<PAGE>
As filed with the Securities and Exchange Commission on
June 15, 2000
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. 67 ( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 69 ( 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 312-655-4400
____________
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Jeffrey A. Dalke, Esq.
1 Liberty Plaza Drinker Biddle & Reath LLP
New York, New York 10004 One Logan Square
18th and Cherry Streets
(Name and address of agent for service) Philadelphia, PA 19103
<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)
(X) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This prospectus shall not constitute an offer to sell or +
+the solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Preliminary Prospectus dated June 15, 2000
Subject to Completion
Prospectus
Class A
Shares
August 14,
2000
GOLDMAN SACHS FIXED INCOME FUNDS
.Goldman
Sachs
Enhanced
Income
Fund
[ARTWORK TO BE INSERTED]
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 THE 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]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management ("GSAM"), a unit of the Investment Management
Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment
adviser to the Goldman Sachs Enhanced Income Fund (the "Fund"). GSAM is
referred to in this Prospectus as the "Investment Adviser."
The Enhanced Income Fund Is Not A Money Market Fund. Investors In This Fund
Should Understand That The Net Asset Value ("NAV") Of The Fund Will Fluctu-
ate Which May Result In A Loss Of A Portion Of The Principal Amount Invest-
ed.
Goldman Sachs' Fixed Income Investing Philosophy:
Active Management Within a Risk-Managed Framework
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. Sector Allocation--The Investment Adviser assesses the relative value of
different investment sectors (such as U.S. government, U.S. and foreign cor-
porate and asset-backed securities) to create investment strategies that
meet the Fund's objective.
2. Security Selection--In selecting securities for the Fund, the Investment
Adviser draws on the extensive resources of Goldman Sachs, including fixed-
income research professionals.
3. Yield Curve Strategies--The Investment Adviser adjusts the term structure
of the Fund based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
The Investment Adviser de-emphasizes interest rate predictions as a means of
generating incremental return. Instead, the Investment Adviser seeks to add
value through the selection of particular securities and investment sector
allocation as described above.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
--------------------------------------------------------------------------------
A-1
<PAGE>
The Fund described in this Prospectus has a target duration. The Fund's
duration approximates its price sensitivity to changes in interest rates.
Maturity measures the time until final payment is due; it takes no account
of the pattern of a security's cash flows over time. In computing portfolio
duration, the Fund will estimate the duration of obligations that are sub-
ject to prepayment or redemption by the issuer, taking into account the
influence of interest rates on prepayments and coupon flows. This method of
computing duration is known as "option-adjusted" duration.
The Fund also has credit rating requirements for the securities it buys. The
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Fund if determined by the
Investment Adviser to be of comparable quality. If a security satisfies the
Fund's minimum rating requirement at the time of purchase and is subse-
quently downgraded below such rating, the Fund will not be required to dis-
pose of such security. This is so even if the downgrade causes the average
credit quality of the Fund to be lower than that stated in the Prospectus.
Furthermore, during this period, the Investment Adviser will only buy secu-
rities at or above the Fund's average rating requirement. If a downgrade
occurs, the Investment Adviser will consider what action, including the sale
of such security, is in the best interests of the Fund and its shareholders.
A-2
<PAGE>
Fund Investment Objective and Strategies
Goldman Sachs Enhanced Income Fund
FUND FACTS
--------------------------------------------------------------------------------
Duration (under Target = 9 month U.S. Treasury Bill +/- 3 months
normal interest
rate conditions):
Expected Approxi- 9-month U.S. Treasury bill
mate Interest
Rate Sensitivity:
Credit Quality: Security Minimum = A
Portfolio Weighted Average = AA
Benchmarks: Six-Month and One-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks to generate return in excess of traditional money market
products while maintaining an emphasis on preservation of capital and
liquidity.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, primarily in a portfolio of
fixed income securities, including non-mortgage U.S. Government Securities,
corporate notes and commercial paper and fixed and floating rate asset-
backed securities. The Fund will not invest in securities with remaining
maturities of more than 5 years (excluding Treasury Securities deliverable
into futures transactions). The Fund will invest across a broad range of
high-grade fixed income sectors with an emphasis on the preservation of cap-
ital and liquidity.
A-3
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Fund in seeking to achieve its investment
objective. Numbers in this table show allowable usage only; for actual usage,
consult the Fund's annual and semi-annual reports. For more information see
Appendix A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Enhanced
Income
Fund
---------------------------------------------------------
<S> <C>
Investment Practices
Borrowings 33 1/3
Credit and Interest Rate Swaps* .
Financial Futures Contracts .
Interest Rate Floors, Caps and Collars .
Options (including Options on Futures) .
Repurchase Agreements** .
Securities Lending 33 1/3
When-Issued Securities and Forward Committments .
---------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** The Fund may enter into repurchase agreements collateralized by securities
issued by foreign governments.
A-4
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Enhanced
Income
Fund
------------------------------------------------
<S> <C>
Investment Securities
Asset-Backed Securities .
Convertible Securities .
Corporate Debt Obligations .
Floating and Variable Rate Obligations .
Preferred Stock .
Foreign Securities*** .
Structured Securities* .
U.S. Government Securities .
------------------------------------------------
</TABLE>
***Non-Dollar securities not permitted.
A-5
<PAGE>
Principal Risks of the Fund
Loss of money is a risk of investing in the Fund. An investment in the 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 Fund and may result in a loss of
your investment. The Fund should not be relied upon as a complete investment
program. There can be no assurance that the Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
.Applicable
--Not Applicable
Enhanced
Income
Fund
------------------------------------
<S> <C>
NAV .
Interest Rate .
Credit/Default .
Call .
Extension .
Derivatives .
U.S. Government Securities .
Market .
Management .
Liquidity .
Foreign .
------------------------------------
</TABLE>
A-6
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
The Fund:
.NAV Risk--The risk that the NAV of the Fund and the value of your investment
will fluctuate.
.Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by the 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 or guarantor of fixed-income
securities held by the Fund 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 the Fund earlier than expected. This may happen when
there is a decline in interest rates. Under these circumstances, the 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 the Fund later than expected. This may
happen when there is a rise in interest rates. Under these circumstances, the
value of the obligation will decrease, and the Fund will also suffer from the
inability to invest in higher yielding securities.
.Derivatives Risk--The risk that loss may result from the Fund's investments in
options, futures, swaps, structured securities and other derivative
investments. These instruments may be leveraged so that small changes may
produce disproportionate losses to the Fund.
.U.S. Government Securities Risk--The risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
.Market Risk--The risk that the value of the securities in which the Fund
invests may go up or down in response to the prospects of individual companies
and/or general economic conditions. Price changes may be temporary or last for
extended periods.
.Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
.Liquidity Risk--The risk that the 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 redemption requests, or other
reasons. The Goldman Sachs Asset Allocation Portfolios (the "Asset Allocation
Portfolios") may invest a percentage of their assets in the Fund and other
funds for which Goldman Sachs now or in the future acts as investment adviser
or
A-7
<PAGE>
underwriter. Redemptions by an Asset Allocation Portfolio of its position in
the Fund may further increase liquidity risk and may impact the Fund's NAV.
.Foreign Risk--The Fund will be subject to risks of loss with respect to its
foreign investments that are not typically associated with domestic issuers.
Loss may result because of less foreign government regulation, less public
information and less economic, political and social stability. Loss may also
result from the imposition of exchange controls, confiscations and other gov-
ernment restrictions.
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.
A-8
<PAGE>
Fund Performance
HOW THE FUND HAS PERFORMED
The Fund had not commenced operations prior to the date of this Prospectus.
Therefore, no performance information is provided in this section.
4
<PAGE>
Fund Fees and Expenses (Class A Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Class A Shares of the Fund.
<TABLE>
<CAPTION>
Enhanced Income Fund
----------------------
Class A
-------------------------------------------------------------------------
<S> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed
on Purchases 1.5%/1/
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None
Redemption Fees/2/ None
Exchange Fees/2/ None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/3/
Management Fees/4/ 0.25%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses/5/ 0.35%
-------------------------------------------------------------------------
Total Fund Operating Expenses* 0.85%
-------------------------------------------------------------------------
</TABLE>
See page for all other footnotes.
* As a result of the current waivers and expense limi-
tations, "Other Expenses" and "Total Fund Operating
Expenses" of the Fund which are actually incurred are
as set forth below. The waivers and expense limita-
tions 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>
Enhanced Income Fund
----------------------
Class A
--------------------------------------------------------------------------
<S> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/3/
Management Fees/4/ 0.20%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses/5/ 0.20%
--------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.65%
--------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Fund Fees and Expenses continued
/1/The maximum sales charge is a percentage of the offering price.
/2/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 Insti-
tutional Liquid Assets Portfolios (the "ILA Portfolios") and free auto-
matic 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.
/3/The operating expenses for the Fund are estimated for the current year.
/4/The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the Fund equal to 0.05% of the Fund's average daily
net assets. As a result of the fee waiver, the current management fee of
the Fund is 0.20% of the Fund's average daily net assets. The waiver may
be terminated at any time at the option of the Investment Adviser.
/5/"Other Expenses" include transfer agency fees equal to 0.19% of the aver-
age daily net assets of the Fund's Class A Shares, plus all other ordinary
expenses not detailed above. The Investment Adviser has voluntarily agreed
to reduce or limit "Other Expenses" of the Fund (excluding management
fees, distribution and service fees, transfer agency fees, taxes, interest
and brokerage fees and litigation, indemnification and other extraordinary
expenses) to the following percentage of the Fund's average daily net
assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
--------------------------
<S> <C>
Enhanced Income 0.01
</TABLE>
6
<PAGE>
Example
The following Example is intended to help you compare the cost of investing
in the 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 Class A Shares of the 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 the 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
--------------------------------
<S> <C> <C>
Enhanced Income
Class A Shares $235 $417
--------------------------------
</TABLE>
Certain institutions that sell Fund shares and/or their salespersons may
receive other compensation in connection with the sale and distribution of
Class A Shares for services to their customers' accounts and/or the Fund.
For additional information regarding such compensation, see "What Should I
Know When I Purchase Shares Through an Authorized Dealer?"
7
<PAGE>
Service Providers
INVESTMENT ADVISER
<TABLE>
<CAPTION>
Investment Adviser Fund
-----------------------------------------------------
<S> <C>
Goldman Sachs Asset Management
("GSAM") Enhanced Income
32 Old Slip
New York, New York 10005
-----------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM. Goldman Sachs registered as an investment adviser in
1981. The Goldman Sachs Group, L.P., which controlled the Investment Advis-
er, merged into the Goldman Sachs Group, Inc. as a result of an initial pub-
lic offering. As of March 31, 2000, GSAM, along with other units of IMD, had
assets under management of $243.6 billion.
The Investment Adviser provides day-to-day advice regarding the Fund's port-
folio transactions. The Investment Adviser makes the investment decisions
for the Fund and places purchase and sale orders for the Fund's portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Fund, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain proprietary technical models
developed by Goldman Sachs, and will apply quantitative and qualitative
analysis in determining the appropriate allocations among categories of
issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Fund:
.Supervises all non-advisory operations of the Fund
.Provides personnel to perform necessary executive, administrative and
clerical services to the Fund
.Arranges for the preparation of all required tax returns, reports to
shareholders, 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 the Fund
.Provides office space and all necessary office equipment and services
B-1
<PAGE>
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fee, computed daily and pay-
able monthly, at the annual rate listed below (as a percentage of the Fund's
average daily net assets):
<TABLE>
<CAPTION>
Contractual Rate
----------------------------------
<S> <C>
Enhanced Income 0.25%
----------------------------------
</TABLE>
The Investment Adviser may voluntarily waive a portion of its advisory fee
from time to time, and may discontinue any voluntary waiver at any time at
its discretion.
FUND MANAGERS
Fixed Income Portfolio Management Team
.The fixed-income portfolio management team is comprised of a deep team of
sector specialists
.The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
.The team manages approximately $50.5 billion in fixed-income assets for
retail, institutional and high net worth clients
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
----------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. Senior Portfolio Since Mr. Beinner joined the
Beinner Manager-- 2000 Investment Adviser in 1990.
Managing Enhanced Income He became a portfolio
Director and manager in 1992.
Co-Head U.S.
Fixed Income
----------------------------------------------------------------------------------
Peter A. Dion Portfolio Since Mr. Dion joined the
Vice President Manager-- 2000 Investment Adviser in 1992.
Enhanced Income From 1994 to 1995 he was an
associate portfolio
manager. He became a
portfolio manager in 1995.
----------------------------------------------------------------------------------
C. Richard Lucy Senior Portfolio Since Mr. Lucy joined the
Managing Manager-- 2000 Investment Adviser in 1992
Director and Enhanced Income as a portfolio manager.
Co-Head U.S.
Fixed Income
----------------------------------------------------------------------------------
James P. Portfolio Since Mr. McCarthy joined the
McCarthy Manager-- 2000 Investment Adviser in 1995
Vice President Enhanced Income as a portfolio manager
after working four years at
Nomura Securities, where he
was an assistant vice
president and an adjustable
rate mortgage trader.
----------------------------------------------------------------------------------
</TABLE>
B-2
<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 the Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Fund's transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Fund. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
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 the Fund or limit the Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Fund and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Fund. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Fund. The
results of the Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that the Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Fund may, from time to time,
enter into transactions in which other clients of Goldman Sachs have an
adverse interest. The Fund's activities may be limited because of regulatory
restrictions applicable to Goldman Sachs and its affiliates, and/or their
internal policies designed to comply with such restrictions.
