of Goldman Sachs Asset
Management, One New York Plaza, New York, New York 10004. All other accounts,
books and other documents required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated thereunder are in the
physical possession of State Street Bank and Trust Company, P.O. Box 1713,
Boston, Massachusetts 02105 except for certain transfer agency records which are
maintained by Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois
60606.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 53 to its Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City and State of New York on the 26th day
of February, 1999.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/ Michael Richman
--------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Title Date
- ----- ----- -----
*Douglas C. Grip President and
----------------------------
Douglas C. Grip Trustee February 26, 1999
*John M. Perlowski Principal Accounting
----------------------------
John M. Perlowski Officer And Principal
Financial Officer February 26, 1999
*David B. Ford Trustee February 26, 1999
----------------------------
David B. Ford
*Mary Patterson McPherson Trustee February 26, 1999
----------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Chairman and Trustee February 26, 1999
----------------------------
Ashok N. Bakhru
*Alan A. Shuch Trustee February 26, 1999
----------------------------
Alan A. Shuch
*Jackson W. Smart, Jr. Trustee February 26, 1999
----------------------------
Jackson W. Smart, Jr.
*John P. McNulty Trustee February 26, 1999
----------------------------
John P. McNulty
*William H. Springer Trustee February 26, 1999
----------------------------
William H. Springer
*Richard P. Strubel Trustee February 26, 1999
----------------------------
Richard P. Strubel
</TABLE>
*By: /s/ Michael Richman
--------------------
<PAGE>
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
<PAGE>
GOLDMAN SACHS TRUST
Certificate of Secretary
The undersigned Secretary of Goldman Sachs Trust hereby certifies that the
following resolution was duly adopted by the Board of Trustees of said Trust on
January 22, 1999 and remains in effect on the date hereof:
FURTHER RESOLVED, that the Trustees and Officers of the Trust who may
be required to execute any amendments to the Trust's Registration Statement
be, and each hereby is, authorized to execute a power of attorney
appointing James A. Fitzpatrick, Douglas C. Grip, Anne Marcel, Jesse Cole,
Nancy L. Mucker, John W. Perlowski, Michael J. Richman, Howard B. Surloff
and Valerie A. Zondorak, jointly and severally, their true and lawful
attorney or attorneys, to execute in their name, place and stead, in their
capacity as officer of the Trust any and all amendments to the Registration
Statement and all instruments necessary or incidental in connection
therewith, and to file the same with the Securities and Exchange
Commission; and each of said attorneys shall have the power to act
thereunder with or without the other said attorneys and shall have full
power of substitution and resubstitution; and to do in the name and on
behalf of said Trustees and Officers, or any or all of them, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully and to all intents and purposes as each of said Trustees
or Officers, or any or all of them, might or could do in person, said acts
of said attorneys, being hereby ratified and approved.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of February,
1999.
GOLDMAN SACHS TRUST
/s/ Michael J. Richman
----------------------
Michael J. Richman
Secretary
<PAGE>
EXHIBIT INDEX
(j) Consent of Independent Auditors.
(n) Financial Data Schedules.
(i)(7) Opinion of Drinker Biddle & Reath LLP
(with respect to the Conservative Strategy Portfolio)
<PAGE>
Exhibit (I)(7)
Law Offices
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Telephone: (215) 988-2700
TELEX: 834684
FAX: (215) 988-2757
February 8, 1999
Goldman Sachs Trust
4900 Sears Tower
Chicago, IL 60606
Re: Conservative Strategy Portfolio of Goldman Sachs Trust
------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Goldman Sachs Trust, a Delaware business
trust (the "Trust"), in connection with the registration under the Securities
Act of 1933 of shares of beneficial interest ("Shares") representing interests
in an additional series, or fund, of the Trust known as the Conservative
Strategy Portfolio. The Conservative Strategy Portfolio has five classes of
shares: Class A Shares, Class B Shares, Class C Shares, Institutional Shares and
Service Shares. The Trust is authorized to issue an unlimited number of shares
of each class. These classes are hereinafter referred to as the "Shares."
We have reviewed the Trust's Declaration of Trust, its by-laws, and
certain resolutions adopted by its Board of Trustees, and have considered such
other legal and factual matters as we have deemed appropriate.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
Based on the foregoing, we are of the opinion that the Shares, when
issued against payment therefor as described in the Trust's prospectus relating
thereto, will be legally issued, fully paid and non-assessable by the Trust, and
that the holders of the Shares will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware (except
that we express no opinion as to such holders who are also trustees of the
Trust). Pursuant to Section 2 of Article VIII of the Declaration of Trust, the
Trustees have the power to cause shareholders, or shareholders of a particular
series or class, to pay certain custodian, transfer, servicing or similar agent
charges by
<PAGE>
Goldman Sachs Trust
February 8, 1999
Page 2
setting off the same against declared but unpaid dividends or by reducing Share
ownership (or by both means).
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of a Post-Effective Amendment to the Registration
Statement of the Trust. Except as provided in this paragraph, the opinion set
forth above is expressed solely for the benefit of the addressee hereof in
connection with the matters contemplated hereby and not be relied upon by, or
filed with, any other person or entity or for any other purpose without our
prior written consent.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
<PAGE>
EXHIBIT J
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Trust on behalf of the Institutional Liquid Assets Portfolios
dated February 12, 1999 (and all references to our firm) included in or made a
part of Post-Effective Amendment No. 53 and Amendment No. 55 Registration
Statement File Nos. 33-17619 and 811-5349, respectively.
Boston, Massachusetts
February 22, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Trust on behalf of the Asset Allocation Portfolios dated
February 16, 1999 (and all references to our firm) included in or made a part of
Post-Effective Amendment No. 53 and Amendment No. 55 Registration Statement File
Nos. 33-17673 and 811-5349, respectively.
Boston, Massachusetts
February 22, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Trust on behalf of the Financial Square Funds dated February
12, 1999 (and all references to our firm) included in or made a part of Post-
Effective Amendment No. 53 and Amendment No. 55 Registration Statement File Nos.
33-17619 and 811-5349, respectively.
Boston, Massachusetts
February 22, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 353
<NAME> Fin. Sq. Prime Oblig. Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,636,599,406
<INVESTMENTS-AT-VALUE> 6,636,599,406
<RECEIVABLES> 28,156,149
<ASSETS-OTHER> 84,694
<OTHER-ITEMS-ASSETS> 298,327
<TOTAL-ASSETS> 6,665,138,576
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,406,493
<TOTAL-LIABILITIES> 33,406,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,631,732,083
<SHARES-COMMON-STOCK> 5,831,768,188
<SHARES-COMMON-PRIOR> 3,867,740,474
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,631,732,083
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 318,336,858
<OTHER-INCOME> 0
<EXPENSES-NET> (12,525,597)
<NET-INVESTMENT-INCOME> 305,811,261
<REALIZED-GAINS-CURRENT> 78,008
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 305,889,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (269,081,520)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50,577,781,681
<NUMBER-OF-SHARES-REDEEMED> (48,694,767,051)
<SHARES-REINVESTED> 81,013,084
<NET-CHANGE-IN-ASSETS> 2,193,485,694
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,131)
<GROSS-ADVISORY-FEES> 11,710,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,482,381
<AVERAGE-NET-ASSETS> 5,712,476,525
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 354
<NAME> Fin. Sq. Prime Oblig. Fund-Pref.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,636,599,406
<INVESTMENTS-AT-VALUE> 6,636,599,406
<RECEIVABLES> 28,156,149
<ASSETS-OTHER> 84,694
<OTHER-ITEMS-ASSETS> 298,327
<TOTAL-ASSETS> 6,665,138,576
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,406,493
<TOTAL-LIABILITIES> 33,406,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,631,732,083
<SHARES-COMMON-STOCK> 132,561,671
<SHARES-COMMON-PRIOR> 152,770,028
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,631,732,083
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 318,336,858
<OTHER-INCOME> 0
<EXPENSES-NET> (12,525,597)
<NET-INVESTMENT-INCOME> 305,811,261
<REALIZED-GAINS-CURRENT> 78,008
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 305,889,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,232,389)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,635,375,108
<NUMBER-OF-SHARES-REDEEMED> (1,657,247,424)
<SHARES-REINVESTED> 1,663,959
<NET-CHANGE-IN-ASSETS> 2,193,485,694
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,131)
<GROSS-ADVISORY-FEES> 11,710,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,482,381
<AVERAGE-NET-ASSETS> 5,712,476,525
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 355
<NAME> Fin. Sq. Prime Oblig. Fund-Admin
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,636,599,406
<INVESTMENTS-AT-VALUE> 6,636,599,406
<RECEIVABLES> 28,156,149
<ASSETS-OTHER> 84,694
<OTHER-ITEMS-ASSETS> 298,327
<TOTAL-ASSETS> 6,665,138,576
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,406,493
<TOTAL-LIABILITIES> 33,406,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,631,732,083
<SHARES-COMMON-STOCK> 331,197,822
<SHARES-COMMON-PRIOR> 241,610,519
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,631,732,083
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 318,336,858
<OTHER-INCOME> 0
<EXPENSES-NET> (12,525,597)
<NET-INVESTMENT-INCOME> 305,811,261
<REALIZED-GAINS-CURRENT> 78,008
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 305,889,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,131,415)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,386,485,745
<NUMBER-OF-SHARES-REDEEMED> (2,302,131,386)
<SHARES-REINVESTED> 5,232,944
<NET-CHANGE-IN-ASSETS> 2,193,485,694
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,131)
<GROSS-ADVISORY-FEES> 11,710,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,482,381
<AVERAGE-NET-ASSETS> 5,712,476,525
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 356
<NAME> Fin. Sq. Prime Oblig. Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,636,599,406
<INVESTMENTS-AT-VALUE> 6,636,599,406
<RECEIVABLES> 28,156,149
<ASSETS-OTHER> 84,694
<OTHER-ITEMS-ASSETS> 298,327
<TOTAL-ASSETS> 6,665,138,576
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,406,493
<TOTAL-LIABILITIES> 33,406,493
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,631,732,083
<SHARES-COMMON-STOCK> 336,204,402
<SHARES-COMMON-PRIOR> 176,133,499
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,631,732,083
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 318,336,858
<OTHER-INCOME> 0
<EXPENSES-NET> (12,525,597)
<NET-INVESTMENT-INCOME> 305,811,261
<REALIZED-GAINS-CURRENT> 78,008
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 305,889,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,435,814)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,369,759,462
<NUMBER-OF-SHARES-REDEEMED> (3,215,688,104)
<SHARES-REINVESTED> 5,999,545
<NET-CHANGE-IN-ASSETS> 2,193,485,694
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (8,131)
<GROSS-ADVISORY-FEES> 11,710,577
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,482,381
<AVERAGE-NET-ASSETS> 5,712,476,525
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 363
<NAME> Fin. Sq. Money Market Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,085,098,505
<INVESTMENTS-AT-VALUE> 6,085,098,505
<RECEIVABLES> 34,294,060
<ASSETS-OTHER> 13,758
<OTHER-ITEMS-ASSETS> 3,394
<TOTAL-ASSETS> 6,119,409,717
<PAYABLE-FOR-SECURITIES> 100,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,415,964
<TOTAL-LIABILITIES> 134,415,964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,984,993,753
<SHARES-COMMON-STOCK> 4,995,780,038
<SHARES-COMMON-PRIOR> 4,346,515,706
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,984,993,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338,553,940
<OTHER-INCOME> 0
<EXPENSES-NET> (14,525,874)
<NET-INVESTMENT-INCOME> 324,028,066
<REALIZED-GAINS-CURRENT> 66,176
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 324,094,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (276,370,684)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,642,205,884
<NUMBER-OF-SHARES-REDEEMED> (64,138,032,706)
<SHARES-REINVESTED> 145,091,154
<NET-CHANGE-IN-ASSETS> 1,080,657,010
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,382
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,445,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,062,955
<AVERAGE-NET-ASSETS> 6,071,108,132
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 364