YEAR 2000
Goldman Sachs spent a total of approximately $185 million over the past sev-
eral years to address the potential hardware, software and other computer
and technology issues and related concerns associated with the transition to
Year 2000 and to confirm that its service providers did the same. As a
result of those efforts, Goldman Sachs has not experienced any material dis-
ruptions in its operations in connection with, or following, the transition
to the Year 2000.
B-3
<PAGE>
Dividends
The Fund pays dividends from net investment income and net capital gains. You
may choose to have dividends 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 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. If you do not indicate any choice, your dividends will be
reinvested automatically in the Fund. If cash dividends are elected with
respect to the Fund's monthly net investment income dividends, then cash divi-
dends must also be elected with respect to the non-long-term capital gains com-
ponent, if any, of the Fund's annual dividend.
The election to reinvest dividends in additional shares will not affect the tax
treatment of such dividends, which will be treated as received by you and then
used to purchase the shares.
Dividends from net investment income and net capital gains are declared and
paid as follows:
<TABLE>
<CAPTION>
Investment Income Capital Gains
Dividends Distributions
------------------------------------
Fund Declared Paid Declared and Paid
-----------------------------------------------------
<S> <C> <C> <C>
Enhanced Income Daily Monthly Annually
</TABLE>
From time to time a portion of the Fund's dividends may constitute a return of
capital.
At the time of an investor's purchase of shares of the Fund, a portion of the
NAV per share may be represented by undistributed income or undistributed real-
ized appreciation of the Fund's portfolio securities. Therefore, subsequent
distributions on such shares from such income or realized appreciation may be
taxable to you even if the NAV of the shares is, as a result of the distribu-
tions, reduced below the cost of such shares and the distributions (or portions
thereof) represent a return of a portion of the purchase price.
B-4
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Fund's shares.
HOW TO BUY SHARES
How Can I Purchase Class A Shares Of The Fund?
You may purchase shares of the Fund through:
.Goldman Sachs;
.Authorized Dealers; or
.Directly from Goldman Sachs Trust (the "Trust").
In order to make an initial investment in the 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 219711, Kansas City, MO 64121-9711
- 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 or a third-party
check, cash, money orders, travelers checques 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.
8
<PAGE>
SHAREHOLDER GUIDE
What Is My Minimum Investment In The Fund?
<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 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 frequent purchases, sales or exchanges of shares of the 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 the Fund.
.Close the Fund to new investors from time to time and reopen the Fund when-
ever it is deemed appropriate by the Fund's Investment Adviser.
.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 Fund may allow you to purchase shares with securities instead of cash if
consistent with the 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 the Fund's NAV and share class. Each class calculates its NAV as
follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Fund's investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the fair value of the Fund's
investments may be determined based on yield equivalents, a pricing matrix
or other sources, under
9
<PAGE>
valuation procedures established by the Trustees. Debt obligations with a
remaining maturity of 60 days or less are valued at amortized cost.
.NAV per share of each share class is calculated by the Fund's custodian on
each business day as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time). This occurs after the determi-
nation, if any, of the income to be declared as a dividend. 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 Fund
receives your order in proper form, plus any applicable sales charge.
.When you sell shares, you receive the NAV next calculated after the Fund
receives 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 the Fund is
closed. As a result, if the Fund holds foreign securities, its NAV 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 the Fund to price its securities (for example, in foreign
markets) but before the close of regular trading on the New York Stock
Exchange will normally not be reflected in the Fund's next determined NAV
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.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
What Is The Offering Price Of Class A Shares?
The offering price of Class A Shares of the 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 for Class A
Shares of the Fund is as follows:
10
<PAGE>
SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $500,000 1.50% 1.52% 1.25%
$500,000 up to (but less than)
$1 million 1.00 1.01 0.75
$1 million or more 0.00 0.00 0.00
---------------------------------------------------------------------------------
</TABLE>
* Dealer's allowance may be changed periodically. During special promo-
tions, the entire sales charge may be allowed to Authorized Dealers.
Authorized Dealers to whom substantially the entire sales charge is
allowed may be deemed to be "underwriters" under the Securities Act of
1933.
When Are Class A Shares Not Subject To A Sales Load?
Class A Shares of the Fund 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 of Goldman Sachs Funds 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 shares of
Goldman Sachs Funds 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; or
.Have at the time of purchase aggregate assets of at least $2,000,000.
."Wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided they have entered into an
agreement with
11
<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 $500,000 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 $500,000 or more (not counting reinvestments of
dividends and distributions) within a period of 13 months. 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. By signing the Statement of Intention, you authorize the
Transfer Agent to escrow and redeem Class A Shares in your account to pay
this additional charge. The Additional Statement has more information about
the Statement of Intention, which you should read carefully.
12
<PAGE>
SHAREHOLDER GUIDE
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A
SHARES
When Will Shares Be Issued And Dividends Begin To Be Paid?
.Shares Purchased by Federal Funds Wire or ACH Transfer:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined, shares will be issued and
dividends will begin to accrue on the purchased shares on the later of
(i) the business day after the purchase order is received; or (ii) the
day that the federal funds wire or ACH transfer is received by State
Street.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
.Shares Purchased by Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined, shares will be issued and
dividends will begin to accrue on the business day after payment is
received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will being to accrue on the business
day after payment is received.
HOW TO SELL SHARES
How Can I Sell Class A Shares Of The Fund?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. The Fund will redeem its shares upon request on
any business day at the 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.
13
<PAGE>
<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
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
-------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege 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 must be obtained from a bank, brokerage firm or other
financial intermediary that is a member of an approved Medallion Guarantee
Program or that is otherwise approved by the Fund. A notary public cannot
provide a signature guarantee. Additional documentation may be required for
executors, trustees or corporations or when deemed appropriate by the Trans-
fer 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 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.
14
<PAGE>
SHAREHOLDER GUIDE
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 by check to your address of record will not be
accepted during the 30-day period following 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 pro-
ceeds 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.
.To change the bank designated on your Account Application you must send
written instructions (with your signature guaranteed) to the Transfer
Agent.
15
<PAGE>
.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.
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.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
.Shares of the Fund earn dividends declared on the day the shares are
redeemed.
.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 Fund 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.
.Reinvest any dividends or other distributions which you have elected to
receive in cash should your check for such dividends or other distributions
be returned to the Fund as undeliverable or remain uncashed for six months.
In addition, that distribution and all future distributions payable to you
will be reinvested at NAV in additional Fund shares. No interest will
accrue on amounts represented by uncashed distribution or redemption
checks.
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs
Fund?
You may redeem shares of the Fund and reinvest a portion or all of the
redemption proceeds (plus any additional amounts needed to round off pur-
chases to the nearest full share) at NAV. To be eligible for this privilege,
you must hold the
16
<PAGE>
SHAREHOLDER GUIDE
shares you want to redeem for at least 30 days and you must reinvest the
share proceeds within 90 days after you redeem. You may reinvest as follows:
.Class A Shares of the same Fund or any other Goldman Sachs Fund
.You should obtain and read the applicable prospectuses before investing in
any other Funds.
.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 the Fund at NAV without the imposition of an ini-
tial sales charge 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 names and Class of Shares
.The dollar amount you want to exchange
.Obtain a signature guarantee (see details above)
.Mail the request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
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 exchange
privilege on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
-------------------------------------------------------------------
</TABLE>
17
<PAGE>
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 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.
.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 satisfy
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 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.
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.
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
18
<PAGE>
SHAREHOLDER GUIDE
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 The Fund Be Invested In Other Funds?
You may elect to cross-reinvest dividends and capital gain distributions
paid by the 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.
.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.
19
<PAGE>
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 Shares because of the
sales charge imposed on your purchases of Class A Shares.
.You must have a minimum balance of $5,000 in the 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.
What Types of Reports Will I Be Sent Regarding My Investment?
You will be provided with a printed confirmation of each transaction in your
account and an individual quarterly account statement. A year-to-date state-
ment 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 different schedule.
You will also receive an annual shareholder report containing audited finan-
cial statements and a semi-annual shareholder report. If you have consented
to the delivery of a single copy of shareholder reports, prospectuses and
other information to all shareholders who share the same mailing address
with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds by phone at 1-800-526-7384 or by mail at Goldman Sachs
Funds, 4900 Sears Tower--60th Floor, Chicago, IL 60606-6372. The Fund will
begin sending individual copies to you within 30 days after receipt of your
revocation.
The Fund does 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 the 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 Fund will have no rec-
ord of your transactions, you should contact the Authorized Dealer to pur-
chase, 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
20
<PAGE>
SHAREHOLDER GUIDE
the Fund involves special procedures and will require you to obtain histori-
cal 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:
.The 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 (ad-
justed for any applicable sales charge) next determined after such accept-
ance.
.Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Fund within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary to learn whether
it is 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 Fund, to selected Authorized Dealers and other per-
sons in connection with the sale, distribution and/or servicing of shares of
the Fund and other Goldman Sachs Funds. 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 Shares?
The Trust has adopted a distribution and service plan (the "Plan") under
which Class A Shares bear distribution and service fees paid to Authorized
Dealers and Goldman Sachs. If the fees received by Goldman Sachs pursuant to
the Plan exceeds 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, Goldman Sachs is entitled to a monthly fee from the Fund for
distribution services equal, on an annual basis, to 0.25% of the Fund's
average daily net assets attributed to Class A Shares. Because the fee is
paid out of the Fund's assets on an ongoing basis, over time, this fee 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 Act, and may be used (among other things) for:
21
<PAGE>
.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 Shares.
22
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Fund
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Fund.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
TAXES ON DISTRIBUTIONS
Distributions you receive from the Fund are generally subject to federal
income tax, and may also be subject to state or local taxes. This is true
whether you reinvest your distributions in additional Fund shares or receive
them in cash. For federal tax purposes, the Fund's income dividend distribu-
tions and short-term capital gain distributions are taxable to you as ordi-
nary income. Any long-term capital gain distributions are taxable as long-
term capital gains, no matter how long you have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. The Fund will
inform shareholders of the character and tax status of all distributions
promptly after the close of each calendar year.
The Fund may be subject to foreign withholding or other foreign taxes on
income or gain from certain foreign securities. In general, the Fund may
deduct these taxes in computing its taxable income.
If you buy shares of the Fund before it makes a distribution, the distribu-
tion will be taxable to you even though it may actually be a return of a
portion of your investment. This is known as "buying a dividend."
D-1
<PAGE>
TAXABILITY OF SALES AND EXCHANGES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any long-term capital gain dividends that were
received on the shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, the Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
D-2
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Fund will be subject to the risks associated with fixed-income securi-
ties. 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 increase
(although some asset-backed securities will have less potential than other
debt securities for capital appreciation during periods of declining rates).
Conversely, when interest rates increase, 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 invest-
ment. Call risk and extension risk are normally present in asset-backed
securities. For example, car owners have the option to prepay their car
loans. Therefore, the duration of a security backed by auto loans can either
shorten (call risk) or lengthen (extension risk). In general, if interest
rates on new auto loans fall sufficiently below the interest rates on exist-
ing outstanding auto loans, the rate of prepayment would be expected to
increase. Conversely, if auto loan interest rates rise above the interest
rates on existing outstanding auto 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 Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for the Fund. A high rate of
portfolio turnover (100% or more) involves correspondingly greater expenses
which must be borne by the Fund and its shareholders, and is also likely to
result in higher short-term capital gains taxable to shareholders. The port-
folio turnover rate is calculated by dividing the lesser of the dollar
amount of sales or purchases of portfolio securities by the average monthly
value of the Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Fund, including its
associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that the investment objective and all investment policies not specifically
designated as fundamental are non-fundamen-
D-3
<PAGE>
tal and may be changed without shareholder approval. If there is a change in
the Fund's investment objective, you should consider whether the Fund
remains an appropriate investment in light of your then current financial
positions and needs.
B. Other Portfolio Risks
Credit Risks. Debt securities purchased by the Fund may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Some of these
fixed-income securities are described in the next section below. Further
information is provided in the Additional Statement.
Debt securities rated A or higher by Standard & Poor's or Moody's are con-
sidered "high grade." A security will be deemed to have met a rating
requirement if it receives the minimum required rating from at least one
such rating organization even though it has been rated below the minimum
rating by one or more other rating organizations, or if unrated by such rat-
ing organizations, is determined by the Investment Adviser to be of compara-
ble credit quality.
Risks of Derivative Investments. The Fund's transactions in options,
futures, options on futures, swaps, interest rate caps, floors and collars
and structured securities involve additional 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 leverage 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 fluctu-
ations in securities prices or interest rates. The Fund may also invest in
derivative investments for non-hedging purposes (that is, to seek to
increase total return), which is considered a speculative practice and pre-
sents even greater risk of loss.
Some floating-rate derivative debt securities can present more complex types
of derivative and interest rate risks. For example, range floaters are sub-
ject to the risk that the coupon will be reduced below market rates if a
designated interest rate floats outside of a specified interest rate band or
collar. Dual index or yield curve floaters are subject to lower prices in
the event of an unfavorable change in the spread between two designated
interest rates.
Risks of Foreign Investments. The Fund may invest in foreign investments.
Foreign investments involve special risks that are not typically associated
with domes-
D-4
<PAGE>
APPENDIX A
tic investments. Foreign investments may be affected by changes in foreign
or U.S. laws or restrictions applicable to such investments.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, 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 a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibil-
ity of nationalization, expropriation or confiscatory taxation, imposition
of withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets
of the Fund, and political or social instability or diplomatic developments
which could affect investments in those countries.
Concentration of the Fund's assets in one or a few countries will subject
the Fund to greater risks than if the Fund's assets were not geographically
concentrated.