<NAME> Fin. Sq. Money Market Fund-Pref.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,085,098,505
<INVESTMENTS-AT-VALUE> 6,085,098,505
<RECEIVABLES> 34,294,060
<ASSETS-OTHER> 13,758
<OTHER-ITEMS-ASSETS> 3,394
<TOTAL-ASSETS> 6,119,409,717
<PAYABLE-FOR-SECURITIES> 100,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,415,964
<TOTAL-LIABILITIES> 134,415,964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,984,993,753
<SHARES-COMMON-STOCK> 93,218,173
<SHARES-COMMON-PRIOR> 20,258,602
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,984,993,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338,553,940
<OTHER-INCOME> 0
<EXPENSES-NET> (14,525,874)
<NET-INVESTMENT-INCOME> 324,028,066
<REALIZED-GAINS-CURRENT> 66,176
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 324,094,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,076,565)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 587,335,211
<NUMBER-OF-SHARES-REDEEMED> (517,936,393)
<SHARES-REINVESTED> 3,560,753
<NET-CHANGE-IN-ASSETS> 1,080,657,010
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,382
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,445,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,062,955
<AVERAGE-NET-ASSETS> 6,071,108,132
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 365
<NAME> Fin. Sq. Money Market Fund-Admin
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,085,098,505
<INVESTMENTS-AT-VALUE> 6,085,098,505
<RECEIVABLES> 34,294,060
<ASSETS-OTHER> 13,758
<OTHER-ITEMS-ASSETS> 3,394
<TOTAL-ASSETS> 6,119,409,717
<PAYABLE-FOR-SECURITIES> 100,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,415,964
<TOTAL-LIABILITIES> 134,415,964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,984,993,753
<SHARES-COMMON-STOCK> 399,471,260
<SHARES-COMMON-PRIOR> 221,253,373
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,984,993,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338,553,940
<OTHER-INCOME> 0
<EXPENSES-NET> (14,525,874)
<NET-INVESTMENT-INCOME> 324,028,066
<REALIZED-GAINS-CURRENT> 66,176
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 324,094,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,556,691)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,258,106,370
<NUMBER-OF-SHARES-REDEEMED> (2,093,556,998)
<SHARES-REINVESTED> 13,668,515
<NET-CHANGE-IN-ASSETS> 1,080,657,010
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,382
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,445,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,062,955
<AVERAGE-NET-ASSETS> 6,071,108,132
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 366
<NAME> Fin. Sq. Money Market Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,085,098,505
<INVESTMENTS-AT-VALUE> 6,085,098,505
<RECEIVABLES> 34,294,060
<ASSETS-OTHER> 13,758
<OTHER-ITEMS-ASSETS> 3,394
<TOTAL-ASSETS> 6,119,409,717
<PAYABLE-FOR-SECURITIES> 100,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,415,964
<TOTAL-LIABILITIES> 134,415,964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,984,993,753
<SHARES-COMMON-STOCK> 496,524,282
<SHARES-COMMON-PRIOR> 316,307,680
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,984,993,753
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 338,553,940
<OTHER-INCOME> 0
<EXPENSES-NET> (14,525,874)
<NET-INVESTMENT-INCOME> 324,028,066
<REALIZED-GAINS-CURRENT> 66,176
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 324,094,242
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,091,684)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,411,042,613
<NUMBER-OF-SHARES-REDEEMED> (2,234,703,522)
<SHARES-REINVESTED> 3,877,511
<NET-CHANGE-IN-ASSETS> 1,080,657,010
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,382
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,445,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,062,955
<AVERAGE-NET-ASSETS> 6,071,108,132
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 373
<NAME> Fin. Sq. Treas. Oblig. Fund-Inst
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,400,245,358
<INVESTMENTS-AT-VALUE> 5,400,245,358
<RECEIVABLES> 11,607,542
<ASSETS-OTHER> 18,445
<OTHER-ITEMS-ASSETS> 3,332
<TOTAL-ASSETS> 5,411,874,677
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,172,390
<TOTAL-LIABILITIES> 23,172,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,388,702,287
<SHARES-COMMON-STOCK> 3,521,332,237
<SHARES-COMMON-PRIOR> 2,217,903,808
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,388,702,287
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 251,765,564
<OTHER-INCOME> 0
<EXPENSES-NET> (13,170,101)
<NET-INVESTMENT-INCOME> 238,595,463
<REALIZED-GAINS-CURRENT> 1,450,576
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 240,046,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (157,673,844)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,811,128,138
<NUMBER-OF-SHARES-REDEEMED> (37,561,525,035)
<SHARES-REINVESTED> 53,825,326
<NET-CHANGE-IN-ASSETS> 1,873,548,244
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,566,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,497,776
<AVERAGE-NET-ASSETS> 4,666,544,352
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 374
<NAME> Fin. Sq. Treas. Oblig. Fund-Pref
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,400,245,358
<INVESTMENTS-AT-VALUE> 5,400,245,358
<RECEIVABLES> 11,607,542
<ASSETS-OTHER> 18,445
<OTHER-ITEMS-ASSETS> 3,332
<TOTAL-ASSETS> 5,411,874,677
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,172,390
<TOTAL-LIABILITIES> 23,172,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,388,702,287
<SHARES-COMMON-STOCK> 285,244,600
<SHARES-COMMON-PRIOR> 245,360,997
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,388,702,287
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 251,765,564
<OTHER-INCOME> 0
<EXPENSES-NET> (13,170,101)
<NET-INVESTMENT-INCOME> 238,595,463
<REALIZED-GAINS-CURRENT> 1,450,576
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 240,046,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47,202,665)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,747,117,320
<NUMBER-OF-SHARES-REDEEMED> (2,714,118,870)
<SHARES-REINVESTED> 6,885,153
<NET-CHANGE-IN-ASSETS> 1,873,548,244
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,566,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,497,776
<AVERAGE-NET-ASSETS> 4,666,544,352
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 375
<NAME> FS Treas. Oblig. Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,400,245,358
<INVESTMENTS-AT-VALUE> 5,400,245,358
<RECEIVABLES> 11,607,542
<ASSETS-OTHER> 18,445
<OTHER-ITEMS-ASSETS> 3,332
<TOTAL-ASSETS> 5,411,874,677
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,172,390
<TOTAL-LIABILITIES> 23,172,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,388,702,287
<SHARES-COMMON-STOCK> 1,080,496,197
<SHARES-COMMON-PRIOR> 738,895,099
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,388,702,287
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 251,765,564
<OTHER-INCOME> 0
<EXPENSES-NET> (13,170,101)
<NET-INVESTMENT-INCOME> 238,595,463
<REALIZED-GAINS-CURRENT> 1,450,576
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 240,046,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,083,866)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,954,832,820
<NUMBER-OF-SHARES-REDEEMED> (5,629,346,838)
<SHARES-REINVESTED> 16,115,116
<NET-CHANGE-IN-ASSETS> 1,873,548,244
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,566,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,497,776
<AVERAGE-NET-ASSETS> 4,666,544,352
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 376
<NAME> Fin. Sq. Treas. Oblig. Fund-Serv
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,400,245,358
<INVESTMENTS-AT-VALUE> 5,400,245,358
<RECEIVABLES> 11,607,542
<ASSETS-OTHER> 18,445
<OTHER-ITEMS-ASSETS> 3,332
<TOTAL-ASSETS> 5,411,874,677
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,172,390
<TOTAL-LIABILITIES> 23,172,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,388,702,287
<SHARES-COMMON-STOCK> 501,629,253
<SHARES-COMMON-PRIOR> 312,994,139
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,388,702,287
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 251,765,564
<OTHER-INCOME> 0
<EXPENSES-NET> (13,170,101)
<NET-INVESTMENT-INCOME> 238,595,463
<REALIZED-GAINS-CURRENT> 1,450,576
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 240,046,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,085,664)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,487,477,070
<NUMBER-OF-SHARES-REDEEMED> (5,313,131,283)
<SHARES-REINVESTED> 14,289,327
<NET-CHANGE-IN-ASSETS> 1,873,548,244
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,566,416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,497,776
<AVERAGE-NET-ASSETS> 4,666,544,352
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 383
<NAME> Fin. Sq. Treas. Inst. Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 866,472,971
<INVESTMENTS-AT-VALUE> 866,472,971
<RECEIVABLES> 89,086
<ASSETS-OTHER> 1,084
<OTHER-ITEMS-ASSETS> 27,082
<TOTAL-ASSETS> 866,590,223
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,577,499
<TOTAL-LIABILITIES> 3,577,499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 863,008,071
<SHARES-COMMON-STOCK> 822,206,369
<SHARES-COMMON-PRIOR> 496,418,745
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,653
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 863,012,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,275,471
<OTHER-INCOME> 0
<EXPENSES-NET> (931,530)
<NET-INVESTMENT-INCOME> 20,343,941
<REALIZED-GAINS-CURRENT> 174,690
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,518,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,729,601)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,155,786,943
<NUMBER-OF-SHARES-REDEEMED> (2,837,666,325)
<SHARES-REINVESTED> 7,667,006
<NET-CHANGE-IN-ASSETS> 342,255,708
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,378
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 884,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,380,955
<AVERAGE-NET-ASSETS> 431,476,846
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 384
<NAME> Fin. Sq. Treas. Inst. Fund-Pref.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 866,472,971
<INVESTMENTS-AT-VALUE> 866,472,971
<RECEIVABLES> 89,086
<ASSETS-OTHER> 1,084
<OTHER-ITEMS-ASSETS> 27,082
<TOTAL-ASSETS> 866,590,223
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,577,499
<TOTAL-LIABILITIES> 3,577,499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 863,008,071
<SHARES-COMMON-STOCK> 1,616
<SHARES-COMMON-PRIOR> 1,539
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,653
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 863,012,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,275,471
<OTHER-INCOME> 0
<EXPENSES-NET> (931,530)
<NET-INVESTMENT-INCOME> 20,343,941
<REALIZED-GAINS-CURRENT> 174,690
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,518,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (78)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 77
<NET-CHANGE-IN-ASSETS> 342,255,708
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,378
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 884,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,380,955
<AVERAGE-NET-ASSETS> 431,476,846
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 385
<NAME> Fin. Sq. Treas. Inst. Fund-Admin
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 866,472,971
<INVESTMENTS-AT-VALUE> 866,472,971
<RECEIVABLES> 89,086
<ASSETS-OTHER> 1,084
<OTHER-ITEMS-ASSETS> 27,082
<TOTAL-ASSETS> 866,590,223
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,577,499
<TOTAL-LIABILITIES> 3,577,499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 863,008,071
<SHARES-COMMON-STOCK> 23,673,636
<SHARES-COMMON-PRIOR> 4,159,015
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,653
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 863,012,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,275,471
<OTHER-INCOME> 0
<EXPENSES-NET> (931,530)
<NET-INVESTMENT-INCOME> 20,343,941
<REALIZED-GAINS-CURRENT> 174,690
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,518,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (927,699)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69,117,817
<NUMBER-OF-SHARES-REDEEMED> (50,374,164)
<SHARES-REINVESTED> 770,968
<NET-CHANGE-IN-ASSETS> 342,255,708
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,378
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 884,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,380,955
<AVERAGE-NET-ASSETS> 431,476,846
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 386
<NAME> Fin. Sq. Treas. Inst. Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 866,472,971
<INVESTMENTS-AT-VALUE> 866,472,971
<RECEIVABLES> 89,086
<ASSETS-OTHER> 1,084
<OTHER-ITEMS-ASSETS> 27,082
<TOTAL-ASSETS> 866,590,223
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,577,499
<TOTAL-LIABILITIES> 3,577,499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 863,008,071
<SHARES-COMMON-STOCK> 17,126,450
<SHARES-COMMON-PRIOR> 20,176,339
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,653
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 863,012,724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,275,471
<OTHER-INCOME> 0
<EXPENSES-NET> (931,530)
<NET-INVESTMENT-INCOME> 20,343,941
<REALIZED-GAINS-CURRENT> 174,690
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,518,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (857,978)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92,096,818
<NUMBER-OF-SHARES-REDEEMED> (95,155,057)
<SHARES-REINVESTED> 8,350
<NET-CHANGE-IN-ASSETS> 342,255,708