Investment in sovereign debt obligations by the Fund, 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 unwilling to repay principal or interest when due in accordance
with the terms of such debt, and the Fund may have limited recourse to com-
pel payment in the event of a default. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn a
Fund's 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.
D-5
<PAGE>
Risks of Illiquid Securities. The Fund may invest up to 15% 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
.Repurchase agreements and time deposits with a notice or demand period of
more than seven days
.Certain over-the-counter options
.Certain structured securities and all swap transactions
.Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
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 the Fund's port-
folio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
Temporary Investment Risks. The Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
.U.S. Government Securities
.Repurchase agreements collateralized by U.S. Government Securities
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investment objective.
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Fund, including its associated
risks. Further information is provided in the Additional Statement, which is
available upon request.
U.S. Government Securities. The Fund may invest in U.S. Government Securi-
ties. U.S. Government Securities include U.S. Treasury obligations and obli-
gations issued or guaranteed by U.S. government agencies, instrumentalities
or sponsored enterprises. U.S. Government Securities may be supported by (a)
the full faith and credit of the U.S. Treasury (such as the Government
National Mortgage Association ("Ginnie Mae")); (b) the right of the issuer
to borrow from the U.S. Treasury (such as securities of the Student Loan
Marketing Association); (c) the
D-6
<PAGE>
APPENDIX A
discretionary authority of the U.S. government to purchase certain obliga-
tions 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 also
include Treasury receipts, zero coupon bonds and other stripped U.S. Govern-
ment Securities, where the interest and principal components of stripped
U.S. Government Securities are traded independently.
Custodial Receipts. The Fund may invest in custodial receipts. Interests in
U.S. Government Securities may be purchased in the form of custodial
receipts that evidence ownership of future interest payments, principal pay-
ments or both on certain notes or bonds issued or guaranteed as to principal
and interest by the U.S. government, its agencies, instrumentalities, polit-
ical subdivisions or authorities. For certain securities law purposes, cus-
todial receipts are not considered obligations of the U.S. government.
Asset-Backed Securities. The Fund may invest in asset-backed securities.
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, the Fund's ability to maintain posi-
tions 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 gener-
ally prevailing interest rates at that time. 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, the Fund
may suffer a loss if it cannot sell collateral quickly and receive the
amount it is owed.
Corporate Debt Obligations; Convertible Securities. The Fund may invest in
corporate debt obligations and convertible securities. Corporate debt obli-
gations include bonds, notes, debentures, commercial paper and other obliga-
tions of corporations to pay interest and repay principal, and include secu-
rities issued by banks, financial institutions and other entities. The Fund
may also invest in other short-term obligations payable in U.S. Dollars and
issued or guaranteed by U.S. corporations, non-U.S. corporations or other
entities.
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 non-convertible securities of similar qual-
ity. Convertible securi-
D-7
<PAGE>
ties in which the Fund invests are subject to the same rating criteria as
its other investments in fixed-income securities. Convertible securities
have both equity and fixed-income risk characteristics. Like all fixed-
income securities, the value of convertible securities 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. How-
ever, when the market price of the common stock underlying a convertible
security exceeds the conversion price of the convertible security, the con-
vertible security tends to reflect the market price of the underlying common
stock. As the market price of the underlying common stock declines, the con-
vertible security, like a fixed-income security, tends to trade increasingly
on a yield basis, and thus may not decline in price to the same extent as
the underlying common stock.
Structured Securities. The Fund may invest in structured securities. Struc-
tured 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 posi-
tively or negatively indexed, so that appreciation of the Reference may pro-
duce an increase or decrease in the interest rate or value of the security
at maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the Refer-
ence. Consequently, structured securities may present a greater degree of
market risk than other types of fixed-income securities, and may be more
volatile, less liquid and more difficult to price accurately than less com-
plex securities.
Zero Coupon Bonds. The Fund may invest in zero coupon bonds. Such bonds are
issued at a discount from their face value because interest payments are
typically postponed until maturity. 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.
Options on Securities and Securities Indices. A put option gives the pur-
chaser of the option the right to sell, and the writer (seller) of the
option the obligation to buy, the underlying instrument during 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. The Fund
D-8
<PAGE>
APPENDIX A
may write (sell) covered call and put options and purchase put and call
options on any securities in which it may invest or on any securities index
comprised of securities in which it may invest.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
to seek to increase total return (which is considered a speculative activi-
ty). The successful use of options depends in part on the ability of the
Investment Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment
Adviser is incorrect in its expectation of changes in market prices or
determination of the correlation between the instruments or indices on which
options are written and purchased and the instruments in the Fund's invest-
ment portfolio, the Fund may incur losses that it would not otherwise incur.
The use of options can also increase the Fund's transaction costs. Options
written or purchased by the Fund 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 illiquidity and
credit risks.
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), securities indices and other financial instruments
and indices. The Fund may engage in futures transactions on U.S. exchanges.
The Fund 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, securities
prices or to otherwise manage its term structure, sector selection and dura-
tion in accordance with its investment objective and policies. The Fund may
also enter into closing purchase and sale transactions with respect to such
contracts and options. The Fund will engage in futures and related options
transactions for bona fide hedging purposes as defined in regulations of the
Commodity Futures Trading Commission or to seek to increase total return to
the extent permitted by such regulations. The Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums paid on the Fund's outstanding positions in futures and related options
entered
D-9
<PAGE>
into for the purpose of seeking to increase total return would exceed 5% of
the market value of the Fund's net assets.
Futures contracts and related options present the following risks:
.While the Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in 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 posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and the Fund may be exposed to additional
risk of loss.
.The loss incurred by the Fund in entering into futures contracts and in
writing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
.Futures markets are highly volatile and the use of futures may increase the
volatility of the Fund's NAV.
.As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to the Fund.
.Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
Floating and Variable Rate Obligations. The Fund 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. 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 ordinar-
ily 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. The
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. The Fund may purchase when-
issued securities and enter into forward commitments. When-issued securities
are securities that have been authorized, but not yet issued. When-issued
securities are purchased in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A forward commitment involves entering into a contract to pur-
chase or sell securities for a fixed price at a future date beyond the cus-
tomary settlement period.
D-10
<PAGE>
APPENDIX A
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 securities
sold may increase before the settlement date. Although the Fund will gener-
ally purchase securities on a when-issued or forward commitment basis with
the intention of acquiring the securities for its portfolio, the Fund may
dispose of when-issued securities or forward commitments prior to settlement
if the Investment Adviser deems it appropriate.
Lending of Portfolio Securities. The Fund may engage in securities lending.
Securities lending involves the lending of securities owned by the 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 letters of credit in an amount at least equal
to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. To the extent that cash collateral is invested
in other investment securities, such collateral will be subject to market
depreciation or appreciation, and the Fund will be responsible for any loss
that might result from its investment of the borrowers' collateral. If the
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
the Fund (including the loan collateral).
The Fund may lend its securities to increase its income. The Fund may, how-
ever, experience delay in the recovery of its securities, or capital loss if
the institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
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. The Fund may enter into repurchase agreements
with dealers in U.S. Government Securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. The Fund may also enter
into repurchase agreements involving certain foreign government securities.
If the other party or "seller" defaults, the Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, the Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
D-11
<PAGE>
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. The
Fund, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash balances into a single joint account, the daily aggre-
gate balance of which will be invested in one or more repurchase agreements.
Borrowings. The Fund can borrow money from banks with banks in amounts not
exceeding one-third of its total assets. The Fund may not make additional
investments if borrowings exceed 5% of its total assets. Borrowings involve
leverage. If the securities held by the Fund decline in value while these
transactions are outstanding, the NAV of the Fund's outstanding shares will
decline in value by proportionately more than the decline in value of the
securities.
Interest Rate Swaps, Credit Swaps and Interest Rate Caps, Floors and Col-
lars. Interest rate swaps involve the exchange by the 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. 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 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.
The Fund may enter into swap transactions for hedging purposes or to seek to
increase total return. The use of interest rate and credit swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity
which involves investment techniques and risks different from those associ-
ated with ordinary portfolio securities transactions. If the Investment
Adviser is incorrect in its forecasts of market values or interest rates the
investment performance of the Fund would be less favorable than it would
have been if these investment techniques were not used.
Other Investment Companies. The Fund may invest in securities of other
investment companies subject to statutory limitations prescribed by the Act.
These limitations include a prohibition on the Fund acquiring more than 3%
of the voting
D-12
<PAGE>
APPENDIX A
shares of any other investment company, and a prohibition on investing more
than 5% of the Fund's total assets in securities of any one investment com-
pany or more than 10% of its total assets in securities of all investment
companies. The Fund will indirectly bear its proportionate share of any man-
agement fees and other expenses paid by such other investment companies.
Preferred Stock. The Fund may invest in preferred stocks. Preferred stocks
are securities that represent an ownership interest providing the holder
with claims on the issuer's earnings and assets before common stock owners
but after bond owners. Unlike debt securities, the obligations of an issuer
of preferred stock, including dividend and other payment obligations, may
not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default or other non-compliance by the issuer of
the preferred stock.
D-13
<PAGE>
Index
<TABLE>
<C> <C> <S>
x General Investment
Management Approach
x Fund Investment
Objectives and Strategies
x Enhanced Income Fund
x Other Investment
Practices and Securities
x Principal Risks of the
Fund
x Fund Performance
x Fund Fees and Expenses
</TABLE>
<TABLE>
<C> <C> <S>
x Service Providers
x Dividends
x Shareholder Guide
x How to Buy Shares
x How to Sell Shares
x Taxation
x Appendix A
Additional Information on
Portfolio Risks,
Securities and Techniques
</TABLE>
<PAGE>
Fixed Income Funds
Prospectus (Class A Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during the
last fiscal year. The annual report for the Enhanced Income Fund for the
fiscal period ended October 31, 2000 will become available to shareholders
in December 2000.
Statement of Additional Information
Additional information about the Fund and its policies is also available in
the Fund's Additional Statement. The Additional Statement is incorporated by
reference into this Prospectus (is legally considered part of this Prospec-
tus).
The Fund's annual and semi-annual 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-
6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Fund's documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
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, after paying a duplicating fee, by writing to the SEC's
Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request to: [email protected]. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Fund's investment company registration number is 811-5349.
<PAGE>
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 15, 2000
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
PART B
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares
GOLDMAN SACHS ENHANCED INCOME FUND
(A portfolio of Goldman Sachs Trust)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement should be read in conjunction with the
prospectus for the Class A Shares of Goldman Sachs Enhanced Income Fund dated
August 14, 2000, as may be further amended and/or supplemented from time to time
(the "Prospectuses"). The Prospectuses may be obtained without charge from
Goldman, Sachs & Co. by calling the telephone number, or writing to one of the
addresses, listed below or from institutions ("Service Organizations") for the
benefit of their customers.
The date of this Additional Statement is August 14, 2000.
B-1
<PAGE>
TABLE OF CONTENTS
INTRODUCTION B-4
INVESTMENT OBJECTIVES AND POLICIES........................................ B-5
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES........................ B-6
INVESTMENT RESTRICTIONS................................................... B-19
PORTFOLIO TRANSACTIONS.................................................... B-36
SHARES OF THE TRUST....................................................... B-38
NET ASSET VALUE........................................................... B-41
TAXATION.................................................................. B-42
PERFORMANCE INFORMATION................................................... B-48
OTHER INFORMATION......................................................... B-52
OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS, EXCHANGES AND
DIVIDENDS................................................................ B-53
DISTRIBUTION AND SERVICE PLAN............................................. B-56
APPENDIX A................................................................ 1-A
APPENDIX B 1-B
APPENDIX C - (STATEMENT OF INTENTION AND ESCROW AGREEMENT) 1-C
B-2
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT
Investment Adviser
32 Old Slip
New York, New York 10005
GOLDMAN, SACHS & CO.
Distributor
85 Broad Street
New York, NY 10004
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free (in U.S.) .......800-621-2550
B-3
<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. This Additional Statement describes the Trust's Goldman Sachs Enhanced
Income Fund ("Fund"). 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
Fund and other series. The Fund is authorized to issue three classes of shares:
Class A Shares, Institutional Shares and Administration Shares. Only Class A
Shares are described in this Additional Statement. Additional series may be
added in the future from time to time. The Fund is a diversified, open-end
management investment company.
Goldman Sachs Asset Management ("GSAM" or the "Investment Adviser"), a unit
of the Investment Management Division of Goldman, Sachs & Co. ("Goldman Sachs"),
serves as the Investment Adviser to the Fund. In addition, Goldman Sachs serves
as the Fund's distributor and transfer agent. The Fund's custodian is State
Street Bank and Trust Company.
Because the Fund's shares may be redeemed upon request of a shareholder on
any business day at net asset value, the Fund offers greater liquidity than many
competing investments, such as certificates of deposit and direct investments in
certain securities in which the Fund may invest. However, unlike certificates of
deposits, shares of the Fund are not insured by the Federal Deposit Insurance
Corporation.
The following information relates to and supplements the description of the
Fund's investment policies contained in the Prospectuses. See the Prospectuses
for a fuller description of the Fund's investment objective and policies.
Investing in the Fund entails certain risks and there is no assurance that the
Fund will achieve its objective. Capitalized terms used but not defined herein
have the same meaning as in the prospectuses.
Experienced Management. Successfully creating and managing a portfolio of
----------------------
securities requires professionals with extensive experience. Goldman Sachs'
highly skilled portfolio management team brings together many years of
experience in the analysis, valuation and trading of U.S. and foreign fixed-
income securities.