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,378
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 884,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,380,955
<AVERAGE-NET-ASSETS> 431,476,846
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 393
<NAME> Fin. Square Federal Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,639,154,305
<INVESTMENTS-AT-VALUE> 3,639,154,305
<RECEIVABLES> 8,304,938
<ASSETS-OTHER> 3,117
<OTHER-ITEMS-ASSETS> 4,901
<TOTAL-ASSETS> 3,647,467,261
<PAYABLE-FOR-SECURITIES> 247,824,722
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,456,761
<TOTAL-LIABILITIES> 263,281,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,384,185,270
<SHARES-COMMON-STOCK> 2,346,253,833
<SHARES-COMMON-PRIOR> 1,125,680,906
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 508
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,384,185,778
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137,467,745
<OTHER-INCOME> 0
<EXPENSES-NET> (6,983,170)
<NET-INVESTMENT-INCOME> 130,484,575
<REALIZED-GAINS-CURRENT> 31,979
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 130,516,554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (92,448,326)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,287,288,538
<NUMBER-OF-SHARES-REDEEMED> (9,111,928,825)
<SHARES-REINVESTED> 45,213,214
<NET-CHANGE-IN-ASSETS> 1,210,348,341
<ACCUMULATED-NII-PRIOR> 8,313
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,673)
<GROSS-ADVISORY-FEES> 5,186,650
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,253,105
<AVERAGE-NET-ASSETS> 2,530,073,200
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 394
<NAME> Fin. Square Federal Fund-Pref.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,639,154,305
<INVESTMENTS-AT-VALUE> 3,639,154,305
<RECEIVABLES> 8,304,938
<ASSETS-OTHER> 3,117
<OTHER-ITEMS-ASSETS> 4,901
<TOTAL-ASSETS> 3,647,467,261
<PAYABLE-FOR-SECURITIES> 247,824,722
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,456,761
<TOTAL-LIABILITIES> 263,281,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,384,185,270
<SHARES-COMMON-STOCK> 26,723,880
<SHARES-COMMON-PRIOR> 194,374,977
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 508
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,384,185,778
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137,467,745
<OTHER-INCOME> 0
<EXPENSES-NET> (6,983,170)
<NET-INVESTMENT-INCOME> 130,484,575
<REALIZED-GAINS-CURRENT> 31,979
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 130,516,554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,428,582)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138,883,456
<NUMBER-OF-SHARES-REDEEMED> (313,722,647)
<SHARES-REINVESTED> 7,188,094
<NET-CHANGE-IN-ASSETS> 1,210,348,341
<ACCUMULATED-NII-PRIOR> 8,313
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,673)
<GROSS-ADVISORY-FEES> 5,186,650
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,253,105
<AVERAGE-NET-ASSETS> 2,530,073,200
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 395
<NAME> Fin. Square Federal Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,639,154,305
<INVESTMENTS-AT-VALUE> 3,639,154,305
<RECEIVABLES> 8,304,938
<ASSETS-OTHER> 3,117
<OTHER-ITEMS-ASSETS> 4,901
<TOTAL-ASSETS> 3,647,467,261
<PAYABLE-FOR-SECURITIES> 247,824,722
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,456,761
<TOTAL-LIABILITIES> 263,281,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,384,185,270
<SHARES-COMMON-STOCK> 690,084,049
<SHARES-COMMON-PRIOR> 625,333,945
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 508
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,384,185,778
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137,467,745
<OTHER-INCOME> 0
<EXPENSES-NET> (6,983,170)
<NET-INVESTMENT-INCOME> 130,484,575
<REALIZED-GAINS-CURRENT> 31,979
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 130,516,554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,097,019)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,165,279,603
<NUMBER-OF-SHARES-REDEEMED> (2,106,551,874)
<SHARES-REINVESTED> 6,022,375
<NET-CHANGE-IN-ASSETS> 1,210,348,341
<ACCUMULATED-NII-PRIOR> 8,313
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,673)
<GROSS-ADVISORY-FEES> 5,186,650
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,253,105
<AVERAGE-NET-ASSETS> 2,530,073,200
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 396
<NAME> Fin. Square Federal Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,639,154,305
<INVESTMENTS-AT-VALUE> 3,639,154,305
<RECEIVABLES> 8,304,938
<ASSETS-OTHER> 3,117
<OTHER-ITEMS-ASSETS> 4,901
<TOTAL-ASSETS> 3,647,467,261
<PAYABLE-FOR-SECURITIES> 247,824,722
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,456,761
<TOTAL-LIABILITIES> 263,281,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,384,185,270
<SHARES-COMMON-STOCK> 321,123,508
<SHARES-COMMON-PRIOR> 228,446,969
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 508
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,384,185,778
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 137,467,745
<OTHER-INCOME> 0
<EXPENSES-NET> (6,983,170)
<NET-INVESTMENT-INCOME> 130,484,575
<REALIZED-GAINS-CURRENT> 31,979
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 130,516,554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,542,759)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,303,299,883
<NUMBER-OF-SHARES-REDEEMED> (2,216,489,073)
<SHARES-REINVESTED> 5,865,729
<NET-CHANGE-IN-ASSETS> 1,210,348,341
<ACCUMULATED-NII-PRIOR> 8,313
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,673)
<GROSS-ADVISORY-FEES> 5,186,650
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,253,105
<AVERAGE-NET-ASSETS> 2,530,073,200
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 403
<NAME> Financial Square Government Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,092,844,155
<INVESTMENTS-AT-VALUE> 3,092,844,155
<RECEIVABLES> 9,426,570
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,592
<TOTAL-ASSETS> 3,102,285,317
<PAYABLE-FOR-SECURITIES> 172,826,151
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,112,015
<TOTAL-LIABILITIES> 185,938,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,916,347,151
<SHARES-COMMON-STOCK> 1,563,870,902
<SHARES-COMMON-PRIOR> 1,478,535,045
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,916,347,151
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 150,324,658
<OTHER-INCOME> 0
<EXPENSES-NET> (9,123,396)
<NET-INVESTMENT-INCOME> 141,201,262
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,201,262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (87,893,105)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,929,403,199
<NUMBER-OF-SHARES-REDEEMED> (19,872,424,728)
<SHARES-REINVESTED> 28,357,386
<NET-CHANGE-IN-ASSETS> 550,657,038
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,599,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,399,059
<AVERAGE-NET-ASSETS> 2,731,222,965
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 404
<NAME> Fin. Square Government Fund-Pref
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,092,844,155
<INVESTMENTS-AT-VALUE> 3,092,844,155
<RECEIVABLES> 9,426,570
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,592
<TOTAL-ASSETS> 3,102,285,317
<PAYABLE-FOR-SECURITIES> 172,826,151
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,112,015
<TOTAL-LIABILITIES> 185,938,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,916,347,151
<SHARES-COMMON-STOCK> 245,628,297
<SHARES-COMMON-PRIOR> 7,146,792
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,916,347,151
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 150,324,658
<OTHER-INCOME> 0
<EXPENSES-NET> (9,123,396)
<NET-INVESTMENT-INCOME> 141,201,262
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,201,262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,985,314)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,063,864,036
<NUMBER-OF-SHARES-REDEEMED> (828,030,762)
<SHARES-REINVESTED> 2,648,231
<NET-CHANGE-IN-ASSETS> 550,657,038
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,599,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,399,059
<AVERAGE-NET-ASSETS> 2,731,222,965
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 405
<NAME> Fin. Sq. Government Fund-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,092,844,155
<INVESTMENTS-AT-VALUE> 3,092,844,155
<RECEIVABLES> 9,426,570
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,592
<TOTAL-ASSETS> 3,102,285,317
<PAYABLE-FOR-SECURITIES> 172,826,151
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,112,015
<TOTAL-LIABILITIES> 185,938,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,916,347,151
<SHARES-COMMON-STOCK> 407,360,955
<SHARES-COMMON-PRIOR> 299,801,906
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,916,347,151
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 150,324,658
<OTHER-INCOME> 0
<EXPENSES-NET> (9,123,396)
<NET-INVESTMENT-INCOME> 141,201,262
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,201,262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,131,280)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,103,623,628
<NUMBER-OF-SHARES-REDEEMED> (5,000,220,220)
<SHARES-REINVESTED> 4,155,641
<NET-CHANGE-IN-ASSETS> 550,657,038
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,599,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,399,059
<AVERAGE-NET-ASSETS> 2,731,222,965
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 406
<NAME> Fin. Sq. Government Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,092,844,155
<INVESTMENTS-AT-VALUE> 3,092,844,155
<RECEIVABLES> 9,426,570
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 14,592
<TOTAL-ASSETS> 3,102,285,317
<PAYABLE-FOR-SECURITIES> 172,826,151
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,112,015
<TOTAL-LIABILITIES> 185,938,166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,916,347,151
<SHARES-COMMON-STOCK> 699,486,997
<SHARES-COMMON-PRIOR> 580,206,370
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,916,347,151
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 150,324,658
<OTHER-INCOME> 0
<EXPENSES-NET> (9,123,396)
<NET-INVESTMENT-INCOME> 141,201,262
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,201,262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31,191,563)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,693,817,716
<NUMBER-OF-SHARES-REDEEMED> (3,577,347,116)
<SHARES-REINVESTED> 2,810,027
<NET-CHANGE-IN-ASSETS> 550,657,038
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,599,007
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,399,059
<AVERAGE-NET-ASSETS> 2,731,222,965
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 413
<NAME> FS Tax-Free Money Mkt. Fund-Inst
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,706,482,755
<INVESTMENTS-AT-VALUE> 1,706,482,755
<RECEIVABLES> 10,590,583
<ASSETS-OTHER> 1,307
<OTHER-ITEMS-ASSETS> 771,242
<TOTAL-ASSETS> 1,717,845,887
<PAYABLE-FOR-SECURITIES> 38,380,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,791,597
<TOTAL-LIABILITIES> 43,171,597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,674,687,909
<SHARES-COMMON-STOCK> 1,456,015,068
<SHARES-COMMON-PRIOR> 939,421,140
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,619)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,674,674,290
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48,952,424
<OTHER-INCOME> 0
<EXPENSES-NET> (3,278,153)
<NET-INVESTMENT-INCOME> 45,674,271
<REALIZED-GAINS-CURRENT> 1,321
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 45,675,592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (36,931,756)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,343,229,377
<NUMBER-OF-SHARES-REDEEMED> (7,844,065,473)
<SHARES-REINVESTED> 17,430,024
<NET-CHANGE-IN-ASSETS> 554,488,127
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,940)
<GROSS-ADVISORY-FEES> 2,900,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,956,354
<AVERAGE-NET-ASSETS> 1,414,984,386
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 414
<NAME> FS Tax-Free Money Mkt. Fund-Pref
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,706,482,755
<INVESTMENTS-AT-VALUE> 1,706,482,755
<RECEIVABLES> 10,590,583
<ASSETS-OTHER> 1,307
<OTHER-ITEMS-ASSETS> 771,242
<TOTAL-ASSETS> 1,717,845,887
<PAYABLE-FOR-SECURITIES> 38,380,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,791,597
<TOTAL-LIABILITIES> 43,171,597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,674,687,909
<SHARES-COMMON-STOCK> 20,882,055
<SHARES-COMMON-PRIOR> 35,151,663
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,619)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,674,674,290
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48,952,424
<OTHER-INCOME> 0
<EXPENSES-NET> (3,278,153)
<NET-INVESTMENT-INCOME> 45,674,271
<REALIZED-GAINS-CURRENT> 1,321
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 45,675,592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,953,491)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 451,367,441
<NUMBER-OF-SHARES-REDEEMED> (465,792,140)
<SHARES-REINVESTED> 155,091
<NET-CHANGE-IN-ASSETS> 554,488,127
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,940)
<GROSS-ADVISORY-FEES> 2,900,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,956,354
<AVERAGE-NET-ASSETS> 1,414,984,386
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 415
<NAME> FS Tax-Free Money Mkt Fund-Admin
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,706,482,755
<INVESTMENTS-AT-VALUE> 1,706,482,755
<RECEIVABLES> 10,590,583
<ASSETS-OTHER> 1,307
<OTHER-ITEMS-ASSETS> 771,242
<TOTAL-ASSETS> 1,717,845,887
<PAYABLE-FOR-SECURITIES> 38,380,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,791,597
<TOTAL-LIABILITIES> 43,171,597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,674,687,909
<SHARES-COMMON-STOCK> 146,800,755
<SHARES-COMMON-PRIOR> 103,049,763
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,619)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,674,674,290
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48,952,424
<OTHER-INCOME> 0
<EXPENSES-NET> (3,278,153)
<NET-INVESTMENT-INCOME> 45,674,271
<REALIZED-GAINS-CURRENT> 1,321
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 45,675,592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,375,262)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 557,825,919
<NUMBER-OF-SHARES-REDEEMED> (515,464,054)
<SHARES-REINVESTED> 1,389,127
<NET-CHANGE-IN-ASSETS> 554,488,127
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,940)
<GROSS-ADVISORY-FEES> 2,900,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,956,354
<AVERAGE-NET-ASSETS> 1,414,984,386
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 416
<NAME> FS Tax-Free Money Mkt Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,706,482,755
<INVESTMENTS-AT-VALUE> 1,706,482,755
<RECEIVABLES> 10,590,583
<ASSETS-OTHER> 1,307
<OTHER-ITEMS-ASSETS> 771,242
<TOTAL-ASSETS> 1,717,845,887
<PAYABLE-FOR-SECURITIES> 38,380,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,791,597
<TOTAL-LIABILITIES> 43,171,597
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,674,687,909
<SHARES-COMMON-STOCK> 50,990,031
<SHARES-COMMON-PRIOR> 42,578,537
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (13,619)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,674,674,290
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 48,952,424
<OTHER-INCOME> 0
<EXPENSES-NET> (3,278,153)
<NET-INVESTMENT-INCOME> 45,674,271
<REALIZED-GAINS-CURRENT> 1,321
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 45,675,592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,413,762)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 344,238,221
<NUMBER-OF-SHARES-REDEEMED> (336,295,722)
<SHARES-REINVESTED> 468,995
<NET-CHANGE-IN-ASSETS> 554,488,127
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (14,940)
<GROSS-ADVISORY-FEES> 2,900,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,956,354
<AVERAGE-NET-ASSETS> 1,414,984,386
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 423
<NAME> FS Prem. Money Market Fund-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 621,016,668
<INVESTMENTS-AT-VALUE> 621,016,668
<RECEIVABLES> 2,282,143
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,748
<TOTAL-ASSETS> 623,379,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,629,302
<TOTAL-LIABILITIES> 2,629,302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 620,750,257
<SHARES-COMMON-STOCK> 479,851,439
<SHARES-COMMON-PRIOR> 218,192,392
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 620,750,257
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,796,216
<OTHER-INCOME> 0
<EXPENSES-NET> (840,070)
<NET-INVESTMENT-INCOME> 21,956,146
<REALIZED-GAINS-CURRENT> 16,410
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,972,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,650,407)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,885,235,788
<NUMBER-OF-SHARES-REDEEMED> (4,633,271,570)
<SHARES-REINVESTED> 9,694,829
<NET-CHANGE-IN-ASSETS> 399,728,968
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 843,317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,375,027
<AVERAGE-NET-ASSETS> 411,374,015
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 424
<NAME> FS Prem. Money Market Fund-Pref.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 621,016,668
<INVESTMENTS-AT-VALUE> 621,016,668
<RECEIVABLES> 2,282,143
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,748
<TOTAL-ASSETS> 623,379,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,629,302
<TOTAL-LIABILITIES> 2,629,302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 620,750,257
<SHARES-COMMON-STOCK> 107,516,022
<SHARES-COMMON-PRIOR> 557,827
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 620,750,257
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,796,216
<OTHER-INCOME> 0
<EXPENSES-NET> (840,070)
<NET-INVESTMENT-INCOME> 21,956,146
<REALIZED-GAINS-CURRENT> 16,410
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,972,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,432,663)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 212,622,508
<NUMBER-OF-SHARES-REDEEMED> (110,141,465)
<SHARES-REINVESTED> 4,477,152
<NET-CHANGE-IN-ASSETS> 399,728,968
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 843,317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,375,027
<AVERAGE-NET-ASSETS> 411,374,015
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 425
<NAME> FS Prem. Money Market Fund-Admin
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 621,016,668
<INVESTMENTS-AT-VALUE> 621,016,668
<RECEIVABLES> 2,282,143
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,748
<TOTAL-ASSETS> 623,379,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,629,302
<TOTAL-LIABILITIES> 2,629,302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 620,750,257
<SHARES-COMMON-STOCK> 13,727,829
<SHARES-COMMON-PRIOR> 1,456,698
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 620,750,257
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,796,216
<OTHER-INCOME> 0
<EXPENSES-NET> (840,070)
<NET-INVESTMENT-INCOME> 21,956,146
<REALIZED-GAINS-CURRENT> 16,410
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,972,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (410,201)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,942,427
<NUMBER-OF-SHARES-REDEEMED> (25,799,913)
<SHARES-REINVESTED> 128,617
<NET-CHANGE-IN-ASSETS> 399,728,968
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 843,317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,375,027
<AVERAGE-NET-ASSETS> 411,374,015
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 426
<NAME> FS Prem. Money Market Fund-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 621,016,668
<INVESTMENTS-AT-VALUE> 621,016,668
<RECEIVABLES> 2,282,143
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 80,748
<TOTAL-ASSETS> 623,379,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,629,302
<TOTAL-LIABILITIES> 2,629,302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 620,750,257
<SHARES-COMMON-STOCK> 19,654,967
<SHARES-COMMON-PRIOR> 814,372
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 620,750,257
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,796,216
<OTHER-INCOME> 0
<EXPENSES-NET> (840,070)
<NET-INVESTMENT-INCOME> 21,956,146
<REALIZED-GAINS-CURRENT> 16,410
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,972,556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (479,285)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 94,150,365
<NUMBER-OF-SHARES-REDEEMED> (75,455,546)
<SHARES-REINVESTED> 145,776
<NET-CHANGE-IN-ASSETS> 399,728,968
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 843,317
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,375,027
<AVERAGE-NET-ASSETS> 411,374,015
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 215
<NAME> ILA Prime Obligations Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,913,421
<INVESTMENTS-AT-VALUE> 1,015,913,421
<RECEIVABLES> 5,052,970
<ASSETS-OTHER> 104,032
<OTHER-ITEMS-ASSETS> 129,674
<TOTAL-ASSETS> 1,021,200,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,642,307
<TOTAL-LIABILITIES> 4,642,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,557,790
<SHARES-COMMON-STOCK> 38,835,536
<SHARES-COMMON-PRIOR> 28,147,490
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,016,557,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,784,401
<OTHER-INCOME> 0
<EXPENSES-NET> (5,081,059)
<NET-INVESTMENT-INCOME> 53,703,342
<REALIZED-GAINS-CURRENT> 27,766
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,731,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,890,467)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 406,909,760
<NUMBER-OF-SHARES-REDEEMED> (397,939,174)
<SHARES-REINVESTED> 1,717,460
<NET-CHANGE-IN-ASSETS> 40,215,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,625)
<GROSS-ADVISORY-FEES> 3,665,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,127,352
<AVERAGE-NET-ASSETS> 1,047,401,174
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 216
<NAME> ILA Prime Obligations Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,913,421
<INVESTMENTS-AT-VALUE> 1,015,913,421
<RECEIVABLES> 5,052,970
<ASSETS-OTHER> 104,032
<OTHER-ITEMS-ASSETS> 129,674
<TOTAL-ASSETS> 1,021,200,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,642,307
<TOTAL-LIABILITIES> 4,642,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,557,790
<SHARES-COMMON-STOCK> 119,308,922
<SHARES-COMMON-PRIOR> 78,319,515
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,016,557,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,784,401
<OTHER-INCOME> 0
<EXPENSES-NET> (5,081,059)
<NET-INVESTMENT-INCOME> 53,703,342
<REALIZED-GAINS-CURRENT> 27,766
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,731,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,216,323)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,818,720,552
<NUMBER-OF-SHARES-REDEEMED> (1,781,652,723)
<SHARES-REINVESTED> 3,921,578
<NET-CHANGE-IN-ASSETS> 40,215,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,625)
<GROSS-ADVISORY-FEES> 3,665,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,127,352
<AVERAGE-NET-ASSETS> 1,047,401,174
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 212
<NAME> ILA Prime Obligations Portfolio-Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,913,421
<INVESTMENTS-AT-VALUE> 1,015,913,421
<RECEIVABLES> 5,052,970
<ASSETS-OTHER> 104,032
<OTHER-ITEMS-ASSETS> 129,674
<TOTAL-ASSETS> 1,021,200,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,642,307
<TOTAL-LIABILITIES> 4,642,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,557,790
<SHARES-COMMON-STOCK> 14,411,968
<SHARES-COMMON-PRIOR> 1,573,829
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,016,557,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,784,401
<OTHER-INCOME> 0
<EXPENSES-NET> (5,081,059)
<NET-INVESTMENT-INCOME> 53,703,342
<REALIZED-GAINS-CURRENT> 27,766
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,731,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (243,815)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,480,688
<NUMBER-OF-SHARES-REDEEMED> (16,822,007)
<SHARES-REINVESTED> 179,458
<NET-CHANGE-IN-ASSETS> 40,215,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,625)
<GROSS-ADVISORY-FEES> 3,665,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,127,352
<AVERAGE-NET-ASSETS> 1,047,401,174
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 217
<NAME> ILA Prime Obligations Portfolio-Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,913,421
<INVESTMENTS-AT-VALUE> 1,015,913,421
<RECEIVABLES> 5,052,970
<ASSETS-OTHER> 104,032
<OTHER-ITEMS-ASSETS> 129,674
<TOTAL-ASSETS> 1,021,200,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,642,307
<TOTAL-LIABILITIES> 4,642,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,557,790
<SHARES-COMMON-STOCK> 6,814,413
<SHARES-COMMON-PRIOR> 1,896,957
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,016,557,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,784,401
<OTHER-INCOME> 0
<EXPENSES-NET> (5,081,059)
<NET-INVESTMENT-INCOME> 53,703,342
<REALIZED-GAINS-CURRENT> 27,766
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,731,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (178,389)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 110,368,103
<NUMBER-OF-SHARES-REDEEMED> (103,535,726)
<SHARES-REINVESTED> 85,079
<NET-CHANGE-IN-ASSETS> 40,215,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,625)
<GROSS-ADVISORY-FEES> 3,665,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,127,352
<AVERAGE-NET-ASSETS> 1,047,401,174
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 218
<NAME> ILA Prime Obligations Portfolio-CMS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,913,421
<INVESTMENTS-AT-VALUE> 1,015,913,421
<RECEIVABLES> 5,052,970
<ASSETS-OTHER> 104,032
<OTHER-ITEMS-ASSETS> 129,674
<TOTAL-ASSETS> 1,021,200,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,642,307
<TOTAL-LIABILITIES> 4,642,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,557,790
<SHARES-COMMON-STOCK> 1,543
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,016,557,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,784,401
<OTHER-INCOME> 0
<EXPENSES-NET> (5,081,059)
<NET-INVESTMENT-INCOME> 53,703,342
<REALIZED-GAINS-CURRENT> 27,766
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,731,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (49)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,501
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 42
<NET-CHANGE-IN-ASSETS> 40,215,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,625)
<GROSS-ADVISORY-FEES> 3,665,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,127,352
<AVERAGE-NET-ASSETS> 1,047,401,174
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 213
<NAME> ILA Prime Obligations Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,913,421
<INVESTMENTS-AT-VALUE> 1,015,913,421
<RECEIVABLES> 5,052,970
<ASSETS-OTHER> 104,032
<OTHER-ITEMS-ASSETS> 129,674
<TOTAL-ASSETS> 1,021,200,097
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,642,307
<TOTAL-LIABILITIES> 4,642,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,016,557,790
<SHARES-COMMON-STOCK> 837,185,408
<SHARES-COMMON-PRIOR> 866,405,891