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INVESTMENT OBJECTIVES AND POLICIES
The Fund is designed for investors who seek returns in excess of
traditional money market products while maintaining an emphasis on preservation
of capital and liquidity. The Fund invests, under normal circumstances,
primarily in a portfolio of fixed income securities, including non-mortgage-
backed U.S. Government Securities, corporate notes and commercial paper and
fixed and floating rate asset-backed securities rated, at the time of
investment, at least A by a nationally recognized statistical rating
organization ("NRSRO") or, if unrated, determined by the Investment Adviser to
be of comparable quality.
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.
Market sector selection is the underweighting or overweighting of one or more of
the four market sectors (i.e., U.S. Treasuries, U.S. government agencies,
corporate securities and asset-backed securities) in which the Fund primarily
invests. The decision to overweight or underweight a given market sector is
based on expectations of future yield spreads between different sectors. Yield
curve exposure strategy consists of overweighting or underweighting different
maturity sectors to take advantage of the shape of the yield curve. Issuer
selection is the purchase and sale of corporate securities based on a
corporation's current and expected credit standing. To take advantage of price
discrepancies between securities resulting from supply and demand imbalances or
other technical factors, the Fund may simultaneously purchase and sell
comparable, but not identical, securities. The Investment Adviser will usually
have access to the research of, and proprietary technical models developed by,
Goldman Sachs and will apply quantitative and qualitative analysis in
determining the appropriate allocations among the categories of issuers and
types of securities.
The Fund's overall returns are generally likely to move in the opposite
direction as interest rates. Therefore, when interest rates decline, the Fund's
return is likely to increase. Conversely, when interest rates increase, the
Fund's return is likely to decline. In exchange for accepting a higher degree of
share price fluctuation, investors have the potential to achieve a higher return
from the Fund than from shorter-term investments.
Preservation of Capital. The Fund seeks to reduce principal fluctuation by
-----------------------
maintaining a target duration equal to that of a nine-month U.S. Treasury Bill
(plus or minus three months) and an approximate interest rate sensitivity of a
nine-month U.S. Treasury Bill, as well as utilizing certain interest rate
hedging techniques. There is no assurance that these strategies will be
successful.
Liquidity. Because the Fund's shares may be redeemed upon request of a
---------
shareholder on any business day at net asset value, the Fund offers greater
liquidity than many competing investments such as certificates of deposit and
direct investments in certain securities in which the Fund may invest.
A Sophisticated Investment Process. The Fund will attempt to control its
----------------------------------
exposure to interest rate risk, including overall market exposure and the spread
risk of particular sectors and securities, through active portfolio management
techniques. The Fund's investment process starts with a review of trends for the
overall economy as well as for different sectors of the fixed-income securities
markets. Goldman Sachs' portfolio managers then analyze yield spreads, implied
volatility and the shape of the yield curve. In planning the Fund's portfolio
investment strategies, the Investment Adviser is able to draw upon the economic
and fixed-income research resources of Goldman Sachs. The Investment
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Adviser will use a sophisticated analytical process including Goldman Sachs'
option-adjusted spread model to assist in structuring and maintaining the Fund's
investment portfolio. In determining the Fund's investment strategy and making
market timing decisions, the Investment Adviser will have access to input from
Goldman Sachs' economists and fixed-income analysts.
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES
U. S. Government Securities
The Fund may invest in U.S. Government Securities. 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. 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 U.S. Treasury (such as securities of the Student Loan Marketing
Association), (b) the discretionary authority of the U.S. government to purchase
certain obligations of the issuer (such as securities of Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")) 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.
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.
The Fund may also purchase U.S. Government Securities in private placements
and may 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").
Custodial Receipts
The Fund may invest 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 or guaranteed as to principal and interest
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.
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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.
Such 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, the 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 the Fund invests in asset-backed
securities, the values of its portfolio securities will vary with changes in
market interest rates generally and the differentials in yields among various
kinds of asset-backed securities.
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.
Zero Coupon Bonds
The Fund may invest in zero coupon bonds. Zero coupon 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 zero coupon bonds generally are more volatile than
the market prices of interest bearing securities and are likely to respond to a
greater degree to changes in interest rates than interest bearing securities
having similar maturities and credit quality.
Zero coupon bonds involve the additional risk that, unlike securities that
periodically pay interest to maturity, the 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, the Fund may obtain no return at all
on its investment. In addition, even though such securities do not provide for
the payment of current
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interest in cash, the Fund is 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, the Fund
may be required to liquidate other portfolio securities to obtain sufficient
cash to satisfy federal tax distribution requirements applicable to the Fund. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. See "Taxation."
Variable and Floating Rate Securities
The interest rates payable on certain securities in which the 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 pre-
designated 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. The
value of floating and variable rate obligations generally is more stable than
that of fixed rate obligations in response to changes in interest rate levels.
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 obligations.
Preferred Stock
The Fund may invest in preferred stock. Preferred stocks are securities
that represent an ownership interest providing the holder with claims on the
issuer's earnings and assets before common stock owners but after bond owners.
Unlike debt securities, the obligations of an issuer of preferred stock,
including dividend and other payment obligations, may not typically be
accelerated by the holders of such preferred stock on the occurrence of an event
of default (such as a covenant default or filing of a bankruptcy petition) or
other non-compliance by the issuer with the terms of the preferred stock. Often,
however, on the occurrence of any such event of default or non-compliance by the
issuer, preferred stockholders will be entitled to gain representation on the
issuer's board of directors or increase their existing board representation. In
addition, preferred stockholders may be granted voting rights with respect to
certain issues on the occurrence of any event of default.
Corporate Debt Obligations
The Fund may invest in corporate debt obligations, including obligations of
industrial, utility and financial issuers. Corporate debt obligations include
bonds, notes, debentures and other obligations of corporations to pay interest
and repay principal. 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.
Commercial Paper and Other Short-Term Corporate Obligations
The Fund may invest in commercial paper and other short-term obligations
payable in U.S. dollars and issued or guaranteed by U.S. corporations, non-U.S.
corporations or other entities. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies.
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Bank Obligations
The Fund may invest in U.S. dollar denominated obligations issued or
guaranteed by U.S. and 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 obligations only of the
issuing branch pursuant to 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. Foreign banks are subject to different regulations and are
generally permitted to engage in a wider variety of activities than U.S. banks.
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.
Foreign Investments
The Fund may invest in U.S. dollar denominated fixed-income securities of
foreign issuers. Investment in foreign securities may offer potential benefits
that are not available from investing exclusively in domestic issues. Foreign
countries may have economic policies or business cycles different from those of
the U.S. and markets for foreign fixed-income securities do not necessarily move
in a manner parallel to U.S. markets. Investing in the securities of foreign
issuers also involves, however, certain special considerations, including those
set forth below, which are not typically associated with investing in U.S.
issuers.
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 comparable U.S.
company. Volume and liquidity in most foreign bond markets are less than in the
United States markets 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 the Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities markets and exchanges,
brokers, dealers and listed and unlisted companies than in the United States.
For example, there may be no comparable provisions under certain foreign laws to
insider trading and similar investor protection securities laws that apply with
respect to securities transactions consummated in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlement of portfolio transactions or loss of certificates for portfolio
securities.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the Fund's assets is uninvested and no return is
earned on such assets. The inability of the Fund to make intended security
purchases due to settlement problems could cause the Fund to miss attractive
investment opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund due to subsequent
declines in value of the portfolio securities, or, if the Fund has entered into
a contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is the
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possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could adversely affect the 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, resources
self-sufficiency and balance of payments position.
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 repay principal or interest when due, and
the Fund may have limited recourse in the event of a default. During periods of
economic uncertainty, the market prices of sovereign debt, and the 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 countries 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.
Brady Bonds. Certain foreign debt obligations, customarily referred to as
-----------
"Brady Bonds," are created through the exchange of existing commercial bank
loans to foreign entities for new obligations in connection with debt
restructuring under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be fully or partially
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar denominated). In the event of a default on collateralized
Brady Bonds for which obligations are accelerated, the collateral for the
payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of the Brady
Bonds, and among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds may be speculative.
Interest Rate Swaps, Credit Swaps and Interest Rate Caps, Floors and Collars
The Fund may enter into interest rate and credit swaps and may enter into
interest rate caps, floors and collars. The Fund may enter into swap
transactions for hedging purposes or to seek to increase total return. Interest
rate swaps involve the exchange by the Fund with another party of its commitment
to pay or receive interest, such as an exchange of fixed-rate payments for
floating rate payments. 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
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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 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. Since interest rate and credit swaps and
interest rate caps, floors and collars are individually negotiated, the Fund
expects to achieve an acceptable degree of correlation between its portfolio
investments and its swap, cap, floor and collar positions.
The Fund will enter into interest rate swaps only on a net basis, which
means that the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. Interest
rate swaps do not involve the delivery of securities, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of payments that the Fund is contractually obligated
to make. If the other party to an interest rate swap defaults, the Fund's risk
of loss consists of the net amount of payments that the Fund is contractually
entitled to receive, if any. To the extent that the Fund's potential exposure in
a transaction involving a swap or an interest rate floor, cap or collar is
covered by the segregation of cash or liquid assets, the Fund and its Investment
Adviser believe that transactions do not constitute senior securities under the
Act and, accordingly, will not treat them as being subject to the Fund's
borrowing restrictions.
The Fund will not enter into any interest rate or credit swap transactions
unless the unsecured commercial paper, senior debt or claims-paying ability of
the other party is rated either A or A-1 or better by Standard & Poor's or A or
P-1 or better by Moody's or their equivalent ratings. If there is a default by
the other party to such a transaction, the 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 Adviser, under the supervision of the Board
of Trustees, is responsible for determining and monitoring the liquidity of the
Fund's transactions in swaps, caps, floors and collars.
The use of interest rate and credit 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 the Investment Adviser is incorrect in its forecasts
of market values, credit quality and interest rates, the investment performance
of the Fund would be less favorable than it would have been if this investment
technique were not used.
Options on Securities and Securities Indices
Writing Covered Options. The Fund may write (sell) covered call and put
-----------------------
options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. The 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 the Fund obligates the 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
the Fund are covered, which means that the Fund will own the securities subject
to the option so long
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as the option is outstanding or the Fund will use the other methods described
below. The Fund's purpose in writing covered call options is to realize greater
income than would be realized on portfolio securities transactions alone.
However, the Fund may forego the opportunity to profit from an increase in the
market price of the underlying security.
A put option written by the Fund obligates the 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 the
Fund would be covered, which means that the Fund will segregate cash or liquid
assets with a value at least equal to the exercise price of the put option or
will use the other methods described below. The purpose of writing such options
is to generate additional income for the Fund. However, in return for the option
premium, the 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.
All call and put options written by the Fund are covered. A written call
option or put option may be covered by (i) segregating cash or liquid assets, as
permitted by applicable law with a value at least equal to the Fund's obligation
under the option, (ii) entering into an offsetting forward commitment, and/or
(iii) purchasing an offsetting option or any other option which, by virtue of
its exercise price or otherwise, reduces the Fund's net exposure on its written
option position.
The 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."
The Fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement 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.
The 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 that is
segregated) upon conversion or exchange of other securities in its portfolio.
The Fund may also cover call and put options on a securities index by
segregating cash or liquid assets, as permitted by applicable law, with a value
equal to the exercise price or by using the other methods described above.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of the Investment Adviser to predict future price fluctuations
and the degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in the Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could increase the Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
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Purchasing Options. The Fund may also 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. The Fund would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
The Fund may purchase call options in anticipation of an increase, or put
options in anticipation of a decrease ("protective puts"), in the market value
of securities of the type in which it may invest. The purchase of a call option
would entitle the Fund, in return for the premium paid, to purchase specified
securities at a specified price during the option period. The Fund would
ordinarily realize a gain on the purchase of a call option if, during the option
period, the value of such securities exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the call option. The purchase of a put option
would entitle the 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 the Fund's securities. Put options may also be purchased by the Fund
for the purpose of affirmatively benefiting from a decline in the price of
securities which it does not own. The Fund would ordinarily realize a gain if,
during the option period, the value of the underlying securities decreased below
the exercise price sufficiently to cover the premium and transaction costs;
otherwise the Fund would realize either no gain or a loss on the purchase of the
put option. Gains and losses on the purchase of put options may be offset by
countervailing changes in the value of the underlying portfolio securities.
The Fund may purchase put and call options on securities indices for the
same purposes as it may purchase options on securities. 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.
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 the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the 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, but are not limited to, the following: (a) there may be insufficient
trading interest in certain options; (b) restrictions may be imposed by an
exchange on opening or closing transactions or both; (c) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options; (d) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (e) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (f) 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-13
<PAGE>
The 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 the Fund in options will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities on which such options are traded 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 regardless of whether the options are
written or purchased on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one of more brokers. Thus, the number of options which the Fund may
write or purchase may be affected by options written or purchased by other
investment advisory clients or the Fund's Investment Adviser. 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.
Futures Contracts and Options on Futures Contracts
The Fund may purchase and sell various kinds of futures contracts, and
purchase and write call and put options on any of such futures contracts. The
Fund may also enter into closing purchase and sale transactions with respect to
any of such contracts and options. The futures contracts may be based on various
securities (such as U.S. Government Securities), securities indices and any
other financial instruments and indices. The Fund will engage in futures and
related options transactions 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 CFTC. Futures contracts entered into by the Fund are traded
on U.S. exchanges or boards of trade that are licensed and regulated by the
CFTC.
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, the Fund
can seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, the 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.
Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in a
profit or a loss. While futures contracts on securities will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities whenever it appears economically advantageous to do so. A
clearing corporation associated with the exchange on which futures on securities
or currency are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
------------------
establish with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that the Fund
proposes to acquire. The 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
B-14
<PAGE>
a decline in market prices that would adversely affect the U.S. dollar value of
the Fund's portfolio securities. Such futures contracts may include contracts
for the future delivery of securities held by the Fund or securities with
characteristics similar to those of the Fund's portfolio securities. If, in the
opinion of the Investment Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the
Investment Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such differential
by having the Fund enter into a greater or lesser number of futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the 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 the Fund's portfolio securities
would be substantially offset by a decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing
futures contracts. This may be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available.
Options on Futures Contracts. The acquisition of put and call options on
----------------------------
futures contracts will give the 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, the 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 the Fund's assets. By
writing a call option, the 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 the Fund intends to purchase. However, the 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 the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received. The
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. The 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. The Fund will engage in futures and related options
--------------------
transactions for bona fide hedging or to seek to increase total return as
permitted by CFTC regulations which permit principals of an investment company
registered under the Act to engage in such transactions without registering as
commodity pool operators.
B-15
<PAGE>
In addition to bona fide hedging, a CFTC regulation permits the 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 the 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. The Fund will engage in transactions in futures contracts and related
options only to the extent such transactions are consistent with the
requirements of the Code for maintaining their qualifications as regulated
investment companies for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
segregate cash or liquid assets, as permitted by applicable law, 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,
while the Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for the 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 the
Fund may be exposed to risk of loss.
Perfect correlation between the Fund's futures positions and portfolio
positions will be impossible to achieve. The profitability of the Fund's trading
in futures depends upon the ability of the Investment Adviser to analyze
correctly the futures markets.
Convertible Securities
The Fund may invest in 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.
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 preferred stock on the occurrence of an event of
default (such as a covenant default or filing of a bankruptcy petition) or other
non-compliance by the issuer with the terms of the preferred stock. Often,
however, on the occurrence of any such event of default or non-compliance by the
issuer, preferred stockholders will be entitled to gain representation on the
issuer's board of directors or increase their existing board representation. In
addition, preferred stockholders may be granted voting rights with respect to
certain issues on the occurrence of any event of default.
B-16
<PAGE>
Lending of Portfolio Securities
The Fund may lend portfolio securities. Under present regulatory policies,
such loans may be made to institutions, such as brokers or dealers and would be
required to be secured continuously by collateral in cash, cash equivalents,
letters of credit or U.S. Government Securities maintained on a current basis at
an amount at least equal to the market value of the securities loaned. The 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, the 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. The Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but the Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the applicable Investment Adviser to
be of good standing, and when, in the judgment of the Investment Adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the 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 the Fund (including the
loan collateral).
Cash received as collateral for securities lending transactions may be
invested in other investment eligible securities. Investing the collateral
subjects it to market depreciation or appreciation, and the Fund is responsible
for any loss that may result from its investment of the borrowed collateral.
Restricted and Illiquid Securities
The Fund may purchase securities that are not registered or that are
offered in an exempt non-public offering ("Restricted Securities") under the
Securities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A under the
1933 Act. However, the Fund will not invest more than 15% of its net assets in
illiquid investments, which include repurchase agreements with a notice or
demand period of more than seven days, certain over-the-counter options,
securities that are not readily marketable and Restricted Securities, unless the
Board of Trustees determines, based upon a continuing review of the trading
markets for the specific Restricted Securities, that such Restricted Securities
are liquid. Certain commercial paper issued in reliance on Section 4(2) of the
1933 Act is treated like Rule 144A Securities. The Trustees have adopted
guidelines and delegated to the Investment Advisers the daily function of
determining and monitoring the liquidity of the Fund's portfolio securities.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
for a time uninterested in purchasing these Restricted Securities.
The purchase price and subsequent valuation of Restricted Securities may
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction 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.
B-17
<PAGE>
When-Issued and Forward Commitment Securities
The 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 the 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. The Fund will generally
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, the Fund may dispose of or negotiate a
commitment after entering into it. The Fund may also sell securities it has
committed to purchase before those securities are delivered to the Fund on the
settlement date. The Funds may realize a capital gain or loss in connection with
these transactions. For purposes of determining the Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. The Fund is generally required to segregate, until three
days prior to settlement date, cash and liquid assets in an amount sufficient to
meet the purchase price unless the Fund's obligations are otherwise covered.
Alternatively, the 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.
Other Investment Companies
The Fund reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other investment
companies, but may not invest more than 5% of its total assets in the securities
of any one investment company or acquire more than 3% of the voting securities
of any other investment company. Pursuant to an exemptive order obtained from
the SEC, the Fund may invest in money market funds for which the Investment
Adviser or any of its affiliates serves as Investment Adviser. The 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 other fees paid by the Fund. However, to the extent that the Fund
invests in a money market fund for which the Investment Adviser or any of its
affiliates acts as Investment Adviser, the management fees payable by the Fund
to the Investment Adviser will be reduced by an amount equal to the Fund's
proportionate share of the management fees paid by such money market fund to the
Investment Adviser or its affiliates.
Repurchase Agreements
The Fund may enter into repurchase agreements with selected broker-dealers,
banks or other financial institutions. These repurchase agreements may involve
foreign government securities. A repurchase agreement is an arrangement under
which the 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 the Fund's custodian. The repurchase price may be
higher than the purchase price, the difference being income to the Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to the Fund together with the repurchase price on repurchase. In either
case, the income to the Fund is unrelated to the interest rate on the security
subject to the repurchase agreement.
B-18
<PAGE>
For purposes of the Act, and generally for tax purposes, a repurchase
agreement is deemed to be a loan from the Fund to the seller of the security.
For other purposes, it is not always clear whether a court would consider the
security purchased by the Fund subject to a repurchase agreement as being owned
by the Fund or as being collateral for a loan by the 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, the 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
value of the security. If the court characterizes the transaction as a loan and
the Fund has not perfected a security interest in the security, the 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, the Fund would be at
risk of losing some or all of the principal and interest involved in the
transaction.
The 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),
the Fund will direct the seller of the security to deliver additional securities
so that the market value of all securities subject to the repurchase agreement
equals or exceeds the repurchase price. Certain repurchase agreements which
provide for settlement in more than seven days can be liquidated before the
nominal fixed term on seven days or less notice. Such repurchase agreements will
be regarded as liquid instruments.
In addition, the Fund, together with other registered investment companies
having management agreements with the Investment Adviser or its affiliates, may
transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
Portfolio Turnover
The Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for fixed-
income securities, or for other reasons. It is anticipated that the portfolio
turnover rate of the Fund will vary from year to year. During the Fund's first
year of operations, its portfolio turnover rate is not expected to exceed 150%.
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 of the outstanding voting securities (as defined in the
Act) of the Fund. The investment objective of the Fund and all other investment
policies or practices of the Fund are considered by the Trust not to be
fundamental and accordingly may be changed without shareholder approval. As
defined in the Act, "a majority of the outstanding voting securities" of the
Fund means the vote (a) of 67% or more of the shares of the Trust or the Fund
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Trust or the Fund are present or represented by proxy, or (b) more than
50% of the shares of the Trust or the Fund.
B-19
<PAGE>
For the purposes of the limitations (except for the asset coverage
requirement with respect to borrowings), 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, the Fund.
As a matter of fundamental policy, the Fund may not:
(1) Make any investment inconsistent with the Fund's classification as a
diversified company under the Act;
(2) Invest more than 25% of its total assets in the securities of one or
more issuers conducting their principal business activities in the
same industry (excluding the U.S. government or 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 Fund may borrow from banks (as defined in
the Act) or through reverse repurchase agreements in amounts up to 33
1/3% of its total assets (including the amount borrowed); (b) the Fund
may, to the extent permitted by applicable law, borrow up to an
additional 5% of its total assets for temporary purposes; (c) the Fund
may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities; (d) the Fund
may purchase securities on margin to the extent permitted by
applicable law; and (e) the Fund may engage in transactions in
mortgage dollar rolls which are accounted for as financings;
(4) Make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objective and policies; (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions; and (c) loans of securities as permitted by applicable
law;
(5) Underwrite securities issued by others, except to the extent that the
sale of portfolio securities by the Fund may be deemed to be an
underwriting;
(6) Purchase, hold or deal in real estate, although the Fund may purchase
and sell securities that are secured by real estate or interests
therein, securities of real estate investment trusts and
mortgage-related securities and may hold and sell real estate acquired
by the Fund as a result of the ownership of securities;
(7) Invest in commodities or commodity contracts, except that the Fund may
invest in currency and financial instruments and contracts that are
commodities or commodity contracts; and
B-20
<PAGE>
(8) Issue senior securities to the extent such issuance would violate
applicable law.
Notwithstanding any other fundamental investment restriction or policy, the
Fund may invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same fundamental investment
objective, restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees have
adopted the following non-fundamental policies which can be changed or amended
by action of the Trustees without approval of shareholders.
The Fund may not:
(1) Invest in companies for the purpose of exercising control or
management;
(2) Invest more than 15% of the Fund's net assets in illiquid investments,
including repurchase agreements with a notice or demand period of 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;
(3) Purchase additional securities if the Fund's borrowings (excluding
covered mortgage dollar rolls) exceed 5% of its net assets; or
(4) Make short sales of securities, except short sales against-the-box.
B-21
<PAGE>
MANAGEMENT
The Trustees of the Trust are responsible for deciding matters of general
policy and reviewing the actions of the Investment Adviser, distributor and
transfer agent. The officers of the Trust conduct and supervise the Fund's daily
business operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -----------------------
<S> <C> <C>
Ashok N. Bakhru, 58 Chairman Chairman of the Board and
P.O. Box 143 & Trustee Trustee--Goldman Sachs Variable Insurance
Lima, PA 19037 Trust (registered investment company)
(since October 1997); President, ABN
Associates (July 1994-March 1996 and
November 1998 to present); Executive Vice
President - Finance and Administration
and Chief Financial Officer, Coty Inc.
(manufacturer of fragrances and
cosmetics) (April 1996-November 1998);
Senior Vice President of Scott Paper
Company (until June 1994); Director of
Arkwright Mutual Insurance Company
(1984-1999); Trustee of International
House of Philadelphia (1989-Present);
Member of Cornell University Council
(1992-Present); Trustee of the Walnut
Street Theater (1992-Present); Director,
Private Equity Investors - III (since
November 1998); Trustee, Citizens
Scholarship Foundation of America (since
1998).
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
*David B. Ford, 54 Trustee Trustee--Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company)
New York, NY 10005 (since October 1997); Director,
Commodities Corp. LLC (futures and
commodities traders) (since April 1997);
Managing Director, J. Aron & Company
(commodity dealer and risk management
adviser) (since November 1996); Managing
Director, Goldman Sachs & Co. Investment
Banking Division (since November 1996);
Chief Executive Officer and 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
Asset Management (since November 1995);
Co-Head and Director, Goldman Sachs Funds
Management, L.P. (since November 1995 and
December 1994, respectively); and
Chairman and Director, Goldman Sachs
Asset Management Japan Limited (since
November 1994).
*Douglas C. Grip, 37 Trustee Trustee and President--Goldman Sachs
32 Old Slip & President Variable Insurance Trust (registered
New York, NY 10005 investment company) (since October 1997);
Trustee, Trust for Credit Unions
(registered investment company) (since
March 1998); Managing Director, Goldman
Sachs Asset Management Group (since
November 1997); President, Goldman Sachs
Funds Group (since April 1996); and
President, MFS Retirement Services Inc.,
of Massachusetts Financial Services
(prior thereto).
</TABLE>
B-23
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
*John P. McNulty, 47 Trustee Trustee--Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company)
New York, NY 10005 (since October 1997); Managing Director,
Goldman Sachs (since November 1996); Head
of Investment Management Division (since
September 1999); General Partner, J. Aron
& Company (commodity dealer and risk
management adviser) (since November
1995); Director and Co-Head, Goldman
Sachs Funds Management L.P. (since
November 1995); Director, Goldman Sachs
Asset Management International (since
January 1996); Co-Head, GSAM (November
1995-September 1999); Director, Global
Capital Reinsurance (insurance) (since
1989); Director, Commodities Corp. LLC
(since April 1997); Limited Partner of
Goldman Sachs (1994-November 1995); and
Trustee, Trust for Credit Unions
(registered investment company) (January
1996-March 1998).
</TABLE>
B-24
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
Mary P. McPherson, 64 Trustee Trustee--Goldman Sachs Variable Insurance
The Andrew W. Mellon Foundation Trust (registered investment company)
140 East 62nd Street (since October 1997); Vice President, The
New York, NY 10021 Andrew W. Mellon Foundation (provider of
grants for conservation, environmental
and educational purposes) (since October
1997); President of Bryn Mawr College
(1978-1997); Director, Smith College
(since 1998); Director, Josiah Macy, Jr.
Foundation (health educational programs)
(since 1977); Director, the Philadelphia
Contributionship (insurance) (since
1985); Director Emeritus, Amherst College
(1986-1998); Director, Dayton Hudson
Corporation (general retailing
merchandising) (1988-1997); Director, The
Spencer Foundation (educational research)
(since 1993); member of PNC Advisory
Board (banking) (since 1993); and
Director, American School of Classical
Studies in Athens (since 1997).
*Alan A. Shuch, 50 Trustee Trustee--Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company)
New York, NY 10005 (since October 1997); Advisory Director-GSAM
(since May 1999); Limited Partner, Goldman
Sachs (prior to May 1999); Consultant to
GSAM (since December 1994).