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,016,557,790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 58,784,401
<OTHER-INCOME> 0
<EXPENSES-NET> (5,081,059)
<NET-INVESTMENT-INCOME> 53,703,342
<REALIZED-GAINS-CURRENT> 27,766
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,731,108
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46,200,440)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,177,432,624
<NUMBER-OF-SHARES-REDEEMED> (6,240,532,870)
<SHARES-REINVESTED> 33,879,763
<NET-CHANGE-IN-ASSETS> 40,215,733
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,625)
<GROSS-ADVISORY-FEES> 3,665,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,127,352
<AVERAGE-NET-ASSETS> 1,047,401,174
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 223
<NAME> ILA Money Market Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,696,028,033
<INVESTMENTS-AT-VALUE> 1,696,028,033
<RECEIVABLES> 9,222,686
<ASSETS-OTHER> 250,154
<OTHER-ITEMS-ASSETS> 166,937
<TOTAL-ASSETS> 1,705,667,810
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,673,019
<TOTAL-LIABILITIES> 8,673,019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,696,994,791
<SHARES-COMMON-STOCK> 1,350,316,356
<SHARES-COMMON-PRIOR> 806,095,979
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,696,994,791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84,777,665
<OTHER-INCOME> 0
<EXPENSES-NET> (6,675,457)
<NET-INVESTMENT-INCOME> 78,102,208
<REALIZED-GAINS-CURRENT> 6,924
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 78,109,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (60,149,271)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,328,543,666
<NUMBER-OF-SHARES-REDEEMED> (6,835,202,589)
<SHARES-REINVESTED> 50,879,300
<NET-CHANGE-IN-ASSETS> 562,902,094
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,321,209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,197,520
<AVERAGE-NET-ASSETS> 1,520,345,556
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldma
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 225
<NAME> ILA Money Market Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,696,028,033
<INVESTMENTS-AT-VALUE> 1,696,028,033
<RECEIVABLES> 9,222,686
<ASSETS-OTHER> 250,154
<OTHER-ITEMS-ASSETS> 166,937
<TOTAL-ASSETS> 1,705,667,810
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,673,019
<TOTAL-LIABILITIES> 8,673,019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,696,994,791
<SHARES-COMMON-STOCK> 314,327,442
<SHARES-COMMON-PRIOR> 307,480,205
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,696,994,791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84,777,665
<OTHER-INCOME> 0
<EXPENSES-NET> (6,675,457)
<NET-INVESTMENT-INCOME> 78,102,208
<REALIZED-GAINS-CURRENT> 6,924
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 78,109,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,225,977)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,620,680,668
<NUMBER-OF-SHARES-REDEEMED> (3,629,736,620)
<SHARES-REINVESTED> 15,903,189
<NET-CHANGE-IN-ASSETS> 562,902,094
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,321,209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,197,520
<AVERAGE-NET-ASSETS> 1,520,345,556
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 226
<NAME> ILA Money Market Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,696,028,033
<INVESTMENTS-AT-VALUE> 1,696,028,033
<RECEIVABLES> 9,222,686
<ASSETS-OTHER> 250,154
<OTHER-ITEMS-ASSETS> 166,937
<TOTAL-ASSETS> 1,705,667,810
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,673,019
<TOTAL-LIABILITIES> 8,673,019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,696,994,791
<SHARES-COMMON-STOCK> 32,349,450
<SHARES-COMMON-PRIOR> 20,516,513
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,696,994,791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84,777,665
<OTHER-INCOME> 0
<EXPENSES-NET> (6,675,457)
<NET-INVESTMENT-INCOME> 78,102,208
<REALIZED-GAINS-CURRENT> 6,924
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 78,109,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,733,835)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 152,171,059
<NUMBER-OF-SHARES-REDEEMED> (140,684,546)
<SHARES-REINVESTED> 346,424
<NET-CHANGE-IN-ASSETS> 562,902,094
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,321,209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,197,520
<AVERAGE-NET-ASSETS> 1,520,345,556
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 228
<NAME> ILA Money Market Portfolio-CMS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,696,028,033
<INVESTMENTS-AT-VALUE> 1,696,028,033
<RECEIVABLES> 9,222,686
<ASSETS-OTHER> 250,154
<OTHER-ITEMS-ASSETS> 166,937
<TOTAL-ASSETS> 1,705,667,810
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,673,019
<TOTAL-LIABILITIES> 8,673,019
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,696,994,791
<SHARES-COMMON-STOCK> 1,543
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,696,994,791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 84,777,665
<OTHER-INCOME> 0
<EXPENSES-NET> (6,675,457)
<NET-INVESTMENT-INCOME> 78,102,208
<REALIZED-GAINS-CURRENT> 6,924
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 78,109,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (49)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,501
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 42
<NET-CHANGE-IN-ASSETS> 562,902,094
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,321,209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,197,520
<AVERAGE-NET-ASSETS> 1,520,345,556
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 235
<NAME> ILA Government Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 528,950,165
<INVESTMENTS-AT-VALUE> 528,950,165
<RECEIVABLES> 1,572,450
<ASSETS-OTHER> 58,145
<OTHER-ITEMS-ASSETS> 247,528
<TOTAL-ASSETS> 530,828,288
<PAYABLE-FOR-SECURITIES> 31,969,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,189,025
<TOTAL-LIABILITIES> 34,159,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,650,373
<SHARES-COMMON-STOCK> 7,682,007
<SHARES-COMMON-PRIOR> 10,182,126
<ACCUMULATED-NII-CURRENT> 18,915
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 496,669,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,843,383
<OTHER-INCOME> 0
<EXPENSES-NET> (2,490,981)
<NET-INVESTMENT-INCOME> 24,352,402
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,352,402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (483,492)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,916,421
<NUMBER-OF-SHARES-REDEEMED> (30,683,670)
<SHARES-REINVESTED> 267,130
<NET-CHANGE-IN-ASSETS> (57,778,828)
<ACCUMULATED-NII-PRIOR> 2,840
<ACCUMULATED-GAINS-PRIOR> 52,793
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,703,454
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,605,581
<AVERAGE-NET-ASSETS> 486,701,264
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 236
<NAME> ILA Government Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 528,950,165
<INVESTMENTS-AT-VALUE> 528,950,165
<RECEIVABLES> 1,572,450
<ASSETS-OTHER> 58,145
<OTHER-ITEMS-ASSETS> 247,528
<TOTAL-ASSETS> 530,828,288
<PAYABLE-FOR-SECURITIES> 31,969,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,189,025
<TOTAL-LIABILITIES> 34,159,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,650,373
<SHARES-COMMON-STOCK> 105,720,727
<SHARES-COMMON-PRIOR> 83,787,175
<ACCUMULATED-NII-CURRENT> 18,915
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 496,669,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,843,383
<OTHER-INCOME> 0
<EXPENSES-NET> (2,490,981)
<NET-INVESTMENT-INCOME> 24,352,402
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,352,402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,621,219)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 316,716,890
<NUMBER-OF-SHARES-REDEEMED> (298,729,831)
<SHARES-REINVESTED> 3,946,493
<NET-CHANGE-IN-ASSETS> (57,778,828)
<ACCUMULATED-NII-PRIOR> 2,840
<ACCUMULATED-GAINS-PRIOR> 52,793
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,703,454
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,605,581
<AVERAGE-NET-ASSETS> 486,701,264
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 238
<NAME> ILA Government Portfolio-CMS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 528,950,165
<INVESTMENTS-AT-VALUE> 528,950,165
<RECEIVABLES> 1,572,450
<ASSETS-OTHER> 58,145
<OTHER-ITEMS-ASSETS> 247,528
<TOTAL-ASSETS> 530,828,288
<PAYABLE-FOR-SECURITIES> 31,969,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,189,025
<TOTAL-LIABILITIES> 34,159,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,650,373
<SHARES-COMMON-STOCK> 1,541
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 18,915
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 496,669,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,843,383
<OTHER-INCOME> 0
<EXPENSES-NET> (2,490,981)
<NET-INVESTMENT-INCOME> 24,352,402
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,352,402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (47)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,501
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 40
<NET-CHANGE-IN-ASSETS> (57,778,828)
<ACCUMULATED-NII-PRIOR> 2,840
<ACCUMULATED-GAINS-PRIOR> 52,793
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,703,454
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,605,581
<AVERAGE-NET-ASSETS> 486,701,264
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 238
<NAME> ILA Government Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 528,950,165
<INVESTMENTS-AT-VALUE> 528,950,165
<RECEIVABLES> 1,572,450
<ASSETS-OTHER> 58,145
<OTHER-ITEMS-ASSETS> 247,528
<TOTAL-ASSETS> 530,828,288
<PAYABLE-FOR-SECURITIES> 31,969,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,189,025
<TOTAL-LIABILITIES> 34,159,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 496,650,373
<SHARES-COMMON-STOCK> 383,209,380
<SHARES-COMMON-PRIOR> 460,423,182
<ACCUMULATED-NII-CURRENT> 18,915
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 496,669,288
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,843,383
<OTHER-INCOME> 0
<EXPENSES-NET> (2,490,981)
<NET-INVESTMENT-INCOME> 24,352,402
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,352,402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,247,644)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,248,582,578
<NUMBER-OF-SHARES-REDEEMED> (2,337,115,041)
<SHARES-REINVESTED> 11,318,661
<NET-CHANGE-IN-ASSETS> (57,778,828)
<ACCUMULATED-NII-PRIOR> 2,840
<ACCUMULATED-GAINS-PRIOR> 52,793
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,703,454
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,605,581
<AVERAGE-NET-ASSETS> 486,701,264
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 243
<NAME> ILA Treasury Obligations Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 852,562,117
<INVESTMENTS-AT-VALUE> 852,562,117
<RECEIVABLES> 1,528,046
<ASSETS-OTHER> 25,914
<OTHER-ITEMS-ASSETS> 42,012
<TOTAL-ASSETS> 854,158,089
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,709,390
<TOTAL-LIABILITIES> 3,709,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 850,448,699
<SHARES-COMMON-STOCK> 734,456,625
<SHARES-COMMON-PRIOR> 590,278,995
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 850,448,699
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,058,564
<OTHER-INCOME> 0
<EXPENSES-NET> (3,664,541)
<NET-INVESTMENT-INCOME> 37,394,023
<REALIZED-GAINS-CURRENT> 242,821
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 37,636,844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (29,331,672)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,007,287,255
<NUMBER-OF-SHARES-REDEEMED> (3,879,141,368)
<SHARES-REINVESTED> 16,031,743
<NET-CHANGE-IN-ASSETS> 31,775,424
<ACCUMULATED-NII-PRIOR> 4,678
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4,632)
<GROSS-ADVISORY-FEES> 2,662,028
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,752,003
<AVERAGE-NET-ASSETS> 760,580,626
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 245
<NAME> ILA Treasury Obligations Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 852,562,117
<INVESTMENTS-AT-VALUE> 852,562,117
<RECEIVABLES> 1,528,046
<ASSETS-OTHER> 25,914
<OTHER-ITEMS-ASSETS> 42,012
<TOTAL-ASSETS> 854,158,089
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,709,390
<TOTAL-LIABILITIES> 3,709,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 850,448,699
<SHARES-COMMON-STOCK> 80,532,554
<SHARES-COMMON-PRIOR> 124,230,332
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 850,448,699
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,058,564
<OTHER-INCOME> 0
<EXPENSES-NET> (3,664,541)
<NET-INVESTMENT-INCOME> 37,394,023
<REALIZED-GAINS-CURRENT> 242,821
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 37,636,844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,475,011)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 734,426,070
<NUMBER-OF-SHARES-REDEEMED> (778,684,770)
<SHARES-REINVESTED> 560,922
<NET-CHANGE-IN-ASSETS> 31,775,424
<ACCUMULATED-NII-PRIOR> 4,678
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4,632)
<GROSS-ADVISORY-FEES> 2,662,028
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,752,003
<AVERAGE-NET-ASSETS> 760,580,626
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 246
<NAME> ILA Treasury Obligations Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 852,562,117
<INVESTMENTS-AT-VALUE> 852,562,117
<RECEIVABLES> 1,528,046
<ASSETS-OTHER> 25,914
<OTHER-ITEMS-ASSETS> 42,012
<TOTAL-ASSETS> 854,158,089
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,709,390
<TOTAL-LIABILITIES> 3,709,390
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 850,448,699
<SHARES-COMMON-STOCK> 35,459,520
<SHARES-COMMON-PRIOR> 104,163,902
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 850,448,699
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 41,058,564
<OTHER-INCOME> 0
<EXPENSES-NET> (3,664,541)
<NET-INVESTMENT-INCOME> 37,394,023
<REALIZED-GAINS-CURRENT> 242,821
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 37,636,844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,830,207)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 672,512,357
<NUMBER-OF-SHARES-REDEEMED> (741,949,229)
<SHARES-REINVESTED> 732,490
<NET-CHANGE-IN-ASSETS> 31,775,424
<ACCUMULATED-NII-PRIOR> 4,678
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4,632)
<GROSS-ADVISORY-FEES> 2,662,028
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,752,003
<AVERAGE-NET-ASSETS> 760,580,626
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 253
<NAME> ILA Treasury Instruments Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 844,336,109
<INVESTMENTS-AT-VALUE> 844,336,109
<RECEIVABLES> 5,916,348
<ASSETS-OTHER> 22,322
<OTHER-ITEMS-ASSETS> 100,056
<TOTAL-ASSETS> 850,374,835
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,085,417
<TOTAL-LIABILITIES> 3,085,417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 847,286,786
<SHARES-COMMON-STOCK> 341,470,687
<SHARES-COMMON-PRIOR> 330,237,533
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,632
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 847,289,418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,324,314
<OTHER-INCOME> 0
<EXPENSES-NET> (3,436,953)
<NET-INVESTMENT-INCOME> 32,887,361
<REALIZED-GAINS-CURRENT> 324,555
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 33,211,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,191,465)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,803,189,385
<NUMBER-OF-SHARES-REDEEMED> (1,805,323,856)
<SHARES-REINVESTED> 13,367,625
<NET-CHANGE-IN-ASSETS> 122,977,876
<ACCUMULATED-NII-PRIOR> 2,506
<ACCUMULATED-GAINS-PRIOR> 1,959
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,500,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,377,429
<AVERAGE-NET-ASSETS> 714,313,173
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 255
<NAME> ILA Treasury Instruments Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 844,336,109
<INVESTMENTS-AT-VALUE> 844,336,109
<RECEIVABLES> 5,916,348
<ASSETS-OTHER> 22,322
<OTHER-ITEMS-ASSETS> 100,056
<TOTAL-ASSETS> 850,374,835
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,085,417
<TOTAL-LIABILITIES> 3,085,417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 847,286,786
<SHARES-COMMON-STOCK> 131,681,160
<SHARES-COMMON-PRIOR> 98,664,287
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,632
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 847,289,418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,324,314
<OTHER-INCOME> 0
<EXPENSES-NET> (3,436,953)
<NET-INVESTMENT-INCOME> 32,887,361
<REALIZED-GAINS-CURRENT> 324,555
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 33,211,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,556,321)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 445,049,864
<NUMBER-OF-SHARES-REDEEMED> (413,030,451)
<SHARES-REINVESTED> 997,460
<NET-CHANGE-IN-ASSETS> 122,977,876
<ACCUMULATED-NII-PRIOR> 2,506
<ACCUMULATED-GAINS-PRIOR> 1,959
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,500,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,377,429
<AVERAGE-NET-ASSETS> 714,313,173
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 256
<NAME> ILA Treasury Instruments Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 844,336,109
<INVESTMENTS-AT-VALUE> 844,336,109
<RECEIVABLES> 5,916,348
<ASSETS-OTHER> 22,322
<OTHER-ITEMS-ASSETS> 100,056
<TOTAL-ASSETS> 850,374,835
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,085,417
<TOTAL-LIABILITIES> 3,085,417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 847,286,786
<SHARES-COMMON-STOCK> 374,134,939
<SHARES-COMMON-PRIOR> 295,405,257
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,632
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 847,289,418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,324,314
<OTHER-INCOME> 0
<EXPENSES-NET> (3,436,953)
<NET-INVESTMENT-INCOME> 32,887,361
<REALIZED-GAINS-CURRENT> 324,555
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 33,211,916
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,465,963)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 964,026,068
<NUMBER-OF-SHARES-REDEEMED> (885,346,553)
<SHARES-REINVESTED> 50,167
<NET-CHANGE-IN-ASSETS> 122,977,876
<ACCUMULATED-NII-PRIOR> 2,506
<ACCUMULATED-GAINS-PRIOR> 1,959
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,500,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,377,429
<AVERAGE-NET-ASSETS> 714,313,173
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 263
<NAME> ILA Federal Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,438,574,979
<INVESTMENTS-AT-VALUE> 3,438,574,979
<RECEIVABLES> 10,357,392
<ASSETS-OTHER> 141,990
<OTHER-ITEMS-ASSETS> 219,046
<TOTAL-ASSETS> 3,449,293,407
<PAYABLE-FOR-SECURITIES> 246,826,825
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,470,544
<TOTAL-LIABILITIES> 261,297,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,187,992,819
<SHARES-COMMON-STOCK> 2,625,682,181
<SHARES-COMMON-PRIOR> 2,050,535,778
<ACCUMULATED-NII-CURRENT> 3,219
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,187,996,038
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 152,216,875
<OTHER-INCOME> 0
<EXPENSES-NET> (10,477,678)
<NET-INVESTMENT-INCOME> 141,739,197
<REALIZED-GAINS-CURRENT> 15,167
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,754,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (114,206,301)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,530,501,990
<NUMBER-OF-SHARES-REDEEMED> (11,053,721,006)
<SHARES-REINVESTED> 98,365,419
<NET-CHANGE-IN-ASSETS> 572,896,175
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 383
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,778,681
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,655,204
<AVERAGE-NET-ASSETS> 2,793,908,965
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 265
<NAME> ILA Federal Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,438,574,979
<INVESTMENTS-AT-VALUE> 3,438,574,979
<RECEIVABLES> 10,357,392
<ASSETS-OTHER> 141,990
<OTHER-ITEMS-ASSETS> 219,046
<TOTAL-ASSETS> 3,449,293,407
<PAYABLE-FOR-SECURITIES> 246,826,825
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,470,544
<TOTAL-LIABILITIES> 261,297,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,187,992,819
<SHARES-COMMON-STOCK> 508,323,031
<SHARES-COMMON-PRIOR> 530,026,646
<ACCUMULATED-NII-CURRENT> 3,219
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,187,996,038
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 152,216,875
<OTHER-INCOME> 0
<EXPENSES-NET> (10,477,678)
<NET-INVESTMENT-INCOME> 141,739,197
<REALIZED-GAINS-CURRENT> 15,167
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,754,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,838,728)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,555,390,187
<NUMBER-OF-SHARES-REDEEMED> (3,592,776,813)
<SHARES-REINVESTED> 15,683,011
<NET-CHANGE-IN-ASSETS> 572,896,175
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 383
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,778,681
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,655,204
<AVERAGE-NET-ASSETS> 2,793,908,965
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 266
<NAME> ILA Federal Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,438,574,979
<INVESTMENTS-AT-VALUE> 3,438,574,979
<RECEIVABLES> 10,357,392
<ASSETS-OTHER> 141,990
<OTHER-ITEMS-ASSETS> 219,046
<TOTAL-ASSETS> 3,449,293,407
<PAYABLE-FOR-SECURITIES> 246,826,825
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,470,544
<TOTAL-LIABILITIES> 261,297,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,187,992,819
<SHARES-COMMON-STOCK> 53,990,685
<SHARES-COMMON-PRIOR> 34,537,056
<ACCUMULATED-NII-CURRENT> 3,219
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,187,996,038
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 152,216,875
<OTHER-INCOME> 0
<EXPENSES-NET> (10,477,678)
<NET-INVESTMENT-INCOME> 141,739,197
<REALIZED-GAINS-CURRENT> 15,167
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 141,754,364
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,709,577)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 273,279,701
<NUMBER-OF-SHARES-REDEEMED> (254,021,260)
<SHARES-REINVESTED> 195,188
<NET-CHANGE-IN-ASSETS> 572,896,175
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 383
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,778,681
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,655,204
<AVERAGE-NET-ASSETS> 2,793,908,965
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 273
<NAME> ILA Tax-Exempt Diversified Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,688,438,332
<INVESTMENTS-AT-VALUE> 1,688,438,332
<RECEIVABLES> 9,729,680
<ASSETS-OTHER> 139,437
<OTHER-ITEMS-ASSETS> 1,292,207
<TOTAL-ASSETS> 1,699,599,656
<PAYABLE-FOR-SECURITIES> 68,185,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,768,527
<TOTAL-LIABILITIES> 72,953,527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,626,430,582
<SHARES-COMMON-STOCK> 1,562,378,412
<SHARES-COMMON-PRIOR> 1,479,581,838
<ACCUMULATED-NII-CURRENT> 362,642
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (147,095)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,626,646,129
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,331,309
<OTHER-INCOME> 0
<EXPENSES-NET> (6,132,678)
<NET-INVESTMENT-INCOME> 53,198,631
<REALIZED-GAINS-CURRENT> 2,502
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,201,133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (51,660,082)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,877,493,043
<NUMBER-OF-SHARES-REDEEMED> (10,841,198,835)
<SHARES-REINVESTED> 46,502,366
<NET-CHANGE-IN-ASSETS> 88,680,291
<ACCUMULATED-NII-PRIOR> 362,642
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (189,400)
<GROSS-ADVISORY-FEES> 5,985,015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,149,222
<AVERAGE-NET-ASSETS> 1,710,004,187
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 275
<NAME> ILA Tax-Exempt Diversified Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,688,438,332
<INVESTMENTS-AT-VALUE> 1,688,438,332
<RECEIVABLES> 9,729,680
<ASSETS-OTHER> 139,437
<OTHER-ITEMS-ASSETS> 1,292,207
<TOTAL-ASSETS> 1,699,599,656
<PAYABLE-FOR-SECURITIES> 68,185,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,768,527
<TOTAL-LIABILITIES> 72,953,527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,626,430,582
<SHARES-COMMON-STOCK> 26,510,013
<SHARES-COMMON-PRIOR> 27,967,106
<ACCUMULATED-NII-CURRENT> 362,642
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (147,095)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,626,646,129
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,331,309
<OTHER-INCOME> 0
<EXPENSES-NET> (6,132,678)
<NET-INVESTMENT-INCOME> 53,198,631
<REALIZED-GAINS-CURRENT> 2,502
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,201,133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (689,810)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119,262,415
<NUMBER-OF-SHARES-REDEEMED> (120,818,081)
<SHARES-REINVESTED> 98,573
<NET-CHANGE-IN-ASSETS> 88,680,291
<ACCUMULATED-NII-PRIOR> 362,642
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (189,400)
<GROSS-ADVISORY-FEES> 5,985,015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,149,222
<AVERAGE-NET-ASSETS> 1,710,004,187
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 276
<NAME> ILA Tax-Exempt Diversified Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,688,438,332
<INVESTMENTS-AT-VALUE> 1,688,438,332
<RECEIVABLES> 9,729,680
<ASSETS-OTHER> 139,437
<OTHER-ITEMS-ASSETS> 1,292,207
<TOTAL-ASSETS> 1,699,599,656
<PAYABLE-FOR-SECURITIES> 68,185,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,768,527
<TOTAL-LIABILITIES> 72,953,527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,626,430,582
<SHARES-COMMON-STOCK> 37,847,328
<SHARES-COMMON-PRIOR> 30,510,544
<ACCUMULATED-NII-CURRENT> 362,642
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (147,095)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,626,646,129
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,331,309
<OTHER-INCOME> 0
<EXPENSES-NET> (6,132,678)
<NET-INVESTMENT-INCOME> 53,198,631
<REALIZED-GAINS-CURRENT> 2,502
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,201,133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (848,712)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 85,559,282
<NUMBER-OF-SHARES-REDEEMED> (78,845,791)
<SHARES-REINVESTED> 623,293
<NET-CHANGE-IN-ASSETS> 88,680,291
<ACCUMULATED-NII-PRIOR> 362,642
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (189,400)
<GROSS-ADVISORY-FEES> 5,985,015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,149,222
<AVERAGE-NET-ASSETS> 1,710,004,187
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 278
<NAME> ILA Tax-Exept Diversified Portfolio-CMS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,688,438,332
<INVESTMENTS-AT-VALUE> 1,688,438,332
<RECEIVABLES> 9,729,680
<ASSETS-OTHER> 139,437
<OTHER-ITEMS-ASSETS> 1,292,207
<TOTAL-ASSETS> 1,699,599,656
<PAYABLE-FOR-SECURITIES> 68,185,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,768,527
<TOTAL-LIABILITIES> 72,953,527
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,626,430,582
<SHARES-COMMON-STOCK> 1,524
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 362,642
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (147,095)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,626,646,129
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 59,331,309