William H. Springer, 70 Trustee Trustee--Goldman Sachs Variable Insurance
701 Morningside Drive Trust (registered investment company)
Lake Forest, IL 60045 (since October 1997); Director, The
Walgreen Co. (a retail drug store
business) (April 1988-January 2000);
Director of Baker, Fentress & Co. (a
closed-end, non-diversified management
investment company) (April 1992-present);
and Chairman and Trustee, Northern
Institutional Funds (since April 1984).
</TABLE>
B-25
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
Richard P. Strubel, 60 Trustee Trustee--Goldman Sachs Variable Insurance
500 Lake Cook Road Trust (registered investment company)
Suite 150 (since October 1997); President and COO,
Deerfield, IL 60015 UNext.com (provider of educational
services via the internet) (since 1999);
Director, Gildan Activewear Inc. (since
February 1999); Director of Kaynar
Technologies Inc. (since March 1997);
Managing Director, Tandem Partners, Inc.
(1990-1999); 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)
and Director, Cantilever Technologies,
Inc. (since 1999).
*Nancy L. Mucker, 50 Vice President Vice President--Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President and
Co-Manager of Funds Group Shareholder
Servicing, Goldman Sachs (since April
1985).
*John M. Perlowski, 35 Treasurer Treasurer--Goldman Sachs Variable
32 Old Slip Insurance Trust (registered investment
New York, NY 10005 company) (since 1997); Vice President,
Goldman Sachs (since July 1995); and
Banking Director, Investors Bank and
Trust (November 1993-July 1995).
*James A. Fitzpatrick, 39 Vice President Vice President--Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since October 1997); Managing
Director, Goldman Sachs (since October
1999); Vice President of GSAM (April
1997-December 1999); and Vice President
and General Manager, First Data
Corporation - Investor Services Group
(1994 to 1997).
</TABLE>
B-26
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
*Jesse Cole, 36 Vice President Vice President--Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1998); Vice President,
GSAM (June 1998 to present); Vice
President, AIM Management Group, Inc.
(investment adviser) (April 1996-June
1998); and Assistant Vice President, The
Northern Trust Company (June 1987-April
1996).
*Kerry K. Daniels, 37 Vice President Vice President--Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since April 2000); and Manager,
Institutional Account Administration -
Shareholder Services, Goldman Sachs
(since 1986).
*Mary F. Hoppa, 36 Vice President Vice President--Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since April 2000); Vice
President, Goldman Sachs (since October
1999); and Senior Vice President and
Director of Mutual Fund Operations,
Strong Capital Management (January 1987
- September 1999)
*Philip V. Giuca , Jr., 37 Assistant Treasurer Assistant Treasurer--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997); and
Vice President, Goldman Sachs (May
1992-Present).
*Michael J. Richman, 39 Secretary Secretary--Goldman Sachs Variable
1 Liberty Plaza Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); General Counsel of
the Funds Group of GSAM (since December
1997); Associate General Counsel of GSAM
(February 1994-December 1997); Counsel to
the Funds Group, GSAM (June 1992-December
1997); Associate General Counsel, Goldman
Sachs (since December 1998); Vice
President of Goldman Sachs (since June
1992); and Assistant General Counsel of
Goldman Sachs (June 1992 to December
1998).
</TABLE>
B-27
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
*Howard B. Surloff, 34 Assistant Secretary Assistant Secretary--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
Assistant General Counsel, GSAM and
General Counsel to the U.S. Funds Group
(since December 1997); Assistant General
Counsel and Vice President, Goldman Sachs
(since November 1993 and May 1994,
respectively); and Counsel to the Funds
Group, GSAM (November 1993-December 1997).
*Valerie A. Zondorak, 34 Assistant Secretary Assistant Secretary--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
Assistant General Counsel, GSAM and
Assistant General Counsel to the Funds
Group (since December 1997); Vice
President and Assistant General Counsel,
Goldman Sachs (since March 1997); Counsel
to the Funds Group, GSAM (March
1997-December 1997); and Associate of
Shereff, Friedman, Hoffman & Goodman
(September 1990 to February 1997).
*Deborah A. Farrell, 28 Assistant Secretary Assistant Secretary--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997); Legal
Products Analyst, Goldman Sachs (since
December 1998); Legal Assistant, Goldman
Sachs (January 1996-December 1998);
Assistant Secretary to the Funds Group
(1996 to present); and Executive
Secretary, Goldman Sachs (January
1994-January 1996).
*Kaysie P. Uniacke, 39 Assistant Secretary Assistant Secretary--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
Managing Director, GSAM (since 1997);
Vice President and Senior Portfolio
Manager, GSAM (1988 to 1997).
</TABLE>
B-28
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
----------- ---------- -------------------
<S> <C> <C>
*Elizabeth D. Anderson, 30 Assistant Secretary Assistant Secretary--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1997);
Portfolio Manager, GSAM (since April
1996); Junior Portfolio Manager, GSAM
(1995-April 1996); and Funds Trading
Assistant, GSAM (1993-1995).
*Amy E. Belanger, 30 Assistant Secretary Assistant Secretary--Goldman Sachs
32 Old Slip Variable Insurance Trust (registered
New York, NY 10005 investment company) (since 1999); Vice
President, Goldman Sachs (since June
1999); Counsel, Goldman Sachs (since
1998); and Associate, Dechert Price &
Rhoads (September 1996-1998).
</TABLE>
The Trustees and offices of the Trust hold comparable positions with
certain other investment companies of which Goldman Sachs, GSAM or one of their
affiliates is the investment adviser, administrator and/or distributor. The
Trust pays each Trustee, other than those who are "interested persons" of
Goldman Sachs, a fee for each Trustee meeting attended and an annual fee. Such
Trustees are also reimbursed for travel expenses incurred in connection with
attending such meetings.
B-29
<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 October
31, 1999 with respect to each of the Trust's funds then in existence:
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as From Goldman Sachs
Compensation from Part of Trust's Funds Complex
Name of Trustee the Trust2 Expenses (including the Trust)3
--------------- ---------- -------- ----------------------
<S> <C> <C> <C>
Ashok N. Bakhru1 $112,115.97 $0 $136,000
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPherson 83,283.91 0 101,000
Alan A. Shuch 0 0 0
Jackson W. Smart/4/ 83,283.91 0 101,000
William H. Springer 83,283.91 0 101,000
Richard P. Strubel 83,283.91 0 101,000
</TABLE>
--------------------------------------------------------------------------------
1 Includes compensation as Chairman of the Board of Trustees.
2 Reflects amount paid by the Trust's funds during fiscal year ended October
31, 1999. During this period, the Fund had not offered shares.
3 The Goldman Sachs Funds complex consists of Goldman Sachs Trust and Goldman
Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of 50 mutual
funds, including 8 fixed-income funds, on October 31, 1999. Goldman Sachs
Variable Insurance Trust consisted of 16 mutual funds on October 31, 1999.
4 No longer a trustee of the Trust.
The Trust, its Investment Advisers and principal underwriter have adopted
codes of ethics under Rule 17j-1 of the Act that permit personnel subject to
their particular code of ethics to invest in securities, including securities
that may be purchased or held by the Fund.
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.
INVESTMENT ADVISERS
-------------------
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM. GSAM, 32 Old Slip, New York, New York 10005, a unit of the
Investment Management Division of Goldman Sachs,
B-30
<PAGE>
serves as the Fund's Investment Adviser pursuant to a Management Agreement. See
"Service Providers" in the Fund's Prospectuses for a description of the
Investment Adviser's duties to the Fund.
The Goldman Sachs Group, L.P., which controlled the Fund's Investment
Adviser, merged into The Goldman Sachs Group, Inc., as a result of an initial
public offering.
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 also is 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, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan,
Montreal, 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. Goldman Sachs has agreed to permit
the Fund to use the name "Goldman Sachs" or a derivative thereof as part of its
name for as long as the Fund's Management Agreement is in effect.
The 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. The Goldman Sachs Global Investment Research
Department covers approximately 2,200 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
Adviser. The Investment Adviser manages money for some of the world's largest
institutional investors.
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 United States 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. For example, Goldman Sachs' options evaluation model analyzes each
security's term, coupon and call option, providing an overall analysis of the
security's value relative to its interest risk.
In structuring the Fund's securities portfolio, the Investment Adviser will
review the existing overall economic 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 Fund's investment guidelines.
The Investment Adviser expects to utilize Goldman Sachs' sophisticated
option-adjusted analytics to help make strategic asset allocations within the
markets for U.S. Government and other securities and to employ this technology
periodically to re-evaluate the Fund's investments as market conditions change.
The fixed-income research capabilities of Goldman Sachs available to the
Investment Advisers include the Goldman Sachs Fixed Income Research Department
and the Credit Department. The Fixed
B-31
<PAGE>
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
the Fund's investments.
The Management Agreement provides that GSAM, in its capacity as Investment
Adviser may render similar services to others so long as the services under the
Management Agreement are not impaired thereby. The Management Agreement was
initially approved with respect to the Fund by the Trustees of the Trust,
including a majority of the Trustees of the Trust who are not parties to such
agreements or "interested persons" (as such term is defined in the Act) of any
party thereto (the "non-interested Trustees"), on April 26, 2000. The Fund's
sole shareholder approved these arrangements on _________, 2000. The Management
Agreement will remain in effect until June 30, 2001 and will continue in effect
with respect to the Fund from year to year thereafter provided such continuance
is specifically approved at least annually by (a) the vote of a majority of the
Fund's outstanding voting securities or a majority of the Trustees of the Trust,
and (b) the vote of a majority of the non-interested Trustees of the Trust cast
in person at a meeting called for the purpose of voting on such approval.
The Management Agreement will terminate automatically if assigned (as
defined in the Act). The Management Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
Investment Adviser or by the Investment Adviser on 60 days' written notice to
the Trust.
Pursuant to the Management Agreement, the Investment Adviser is entitled to
receive fees, payable monthly, at the annual rate of 0.25% of the Fund's average
daily net assets. Prior to the date of this Additional Statement, no shares of
the Fund had been offered and accordingly, no fees were paid by the Fund to the
Investment Adviser pursuant to the Management Agreement.
The Investment Adviser performs administrative services for the Funds under
the Management Agreement. Such administrative services include, subject to the
general supervision of the Trustees of the Trust, (a) providing supervision of
all aspects of the Fund's non-investment operations (other than certain
operations performed by others pursuant to agreements with the Fund); (b)
providing the Fund, to the extent not provided pursuant to the agreement with
the Trust's custodian, transfer and dividend disbursing agent or agreements with
other institutions, with personnel to perform such executive, administrative and
clerical services as are reasonably necessary to provide effective
administration of the Fund; (c) arranging, to the extent not provided pursuant
to such agreements, for the preparation, at the Fund's expense, of the Fund's
tax returns, reports to shareholders, periodic updating of the Fund's
prospectuses and statements of additional information, and reports filed with
the SEC and other regulatory authorities; (d) providing the Fund, to the extent
not provided pursuant to such agreements, with adequate office space and certain
related office equipment and services; and (e) maintaining all of the Fund's
records other than those maintained pursuant to such agreements.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
-------------------------------------------------------------------------
by Goldman Sachs. The involvement of the Investment 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 Fund or impede its investment activities.
B-32
<PAGE>
Goldman Sachs and its affiliates, including, without limitation, the
Investment 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 Fund and/or which engage in
transactions in the same types of securities, currencies and instruments as the
Fund. 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 Fund invests. Such activities could
affect the prices and availability of the securities, currencies, and
instruments in which the Fund invests, which could have an adverse impact on the
Fund's performance. Such transactions, particularly in respect of proprietary
accounts or customer accounts other than those included in the Investment
Adviser's and its advisory affiliates' asset management activities, will be
executed independently of the Fund's transactions and thus at prices or rates
that may be more or less favorable. When the Investment Adviser and its advisory
affiliates seek to purchase or sell the same assets for their managed accounts,
including the Fund, the assets actually purchased or sold may be allocated among
the accounts on a basis determined in their 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 Fund.
From time to time, the Fund's 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 Investment Adviser, and/or its
affiliates, will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Investment Adviser
and/or its affiliates are performing services or when position limits have been
reached.
In connection with their management of the Fund, the Investment Adviser may
have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Investment Adviser will not
be under any obligation, however, to effect transactions on behalf of the Fund
in accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Fund and it is not anticipated that the
Investment Adviser will have access to such information for the purpose of
managing the Fund. 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 Adviser in managing the Fund.
The results of the Fund's investment activities may differ significantly
from the results achieved by the Investment Adviser and its affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment results
which are substantially more or less favorable than the results achieved by the
Fund. Moreover, it is possible that the 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.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding the Fund's activities,
but will not be involved in the day-to-day management of the Fund. In such
instances, those individuals may, as a result, obtain information
B-33
<PAGE>
regarding the Fund's proposed investment activities which is not generally
available to the public. In addition, by virtue of their affiliation with
Goldman Sachs, any such member of an investment policy committee will have
direct or indirect interests in the activities of Goldman Sachs and its
affiliates in securities and investments similar to those in which the Fund
invests.
In addition, certain principals and certain employees of the Investment
Adviser 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 Fund should be aware.
The Investment Adviser may enter into transactions and invest in
instruments on behalf of the 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 the Fund, and such party may
have no incentive to assure that the Fund obtains the best possible prices or
terms in connection with the transactions. Goldman Sachs and its affiliates may
also create, write or issue derivative instruments for customers of Goldman
Sachs or its affiliates, the underlying securities or instruments of which may
be those in which the Fund invests or which may be based on the performance of
the Fund. The Fund 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 Fund. 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 Fund will deal with Goldman Sachs and its
affiliates on an arms-length basis.
The Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with the Fund's establishment of its business relationships, nor is
it expected that the Fund's counterparties will rely on the credit of Goldman
Sachs or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of the Fund in order to increase the
assets of the Fund. Increasing the Fund's assets may enhance investment
flexibility and diversification and may contribute to economies of scale that
tend to reduce the Fund's expense ratio. Goldman Sachs reserves the right to
redeem at any time some or all of the shares of the Fund acquired for its own
account. A large redemption of shares of the Fund by Goldman Sachs could
significantly reduce the asset size of the Fund, which might have an adverse
effect on the Fund's investment flexibility, portfolio diversification and
expense ratio. Goldman Sachs will consider the effect of redemptions on the Fund
and other shareholders in deciding whether to redeem its shares.
It is possible that the Fund's holding 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 Fund's flexibility in purchases and
sales of securities. When Goldman Sachs is engaged in and underwriting or other
distribution of securities of an entity, the Investment Adviser may be
prohibited from purchasing or recommending the purchase of certain securities of
that entity for the Fund.
B-34
<PAGE>
Distributor and Transfer Agent
------------------------------
Goldman Sachs, 85 Broad Street, New York, New York 10004 serves as the
exclusive distributor of shares of the Fund pursuant to a "best efforts"
arrangement as provided by a distribution agreement with the Trust on behalf of
the Fund. Shares of the Fund are offered and sold on a continuous basis by
Goldman Sachs, acting as agent. Pursuant to the distribution agreement, after
the Fund's Prospectuses 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 other financial service firms (the "Authorized Dealers")
to solicit subscriptions for the Fund's Class A Shares. Goldman Sachs receives a
portion of the sales load imposed on the sale of Class A Shares. Prior to the
date of this Additional Statement, no shares of the Fund had been offered and,
accordingly, Goldman Sachs retained no sales commissions on the sale of Class A
Shares.
Goldman Sachs, 4900 Sears Tower, Chicago, IL 60606 serves as the Trust's
transfer and dividend disbursing agent. Under its transfer agency agreement with
the Trust, Goldman Sachs has undertaken with the Trust to: (a) record the
issuance, transfer and redemption of shares; (b) provide purchase and redemption
confirmations and quarterly statements, as well as certain other statements; (c)
provide certain information to the Trust's custodian and the relevant
subcustodian in connection with redemptions; (d) provide dividend crediting and
certain disbursing agent services; (e) maintain shareholder accounts; (f)
provide certain state Blue Sky and other information; (g) provide shareholders
and certain regulatory authorities with tax-related information; (h) respond to
shareholder inquiries; and (i) 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, to 0.19% of average daily net assets with
respect to the Fund's Class A Shares. Prior to the date of this Additional
Statement, no shares of the Fund had been offered and, accordingly, no fees were
paid by the Fund to Goldman Sachs as transfer agent.
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 Fund are not impaired thereby. Each such agreement
also provides that the Trust will indemnify Goldman Sachs against certain
liabilities.
Expenses
--------
The Trust, on behalf of the Fund, is responsible for the payment of the
Fund's expenses. The expenses include, without limitation, the fees payable to
the Investment Adviser, the fees and expenses of 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, tax and auditing fees and expenses (including
the cost of legal and certain accounting services rendered by employees of
Goldman Sachs, or its affiliates, with respect to the Trust), expenses of
preparing and setting in type Prospectuses, Additional Statements, 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 the
Fund pursuant to the distribution and service plan for its Class A
B-35
<PAGE>
Shares, any compensation and expenses of its "non-interested" Trustees and
extraordinary expenses, if any, incurred by the Trust.
The imposition of the Investment Adviser's fees, as well as other operating
expenses, will have the effect of reducing the total return to investors. From
time to time, the Investment Adviser may waive receipt of fees and/or
voluntarily assume certain expenses of the Fund, which would have the effect of
lowering the Fund's overall expense ratio and increasing total return to
investors at the time such amounts are waived or assumed, as the case may be.
As of the date of this Additional Statement, the Investment Adviser has
agreed to reduce or limit certain "Other Expenses" (excluding management fees,
distribution and service fees payable under the Distribution and Service Plan,
transfer agency fees, taxes, interest, brokerage fees and litigation,
indemnification and other extraordinary expenses) for the Fund to the extent
such expenses exceed .01% of average daily net assets.
Such reductions or limits are calculated monthly on a cumulative basis. The
Investment Adviser may modify or discontinue such expense limitations or the
limitations on the management fees, described above under "Management --
Investment Adviser," in the future at its discretion.
Fees and expenses of legal counsel, registering shares of the Fund, holding
meetings and communicating with shareholders may include an allocable portion of
the cost of maintaining an internal legal and compliance department. The Fund
may also bear an allocable portion of the costs incurred by the Investment
Adviser in performing certain accounting services not being provided by the
Trust's custodian.
Custodian and Sub-Custodians
----------------------------
State Street Bank and Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, Massachusetts 02110, is the custodian of the Trust's portfolio
securities and cash. State Street also maintains the Trust's accounting records.
State Street may appoint domestic and foreign sub-custodians from time to time
to hold certain securities purchased by the Trust in foreign countries and to
hold cash and currencies for the Trust.
Independent Auditors
--------------------
Ernst & Young LLP, independent auditors, 787 Seventh Avenue, New York, New
York 10019, have been selected as auditors of the Fund for the fiscal year
ending October 31, 2000. In addition to audit services, Ernst & Young LLP will
prepare the Fund's federal and state tax returns, and will provide consultation
and assistance on accounting, internal control and related matters.
PORTFOLIO TRANSACTIONS
The portfolio transactions for the Fund are generally effected at a net
price without a broker's commission (i.e., a dealer is dealing with the 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 in which the Fund may invest are traded on
exchanges at fixed commission rates. In connection with portfolio transactions,
the Management Agreement provides that the Investment Adviser shall attempt to
obtain the most favorable execution and net price available. The
B-36
<PAGE>
Management Agreement provides that, on occasions when the Investment Adviser
deems the purchase or sale of a security to be in the best interests of the Fund
as well as its other customers (including any other fund or other investment
company or advisory account for which the Investment Adviser or an affiliate
acts as Investment Adviser), the Fund, to the extent permitted by applicable
laws and regulations, may aggregate the securities to be sold or purchased for
the Fund with those to be sold or purchased for such other customers in order to
obtain the best net price and most favorable execution. 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 Investment Adviser in the
manner it considers to be most equitable and consistent with its fiduciary
obligations to the Fund and such other customers. In some instances, this
procedure may adversely affect the size and price of the position obtainable for
the Fund. The Management Agreement permits each Investment Adviser, in its
discretion, to purchase and sell portfolio securities to and from dealers who
provide the Trust with brokerage or research services in which dealers may
execute brokerage transactions at a higher cost to the Fund. Brokerage and
research services furnished by firms through which the Fund effects its
securities transactions may be used by the Investment Adviser in servicing other
accounts and not all of these services may be used by the Investment Adviser in
connection with the Fund. Such research or other services may include research
reports on companies, industries and securities; economic and financial data;
financial publications; computer databases; quotation equipment and services;
and research-oriented computer hardware, software and other services. The fees
received under the Management Agreement are not reduced by reason of the
Investment Adviser receiving such brokerage and research services.
Such services are used by the Investment Adviser in connection with all of
its investment activities, and some of such services obtained in connection with
the execution of transactions of the 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 the Fund, and the services
furnished by such brokers may be used by the Investment Adviser in providing
management services for the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of the Fund as well as shares of other investment companies or
accounts managed by the Investment Adviser. This policy does not imply a
commitment to execute all portfolio transactions through all broker-dealers that
sell shares of the Fund.
Subject to the above considerations, the Investment Adviser may use Goldman
Sachs as a broker for the Fund. In order for Goldman Sachs to effect any
portfolio transactions for the 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 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. As of the date of this Additional
Statement, no shares of the Fund had been offered and, accordingly, the Fund
paid no brokerage commissions.
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SHARES OF THE TRUST
The Fund is a series of Goldman Sachs Trust, a Delaware business trust
established by an Agreement and Declaration of Trust dated 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 any series of shares into one or more classes of 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 of
assets specifically allocated to such class or series. As of the date of this
Additional Statement, the Trustees have authorized the issuance of three classes
of shares of the Fund: Class A Shares, Institutional Shares and Administration
Shares. Additional series may be added in the future. As of the date of this
Additional Statement, no Class A Shares, Institutional Shares or Administration
Shares of the Fund were outstanding. Only Class A Shares are described in this
Additional Statement.
Each Class A Share, Institutional Share and Administration Share of the
Fund represents a proportionate interest in the assets belonging to the
applicable class of the Fund. All expenses of the Fund are borne at the same
rate by each class of shares, except that fees under the Distribution and
Service Plan are borne exclusively by Class A Shares and fees under the
Administration Plan are borne exclusively by Administration Shares. Transfer
agency fees are borne at different rates by Class A Shares than Institutional
and Administration Shares. The Trustees may determine in the future that it is
appropriate to allocate other expenses differently among classes of shares and
may do so to the extent consistent with the rules of the SEC and positions of
the IRS. 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.
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.
("NASD") and certain other financial service firms that have sales agreements
with Goldman Sachs. Class A Shares of the Fund 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.
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 the Fund for services provided to the institution's customers.
Administration Shares may be purchased at net asset value without a sales
charge for accounts held in the name of an institution that provides certain
account administration services to its customers, including maintenance of
account records and processing orders to purchase, redeem and exchange
Administration Shares. Administration Shares bear the cost of account
administration fees at the annual rate of up to 0.25% of the average daily net
assets of such Administration Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Class A, Institutional and Administration Shares) to
its customers and thus receive different compensation with respect to different
classes of shares of the Fund. Dividends paid by the Fund, if any, with respect
to each class of shares will be calculated in the same manner, at the same time
on the same day and will be
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in the same amount, except for differences caused by the fact that the
respective account, transfer agency, distribution and service and administration
fees relating to a particular class will be borne exclusively by that class.
Similarly, the net asset value per share may differ depending upon the class of
shares purchased.
Certain aspects of the shares may be altered, after advance notice to
shareholders, if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable class of the Fund 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 Fund's shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Fund are reflected in
account statements from the Transfer Agent.
The Act requires that where more than one class or series of shares exists,
each class or series must be preferred over all other classes or series in
respect of assets specifically allocated to such class or series. 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. 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
without the vote or consent of the 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 shareholders 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 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
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
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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, series or class or affecting assets of the type in which it
invests; or (iii) economic developments or trends having a significant adverse
impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company 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 affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Trust, all the powers and authorities of Trustees under the
Declaration of Trust with respect to any other series or class.
Shareholder and Trustee Liability
Under Delaware law, the shareholders of the Fund 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 against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Fund. Notice of such disclaimer will normally be given
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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
Fund for all loss suffered by a shareholder as a result of an obligation of the
series. The Declaration of Trust also provides that a series shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the series and satisfy any judgment thereon. In view of the
above, the risk of personal liability of shareholders of a Delaware business
trust is remote.
In addition to the requirement 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 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 shareholders making such request to reimburse the
Fund 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.
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining in
good faith the fair value of the Fund's securities. In accordance with
procedures adopted by the Trustees of the Trust, the net asset value per share
of each class of the Fund is calculated by determining the value of the net
assets attributable to each class 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, Labor Day, Thanksgiving Day
and Christmas Day.
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, the Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
For the purpose of calculating the Fund's net asset value, investments are
valued under valuation procedures established by the Trustees. Portfolio
securities, for which accurate market quotations are readily available, other
than money market instruments, are valued via electronic feeds to the custodian
bank containing dealer-supplied bid quotations or bid quotations from a
recognized pricing service. Securities for which a pricing service either does
not supply a quotation or supplies a quotation that is believed by the
Investment Adviser to be in accurate, will be valued based on bid-side broker
quotations.
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<PAGE>
Securities for which the custodian bank is unable to obtain an external price as
provided above or with respect to which the Investment Adviser believes an
external price does not reflect accurate market values, will be valued by the
Investment Adviser in good faith based on valuation models that take into
account spread and daily yield changes on government securities (i.e., matrix
pricing). Other securities are valued as follows: (a) overnight repurchase
agreements will be valued at cost; (b) term repurchase agreements (i.e., those
whose maturity exceeds seven days) and swaps, caps, collars and floors will be
valued at the average of the bid quotations obtained daily from at least one
dealer; (c) debt securities with a remaining maturity of 60 days or less are
valued at amortized cost, which the Trustees have determined to approximate fair
value; (d) spot and forward foreign currency exchange contracts will be valued
using a pricing service such as Reuters (if quotations are unavailable from a
pricing service or, if the quotations by the Investment Adviser are believed to
be inaccurate, the contracts will be valued by calculating the mean between the
last bid and asked quotations supplied by at least one independent dealers in
such contracts); (e) exchange-traded options and futures contracts will be
valued by the custodian bank at the last sale price on the exchange where such
contracts and options are principally traded if accurate quotations are readily
available; and (f) over-the-counter options will be valued by a broker
identified by the portfolio manager/trader.
All other securities, including those for which a pricing service supplies
no exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate, will be valued at fair value as stated in the
valuation procedures which were approved by the Board of Trustees.
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 Fund's 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 the Fund to price its securities but before the close
of regular trading on the New York Stock Exchange will normally not be reflected
in the 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 the Fund and each other series of the Trust from
the issue or sale of its shares, and all net investment income, realized and
unrealized gain and proceeds thereof, subject only to the rights of creditors,
will be specifically allocated to the Fund and constitute the underlying assets
of that Fund or series. The underlying assets of the Fund will be segregated on
the books of account, and will be charged with the liabilities in respect of the
Fund and with a share of the general liabilities of the Trust. Expenses of the
Trust with respect to the Fund and the other series of the Trust are generally
allocated in proportion to the net asset values of the respective Funds or
series except where allocations of direct expenses can otherwise be fairly made.