<OTHER-INCOME> 0
<EXPENSES-NET> (6,132,678)
<NET-INVESTMENT-INCOME> 53,198,631
<REALIZED-GAINS-CURRENT> 2,502
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 53,201,133
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,501
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> 88,680,291
<ACCUMULATED-NII-PRIOR> 362,642
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (189,400)
<GROSS-ADVISORY-FEES> 5,985,015
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,149,222
<AVERAGE-NET-ASSETS> 1,710,004,187
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldma
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 283
<NAME> ILA Tax-Exempt California Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 582,859,273
<INVESTMENTS-AT-VALUE> 582,859,273
<RECEIVABLES> 2,574,156
<ASSETS-OTHER> 43,540
<OTHER-ITEMS-ASSETS> 1,275,515
<TOTAL-ASSETS> 586,752,484
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,621,290
<TOTAL-LIABILITIES> 1,621,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 585,120,699
<SHARES-COMMON-STOCK> 584,534,942
<SHARES-COMMON-PRIOR> 591,021,540
<ACCUMULATED-NII-CURRENT> 10,495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 585,131,194
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,019,743
<OTHER-INCOME> 0
<EXPENSES-NET> (2,710,413)
<NET-INVESTMENT-INCOME> 18,309,330
<REALIZED-GAINS-CURRENT> 99,181
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,408,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,277,052)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,322,147,594
<NUMBER-OF-SHARES-REDEEMED> (3,346,494,972)
<SHARES-REINVESTED> 17,860,780
<NET-CHANGE-IN-ASSETS> (6,233,981)
<ACCUMULATED-NII-PRIOR> 10,495
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (28,689)
<GROSS-ADVISORY-FEES> 2,294,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,710,413
<AVERAGE-NET-ASSETS> 655,492,961
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 285
<NAME> ILA Tax-Exempt California Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 582,859,273
<INVESTMENTS-AT-VALUE> 582,859,273
<RECEIVABLES> 2,574,156
<ASSETS-OTHER> 43,540
<OTHER-ITEMS-ASSETS> 1,275,515
<TOTAL-ASSETS> 586,752,484
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,621,290
<TOTAL-LIABILITIES> 1,621,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 585,120,699
<SHARES-COMMON-STOCK> 512,198
<SHARES-COMMON-PRIOR> 360,320
<ACCUMULATED-NII-CURRENT> 10,495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 585,131,194
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,019,743
<OTHER-INCOME> 0
<EXPENSES-NET> (2,710,413)
<NET-INVESTMENT-INCOME> 18,309,330
<REALIZED-GAINS-CURRENT> 99,181
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,408,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,215)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,409,041
<NUMBER-OF-SHARES-REDEEMED> (16,257,163)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (6,233,981)
<ACCUMULATED-NII-PRIOR> 10,495
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (28,689)
<GROSS-ADVISORY-FEES> 2,294,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,710,413
<AVERAGE-NET-ASSETS> 655,492,961
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 286
<NAME> ILA Tax-Exempt California Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 582,859,273
<INVESTMENTS-AT-VALUE> 582,859,273
<RECEIVABLES> 2,574,156
<ASSETS-OTHER> 43,540
<OTHER-ITEMS-ASSETS> 1,275,515
<TOTAL-ASSETS> 586,752,484
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,621,290
<TOTAL-LIABILITIES> 1,621,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 585,120,699
<SHARES-COMMON-STOCK> 1,546
<SHARES-COMMON-PRIOR> 1,509
<ACCUMULATED-NII-CURRENT> 10,495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 585,131,194
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,019,743
<OTHER-INCOME> 0
<EXPENSES-NET> (2,710,413)
<NET-INVESTMENT-INCOME> 18,309,330
<REALIZED-GAINS-CURRENT> 99,181
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,408,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 37
<NET-CHANGE-IN-ASSETS> (6,233,981)
<ACCUMULATED-NII-PRIOR> 10,495
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (28,689)
<GROSS-ADVISORY-FEES> 2,294,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,710,413
<AVERAGE-NET-ASSETS> 655,492,961
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 288
<NAME> ILA Tax-Exempt California Portfolio-CMS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 582,859,273
<INVESTMENTS-AT-VALUE> 582,859,273
<RECEIVABLES> 2,574,156
<ASSETS-OTHER> 43,540
<OTHER-ITEMS-ASSETS> 1,275,515
<TOTAL-ASSETS> 586,752,484
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,621,290
<TOTAL-LIABILITIES> 1,621,290
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 585,120,699
<SHARES-COMMON-STOCK> 1,521
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 10,495
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 585,131,194
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,019,743
<OTHER-INCOME> 0
<EXPENSES-NET> (2,710,413)
<NET-INVESTMENT-INCOME> 18,309,330
<REALIZED-GAINS-CURRENT> 99,181
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 18,408,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,501
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 20
<NET-CHANGE-IN-ASSETS> (6,233,981)
<ACCUMULATED-NII-PRIOR> 10,495
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (28,689)
<GROSS-ADVISORY-FEES> 2,294,224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,710,413
<AVERAGE-NET-ASSETS> 655,492,961
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.00)
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 293
<NAME> ILA Tax-Exempt New York Portfolio-Inst.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 143,618,840
<INVESTMENTS-AT-VALUE> 143,618,840
<RECEIVABLES> 771,565
<ASSETS-OTHER> 59,995
<OTHER-ITEMS-ASSETS> 116,630
<TOTAL-ASSETS> 144,567,030
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 433,926
<TOTAL-LIABILITIES> 433,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144,136,145
<SHARES-COMMON-STOCK> 122,551,094
<SHARES-COMMON-PRIOR> 102,890,525
<ACCUMULATED-NII-CURRENT> 1,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,673)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 144,133,104
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,564,301
<OTHER-INCOME> 0
<EXPENSES-NET> (532,886)
<NET-INVESTMENT-INCOME> 4,031,415
<REALIZED-GAINS-CURRENT> 1,846
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,033,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,371,684)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 649,511,937
<NUMBER-OF-SHARES-REDEEMED> (633,071,531)
<SHARES-REINVESTED> 3,220,163
<NET-CHANGE-IN-ASSETS> 9,250,864
<ACCUMULATED-NII-PRIOR> 1,634
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,519)
<GROSS-ADVISORY-FEES> 479,305
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 741,253
<AVERAGE-NET-ASSETS> 136,944,151
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 295
<NAME> ILA Tax-Exempt New York Portfolio-Admin.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 143,618,840
<INVESTMENTS-AT-VALUE> 143,618,840
<RECEIVABLES> 771,565
<ASSETS-OTHER> 59,995
<OTHER-ITEMS-ASSETS> 116,630
<TOTAL-ASSETS> 144,567,030
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 433,926
<TOTAL-LIABILITIES> 433,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144,136,145
<SHARES-COMMON-STOCK> 21,581,978
<SHARES-COMMON-PRIOR> 31,995,090
<ACCUMULATED-NII-CURRENT> 1,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,673)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 144,133,104
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,564,301
<OTHER-INCOME> 0
<EXPENSES-NET> (532,886)
<NET-INVESTMENT-INCOME> 4,031,415
<REALIZED-GAINS-CURRENT> 1,846
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,033,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (659,667)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 297,995,181
<NUMBER-OF-SHARES-REDEEMED> (309,073,784)
<SHARES-REINVESTED> 665,491
<NET-CHANGE-IN-ASSETS> 9,250,864
<ACCUMULATED-NII-PRIOR> 1,634
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,519)
<GROSS-ADVISORY-FEES> 479,305
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 741,253
<AVERAGE-NET-ASSETS> 136,944,151
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 296
<NAME> ILA Tax-Exempt New York Portfolio-Serv.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 143,618,840
<INVESTMENTS-AT-VALUE> 143,618,840
<RECEIVABLES> 771,565
<ASSETS-OTHER> 59,995
<OTHER-ITEMS-ASSETS> 116,630
<TOTAL-ASSETS> 144,567,030
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 433,926
<TOTAL-LIABILITIES> 433,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144,136,145
<SHARES-COMMON-STOCK> 1,550
<SHARES-COMMON-PRIOR> 1,510
<ACCUMULATED-NII-CURRENT> 1,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,673)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 144,133,104
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,564,301
<OTHER-INCOME> 0
<EXPENSES-NET> (532,886)
<NET-INVESTMENT-INCOME> 4,031,415
<REALIZED-GAINS-CURRENT> 1,846
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,033,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (40)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 40
<NET-CHANGE-IN-ASSETS> 9,250,864
<ACCUMULATED-NII-PRIOR> 1,634
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,519)
<GROSS-ADVISORY-FEES> 479,305
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 741,253
<AVERAGE-NET-ASSETS> 136,944,151
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the Goldman
Sachs Trust Annual Report dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 298
<NAME> ILA Tax-Exempt New York Portfolio-CMS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 143,618,840
<INVESTMENTS-AT-VALUE> 143,618,840
<RECEIVABLES> 771,565
<ASSETS-OTHER> 59,995
<OTHER-ITEMS-ASSETS> 116,630
<TOTAL-ASSETS> 144,567,030
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 433,926
<TOTAL-LIABILITIES> 433,926
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144,136,145
<SHARES-COMMON-STOCK> 1,523
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,673)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 144,133,104
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,564,301
<OTHER-INCOME> 0
<EXPENSES-NET> (532,886)
<NET-INVESTMENT-INCOME> 4,031,415
<REALIZED-GAINS-CURRENT> 1,846
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,033,261
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,501
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 22
<NET-CHANGE-IN-ASSETS> 9,250,864
<ACCUMULATED-NII-PRIOR> 1,634
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (6,519)
<GROSS-ADVISORY-FEES> 479,305
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 741,253
<AVERAGE-NET-ASSETS> 136,944,151
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 651
<NAME> GS Income Strategy Port - Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 96,220,771
<INVESTMENTS-AT-VALUE> 96,903,422
<RECEIVABLES> 2,177,799
<ASSETS-OTHER> 327,614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,408,835
<PAYABLE-FOR-SECURITIES> 204,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 348,755
<TOTAL-LIABILITIES> 552,860
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,193,278
<SHARES-COMMON-STOCK> 3,901,387
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 21,172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,041,126)
<ACCUM-APPREC-OR-DEPREC> 682,651
<NET-ASSETS> 98,855,975
<DIVIDEND-INCOME> 1,877,900
<INTEREST-INCOME> 21,198
<OTHER-INCOME> 0
<EXPENSES-NET> (515,500)
<NET-INVESTMENT-INCOME> 1,383,598
<REALIZED-GAINS-CURRENT> (391,456)
<APPREC-INCREASE-CURRENT> 682,651
<NET-CHANGE-FROM-OPS> 1,674,793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (788,826)
<DISTRIBUTIONS-OF-GAINS> (162,793)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,997,152
<NUMBER-OF-SHARES-REDEEMED> (1,178,013)
<SHARES-REINVESTED> 82,247
<NET-CHANGE-IN-ASSETS> 98,855,975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 182,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 515,500
<AVERAGE-NET-ASSETS> 52,159,318
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 652
<NAME> GS Income Strategy Port - Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 96,220,771
<INVESTMENTS-AT-VALUE> 96,903,422
<RECEIVABLES> 2,177,799
<ASSETS-OTHER> 327,614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,408,835
<PAYABLE-FOR-SECURITIES> 204,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 348,755
<TOTAL-LIABILITIES> 552,860
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,193,278
<SHARES-COMMON-STOCK> 3,274,954
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 21,172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,041,126)
<ACCUM-APPREC-OR-DEPREC> 682,651
<NET-ASSETS> 98,855,975
<DIVIDEND-INCOME> 1,877,900
<INTEREST-INCOME> 21,198
<OTHER-INCOME> 0
<EXPENSES-NET> (515,500)
<NET-INVESTMENT-INCOME> 1,383,598
<REALIZED-GAINS-CURRENT> (391,456)
<APPREC-INCREASE-CURRENT> 682,651
<NET-CHANGE-FROM-OPS> 1,674,793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (455,337)
<DISTRIBUTIONS-OF-GAINS> (140,756)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,444,665
<NUMBER-OF-SHARES-REDEEMED> (217,935)
<SHARES-REINVESTED> 48,225
<NET-CHANGE-IN-ASSETS> 98,855,975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 182,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 515,500
<AVERAGE-NET-ASSETS> 52,159,318
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 657
<NAME> GS Income Strategy Port - Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 96,220,771
<INVESTMENTS-AT-VALUE> 96,903,422
<RECEIVABLES> 2,177,799
<ASSETS-OTHER> 327,614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,408,835
<PAYABLE-FOR-SECURITIES> 204,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 348,755
<TOTAL-LIABILITIES> 552,860
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,193,278
<SHARES-COMMON-STOCK> 2,345,641
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 21,172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,041,126)
<ACCUM-APPREC-OR-DEPREC> 682,651
<NET-ASSETS> 98,855,975
<DIVIDEND-INCOME> 1,877,900
<INTEREST-INCOME> 21,198
<OTHER-INCOME> 0
<EXPENSES-NET> (515,500)
<NET-INVESTMENT-INCOME> 1,383,598
<REALIZED-GAINS-CURRENT> (391,456)
<APPREC-INCREASE-CURRENT> 682,651
<NET-CHANGE-FROM-OPS> 1,674,793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (360,362)
<DISTRIBUTIONS-OF-GAINS> (102,275)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,844,974
<NUMBER-OF-SHARES-REDEEMED> (537,554)
<SHARES-REINVESTED> 38,221
<NET-CHANGE-IN-ASSETS> 98,855,975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 182,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 515,500
<AVERAGE-NET-ASSETS> 52,159,318
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 0.39
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 653
<NAME> GS Income Strategy Port - Inst
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 96,220,771
<INVESTMENTS-AT-VALUE> 96,903,422
<RECEIVABLES> 2,177,799
<ASSETS-OTHER> 327,614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,408,835
<PAYABLE-FOR-SECURITIES> 204,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 348,755
<TOTAL-LIABILITIES> 552,860
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,193,278
<SHARES-COMMON-STOCK> 19,857
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 21,172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,041,126)
<ACCUM-APPREC-OR-DEPREC> 682,651
<NET-ASSETS> 98,855,975
<DIVIDEND-INCOME> 1,877,900
<INTEREST-INCOME> 21,198
<OTHER-INCOME> 0
<EXPENSES-NET> (515,500)
<NET-INVESTMENT-INCOME> 1,383,598
<REALIZED-GAINS-CURRENT> (391,456)
<APPREC-INCREASE-CURRENT> 682,651
<NET-CHANGE-FROM-OPS> 1,674,793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,458)
<DISTRIBUTIONS-OF-GAINS> (747)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,543
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 314
<NET-CHANGE-IN-ASSETS> 98,855,975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 182,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 515,500
<AVERAGE-NET-ASSETS> 52,159,318
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.39
<PER-SHARE-DIVIDEND> (0.33)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.32
<EXPENSE-RATIO> 0.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 656
<NAME> GS Income Strategy Port - Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 96,220,771
<INVESTMENTS-AT-VALUE> 96,903,422
<RECEIVABLES> 2,177,799
<ASSETS-OTHER> 327,614
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 99,408,835
<PAYABLE-FOR-SECURITIES> 204,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 348,755
<TOTAL-LIABILITIES> 552,860
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,193,278
<SHARES-COMMON-STOCK> 44,171
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 21,172
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,041,126)
<ACCUM-APPREC-OR-DEPREC> 682,651
<NET-ASSETS> 98,855,975
<DIVIDEND-INCOME> 1,877,900
<INTEREST-INCOME> 21,198
<OTHER-INCOME> 0
<EXPENSES-NET> (515,500)
<NET-INVESTMENT-INCOME> 1,383,598
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<NUMBER-OF-SHARES-REDEEMED> (5,549)
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<NET-CHANGE-IN-ASSETS> 98,855,975
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
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<NAME> GS Grth and Inc Strat Port - Class A
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<PERIOD-END> DEC-31-1998
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<NET-CHANGE-IN-ASSETS> 431,450,348
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<GROSS-EXPENSE> 3,307,681
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 662
<NAME> GS Grth and Inc Strat Port - Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 433,474,629
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<OTHER-ITEMS-LIABILITIES> 2,885,924
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<PAID-IN-CAPITAL-COMMON> 438,910,650
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<OVERDISTRIBUTION-GAINS> (1,793,116)
<ACCUM-APPREC-OR-DEPREC> (5,667,186)
<NET-ASSETS> 431,450,348
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<DISTRIBUTIONS-OF-GAINS> (672,087)
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<NUMBER-OF-SHARES-SOLD> 14,322,312
<NUMBER-OF-SHARES-REDEEMED> (1,143,836)
<SHARES-REINVESTED> 224,284
<NET-CHANGE-IN-ASSETS> 431,450,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 834,668
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,307,681
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 667
<NAME> GS Grth and Inc Strat Portf - Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 433,474,629
<INVESTMENTS-AT-VALUE> 427,807,443
<RECEIVABLES> 5,092,857
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<OVERDISTRIBUTION-GAINS> (1,793,116)
<ACCUM-APPREC-OR-DEPREC> (5,667,186)
<NET-ASSETS> 431,450,348
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<APPREC-INCREASE-CURRENT> (5,667,186)
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<NUMBER-OF-SHARES-REDEEMED> (1,207,705)
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<NET-CHANGE-IN-ASSETS> 431,450,348
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,307,681
<AVERAGE-NET-ASSETS> 238,476,492
<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 663
<NAME> GS Grth and Inc Strat Portf - Inst
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 433,474,629
<INVESTMENTS-AT-VALUE> 427,807,443
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<OVERDISTRIBUTION-GAINS> (1,793,116)
<ACCUM-APPREC-OR-DEPREC> (5,667,186)
<NET-ASSETS> 431,450,348
<DIVIDEND-INCOME> 7,017,569
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<NUMBER-OF-SHARES-REDEEMED> (23,809)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 666
<NAME> GS Grth and Inc Strat Port - Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 433,474,629
<INVESTMENTS-AT-VALUE> 427,807,443
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<OVERDISTRIBUTION-GAINS> (1,793,116)
<ACCUM-APPREC-OR-DEPREC> (5,667,186)
<NET-ASSETS> 431,450,348
<DIVIDEND-INCOME> 7,017,569
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<NUMBER-OF-SHARES-REDEEMED> (4,613)
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<NET-CHANGE-IN-ASSETS> 431,450,348
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 671
<NAME> GS Grth Strat Port - Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 309,339,607
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<RECEIVABLES> 2,544,695
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<ACCUM-APPREC-OR-DEPREC> (5,088,846)
<NET-ASSETS> 304,585,984
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<INTEREST-INCOME> 64,645
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<NET-INVESTMENT-INCOME> 1,889,408
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<NUMBER-OF-SHARES-REDEEMED> (1,773,296)
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<NET-CHANGE-IN-ASSETS> 304,585,984
<ACCUMULATED-NII-PRIOR> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 672
<NAME> GS Grth Strat Portfolio - Class B
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<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 309,339,607
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<ACCUM-APPREC-OR-DEPREC> (5,088,846)
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<NUMBER-OF-SHARES-SOLD> 11,471,847
<NUMBER-OF-SHARES-REDEEMED> (950,540)
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<NET-CHANGE-IN-ASSETS> 304,585,984
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<EXPENSE-RATIO> 1.30
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 677
<NAME> GS Grth Strategy Portfolio- Class C
<S> <C>
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<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 309,339,607
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<OVERDISTRIBUTION-GAINS> (3,913,440)
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<NET-INVESTMENT-INCOME> 1,889,408
<REALIZED-GAINS-CURRENT> (2,037,167)
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<DISTRIBUTIONS-OF-INCOME> (397,205)
<DISTRIBUTIONS-OF-GAINS> (297,823)
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<NUMBER-OF-SHARES-SOLD> 7,001,932
<NUMBER-OF-SHARES-REDEEMED> (844,787)
<SHARES-REINVESTED> 59,550
<NET-CHANGE-IN-ASSETS> 304,585,984
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.35
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<RETURNS-OF-CAPITAL> 0
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 673
<NAME> GS Grth Strat Port - Institutional
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 309,339,607
<INVESTMENTS-AT-VALUE> 304,250,761
<RECEIVABLES> 2,544,695
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<OVERDISTRIBUTION-GAINS> (3,913,440)
<ACCUM-APPREC-OR-DEPREC> (5,088,846)
<NET-ASSETS> 304,585,984
<DIVIDEND-INCOME> 3,503,789
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<REALIZED-GAINS-CURRENT> (2,037,167)
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<NET-CHANGE-FROM-OPS> (5,236,605)
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> (9,965)
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<NUMBER-OF-SHARES-SOLD> 212,556
<NUMBER-OF-SHARES-REDEEMED> (1,065)
<SHARES-REINVESTED> 2,843
<NET-CHANGE-IN-ASSETS> 304,585,984
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<GROSS-ADVISORY-FEES> 593,231
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,540,836
<AVERAGE-NET-ASSETS> 169,494,620
<PER-SHARE-NAV-BEGIN> 10.00
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<PER-SHARE-GAIN-APPREC> 0.37
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 676
<NAME> GS Grth Strategy Portfolio - Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 309,339,607
<INVESTMENTS-AT-VALUE> 304,250,761
<RECEIVABLES> 2,544,695
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<OTHER-ITEMS-LIABILITIES> 2,423,686
<TOTAL-LIABILITIES> 2,423,686
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<PAID-IN-CAPITAL-COMMON> 313,588,270
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<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-GAINS> (3,913,440)
<ACCUM-APPREC-OR-DEPREC> (5,088,846)
<NET-ASSETS> 304,585,984
<DIVIDEND-INCOME> 3,503,789
<INTEREST-INCOME> 64,645
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<EXPENSES-NET> (1,679,026)
<NET-INVESTMENT-INCOME> 1,889,408
<REALIZED-GAINS-CURRENT> (2,037,167)
<APPREC-INCREASE-CURRENT> (5,088,846)
<NET-CHANGE-FROM-OPS> (5,236,605)
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> (1,740)
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<NUMBER-OF-SHARES-SOLD> 37,114
<NUMBER-OF-SHARES-REDEEMED> (854)
<SHARES-REINVESTED> 450
<NET-CHANGE-IN-ASSETS> 304,585,984
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 169,494,620
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 681
<NAME> GS Agg Growth Strategy Port - Class A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 113,119,461
<INVESTMENTS-AT-VALUE> 109,954,835
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<TOTAL-LIABILITIES> 701,330
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<ACCUM-APPREC-OR-DEPREC> (3,164,626)
<NET-ASSETS> 110,309,934
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<REALIZED-GAINS-CURRENT> (1,809,589)
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<NET-CHANGE-FROM-OPS> (4,683,599)
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> (201,675)
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<NUMBER-OF-SHARES-SOLD> 5,615,397
<NUMBER-OF-SHARES-REDEEMED> (1,020,548)
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<NET-CHANGE-IN-ASSETS> 110,309,934
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<AVERAGE-NET-ASSETS> 62,798,543
<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 682
<NAME> GS Agg Grth Strategy Port - Class B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 113,119,461
<INVESTMENTS-AT-VALUE> 109,954,835
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<ACCUM-APPREC-OR-DEPREC> (3,164,626)
<NET-ASSETS> 110,309,934
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<REALIZED-GAINS-CURRENT> (1,809,589)
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<NET-CHANGE-IN-ASSETS> 110,309,934
<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 10.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 687
<NAME> GS Agg Grth Strategy Port - Class C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 113,119,461
<INVESTMENTS-AT-VALUE> 109,954,835
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<OVERDISTRIBUTION-GAINS> (2,283,913)
<ACCUM-APPREC-OR-DEPREC> (3,164,626)
<NET-ASSETS> 110,309,934
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<NET-CHANGE-IN-ASSETS> 110,309,934
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 683
<NAME> GS Agg Grth Strategy Port - Inst
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 113,119,461
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<ACCUM-APPREC-OR-DEPREC> (3,164,626)
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<NET-CHANGE-IN-ASSETS> 110,309,934
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 686
<NAME> GS Agg Grth Strategy Port - Service
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 113,119,461
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</TABLE>