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 Fund shares. This summary does
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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 the Fund. This summary is based on the laws in effect on the date
of this Additional Statement, which are subject to change.
General
-------
The Fund is treated as a separate entity for tax purposes, intends to elect
to be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, the Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, the Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
There are certain tax requirements that the Fund must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the Fund
may have to limit its investment activities in some types of instruments.
Qualification as a regulated investment company under the Code requires, among
other things, that (a) the Fund derive at least 90% of its gross income
(including tax-exempt interest) 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) the Fund diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of its 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 the Fund's total assets and to not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total (gross) assets is invested in the
securities of any one issuer (other than U.S. Government Securities and
securities of other regulated investment companies) or two or more issuers
controlled by the Fund and engaged in the same, similar or related trades or
businesses.
As a regulated investment company, the Fund will not be subject to U.S.
federal income tax on the portion of its income and capital gains that it
distributes to its shareholders in any taxable year for which it distributes, in
compliance with the Code's timing and other requirements, at least 90% of its
"investment company taxable income" (which includes dividends, taxable interest,
taxable original issue discount income, market discount income, income from
securities lending, 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 ("net tax-exempt
interest"). The Fund may retain for investment its "net capital gain" (which
consists of the excess of its net long-term capital gain over its net short-term
capital loss). However, if the Fund retains any investment company taxable
income or net capital gain, it will be subject to tax at regular corporate rates
on the amount retained. If the Fund retains any net capital gain, it may
designate the retained amount as undistributed net capital gain in a notice to
its shareholders who, if subject to U.S. federal income tax on long-term capital
gains, (a) will be required to include in income for federal income tax
purposes, as long-term capital gain, their shares of such undistributed amount;
and (b) will be entitled to credit their proportionate shares of the tax paid by
the Fund against their U.S. federal income
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tax liabilities, if any, and to claim refunds to the extent the credit exceeds
such liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. The Fund intends to distribute for each taxable
year to its shareholders all or substantially all of its investment company
taxable income (if any), 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 Fund and may therefore make it more difficult
for the Fund to satisfy the distribution requirements described above, as well
as the excise tax distribution requirements described below. However, the 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 the Fund does not qualify as a regulated investment company, it
will be taxed on all of its investment company taxable income and net capital
gain at corporate rates, its net tax-exempt interest (if any) may be subject to
the alternative minimum tax, and its distributions to shareholders will be
taxable as ordinary dividends to the extent of its current and accumulated
earnings and profits.
For federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss.
In order to avoid a 4% federal excise tax, the Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year) and 100% of any taxable
ordinary income and the excess of capital gains over capital losses for the
prior year that were not distributed during such year and on which the Fund did
not pay federal income tax. The Fund anticipates that it 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, dividends declared by the Fund in October,
November or December as of a record date in such a month that are actually paid
in January of the following year will be treated as if they were received by
shareholders on December 31 of the year declared.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
forward contracts and futures contracts) will generally be treated as capital
gain and losses. Certain of the futures contracts, forward contracts and options
held by the 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 the 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 the Fund, the Fund may be required to defer the
recognition of losses on futures or forward contracts and options or underlying
securities or foreign currencies to the extent of any unrecognized gains on
related positions held by the 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 the Fund's distributions to shareholders. Certain tax
elections may be available to the Fund to mitigate some of the unfavorable
consequences described in this paragraph.
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The Fund may be subject to foreign taxes on income (possibly including, in
some cases, capital gains) from foreign securities. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes in
some cases.
If the Fund acquires stock (including, under proposed regulations, an
option to acquire stock such as is inherent in a convertible bond) in certain
foreign corporations ("passive foreign investment companies") 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, the Fund could be subject
to federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of such stock in such
companies, even if all income or gain actually received by the Fund is timely
distributed to its shareholders. The Fund would not be able to pass through to
its shareholders any credit or deduction for such a tax. Certain elections may,
if available, ameliorate these adverse tax consequences, but any such election
would require the Fund to recognize taxable income or gain without the
concurrent receipt of cash. The Fund may limit and/or manage its holdings in
passive foreign investment companies to minimize their tax liability or maximize
their return from these investments.
A Fund's investment in zero coupon securities or other securities bearing
original issue discount or, if the Fund elects to include market discount in
income currently, market discount, as well as any "mark-to-market" gain from
certain options, futures or forward contracts, as described above, will
generally cause it to realize income or gain prior to the receipt of cash
payments with respect to these securities or contracts. In order to obtain cash
to enable it to distribute this income or gain, maintain its qualification as a
regulated investment company and avoid federal income or excise taxes, the Fund
may be required to liquidate portfolio securities that it might otherwise have
continued to hold.
The federal income tax rules applicable to interest rate swaps, floors,
caps and collars are unclear in certain respects, and the Fund may also be
required to account for these instruments under tax rules in a manner that,
under certain circumstances, may limit its transactions in these instruments.
Taxable U.S. Shareholders -- Distributions
Distributions from investment company taxable income, as defined above, are
taxable to shareholders who are subject to tax as ordinary income whether paid
in cash or reinvested in additional shares. Taxable distributions include
distributions from the Fund that are attributable to (a) taxable income,
including but not limited to dividends, taxable bond interest, recognized market
discount income, original issue discount income accrued with respect to taxable
bonds, income from repurchase agreements, income from securities lending, income
from interest rate swaps, caps, floors and collars; or (b) capital gains from
the sale of securities or other investments (including from the disposition of
rights to when-issued securities prior to issuance) or from options, futures or
certain forward contracts. Any portion of such taxable distributions that is
attributable to the Fund's net capital gain, as defined above, may be designated
by the Fund as a "capital gain dividend," taxable to shareholders as long-term
capital gain whether received in cash or additional shares and regardless of the
length of time their shares of the Fund have been held.
It is expected that distributions made by the Fund will ordinarily not
qualify for the dividends-received deduction for corporations because qualifying
distributions may be made only from the Fund's dividend income that it receives
from stock in U.S. domestic corporations. The Fund does not intend to purchase
stock of domestic corporations other than in limited instances, including
investments in investment companies, distributions from which may in rare cases
qualify as dividends for this purpose.
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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 the 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.
Receipt of certain distributions qualifying for the deduction may result in
reduction of the tax basis of the corporate shareholder's shares and may give
rise to or increase its liability for federal corporate alternative minimum tax.
Distributions in excess of the Fund's current and accumulated earnings and
profits, as computed for federal income tax purposes, will first reduce a
shareholder's basis in his or her shares and, after the shareholder's basis is
reduced to zero, will generally constitute capital gains to a shareholder who
holds his or her shares as capital assets.
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 that they would have received had they
elected to receive cash and will have a cost basis in the shares received equal
to such amount.
After the close of each calendar year, the Fund will inform shareholders of
the federal income tax status of its dividends and distributions for such year,
including the portion of such dividends, if any, that qualifies as tax-exempt or
as capital gain, the portion, if any, that should be treated as a tax preference
item for purposes of the federal alternative minimum tax and the foreign tax
credits, if any, associated with such dividends.
All distributions, whether received in shares or in cash, as well as
redemptions and exchanges, must be reported by each shareholder who is required
to file a U.S. federal income tax return.
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. (To aid in computing your tax basis, a
shareholder should generally retain its account statements for the period that
it held shares.) Assuming the shareholder holds the shares as a capital asset at
the time of such sale, such gain or loss should be capital in character, and
long-term if the shareholder has a tax holding period for the shares of more
than one year, otherwise short-term, subject to the rules described below.
Shareholders should consult their own tax advisers with reference to their
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Fund shares is properly treated as a sale for
tax purposes, as is assumed in this discussion. All or a portion of a sales
charge paid in purchasing Class A Shares of the Fund cannot be taken into
account for purposes of determining gain or loss on the redemption or exchange
of such shares within 90 days after their purchase to the extent shares of the
Fund or another fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. Any disregarded portion of
such charge will result in an increase in the shareholder's tax basis in the
shares subsequently acquired. If a shareholder received a capital gain dividend
with respect to shares and such shares have a
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tax holding period of six months or less at the time of the sale or redemption,
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.
Additionally, any loss realized on a sale or redemption of shares of the Fund
may be disallowed under "wash sale" rules to the extent the shares disposed of
are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of the Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Backup Withholding
The Fund will be required to report to the IRS all taxable distributions,
as well as gross proceeds from the redemption or exchange of Fund shares, except
in the case of certain exempt recipients, i.e., corporations and certain other
investors distributions to which are exempt from the information reporting
provisions of the Code. Under the backup withholding provisions of Code Section
3406 and applicable Treasury regulations, all such reportable distributions and
proceeds may be subject to backup withholding of federal income tax at the rate
of 31% in the case of non-exempt shareholders who fail to furnish the Fund with
their correct taxpayer identification number ("TIN") and with certain required
certifications or if the IRS or a broker notifies the Fund that the number
furnished by the shareholder is incorrect or that the shareholder is subject to
backup withholding as a result of failure to report interest or dividend income.
The Fund may refuse to accept an application that does not contain any required
taxpayer identification number or certification that the number provided is
correct. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in 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. If a
shareholder does not have a TIN, it should apply for one immediately by
contacting the local office of the Social Security Administration or the
Internal Revenue Service (IRS). Backup withholding could apply to payments
relating to a shareholder's account while it is waiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished. Investors should consult their tax advisers about the
applicability of the backup withholding provisions.
Non-U.S. 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. Dividends from investment company taxable income distributed by the
Fund to a shareholder who is not a U.S. person will be subject to U.S.
withholding tax at the rate of 30% (or a lower rate provided by an applicable
tax treaty) unless the dividends are effectively connected with a U.S. trade or
business of the shareholder, in which 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 the Fund which are designated as undistributed capital gains, to a
shareholder who is not a U.S. person 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 shareholder who is not a U.S. person upon a
sale or redemption of shares of the Fund will not be subject to U.S. federal
income or withholding tax unless the gain is
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effectively connected with the shareholder's trade or business in the United
States, or in the case of a shareholder who is a nonresident alien individual,
the shareholder is present in the United States for 183 days or more during the
taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish the Fund with an IRS Form W-8 or
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 Fund.
State and Local Taxes
The Fund may be subject to state or local taxes in certain jurisdictions in
which the Fund may be deemed to be doing business. A state income (and possibly
local income and/or intangible property) tax exemption is generally available to
the extent (if any) the Fund's distributions are derived from interest on (or,
in the case of intangible property taxes, the value of its assets is
attributable to) certain U.S. Government obligations and/or tax-exempt municipal
obligations issued by or on behalf of the particular state or a political
subdivision thereof, provided in some states that certain thresholds for
holdings of such obligations and/or reporting requirements are satisfied. In
addition, in those states or localities which have income tax laws, the
treatment of the Fund and its shareholders under such laws may differ from their
treatment under federal income tax laws, and investment in the Fund may have tax
consequences for shareholders different from those of a direct investment in the
Fund's portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
PERFORMANCE INFORMATION
The Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Thirty-day yield and average annual total return values are computed pursuant to
formulas specified by the SEC. The Fund may also from time to time quote
distribution rates in reports to shareholders and in sales literature.
Thirty-day yield is derived by dividing net investment income per share
earned during the period by the maximum public offering price (including the
effect of the maximum initial sales charge applicable to Class A Shares) per
share on the last day of such period. Yield is then annualized by assuming that
yield is realized each month for 12 months and is reinvested every six months.
Net investment income per share is equal to the dividends and interest earned
during the period, reduced by accrued expenses for the period. The calculation
of net investment income for these purposes may differ from the net investment
income determined for accounting purposes.
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 (including the effect of
the maximum initial sales charge applicable to Class A Shares) at the beginning
of the period, and then calculating the annual compounded rate of return which
would produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete
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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 per share 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. The Fund may also from time to time
advertise total return on a cumulative, average, year-by-year or other basis for
various specified periods by means of quotations, charts, graphs or schedules.
In addition, the Fund may furnish total return calculations based on investments
at various sales charge levels or at NAV. Any performance information which is
based on the Fund's NAV per share would be reduced if any applicable sales
charge were taken into account. In addition to the above, the Fund may from time
to time advertise its performance relative to certain averages, performance
rankings, indices, other information prepared by recognized mutual fund
statistical services and investments for which reliable performance information
is available. The Fund's 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 Fund.
Thirty-day yield, distribution rate and average annual total return are
calculated separately for each class of shares. Each class of shares is subject
to different fees and expenses and may have different returns for the same
period.
The average annual total return calculation reflects a maximum initial
sales charge of 1.5% for the Fund's Class A Shares. As of the date of this
Additional Statement, the Fund had not commenced operations. Accordingly, no
performance information is provided for the Fund.
Occasionally, statistics may be used to specify the Fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
net asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of the Fund relative to the total
market. A beta of more than 1.00 indicates volatility greater than the market,
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average,
over a specified period of time. The premise is that greater volatility
connotes greater risk undertaken in achieving performance.
The Fund may from time to time advertise comparative performance as
measured by various independent sources, including, but not limited to, Lipper
------
Analytical Services, Inc., Donaghue's Money Fund Report, Barron's, The Wall
------------------------- ----- ----
Street Journal, Weisenberger Investment Companies Service, Business Week,
-------------- ----------------------------------------- -------------
Changing Times, Financial World, Forbes, Fortune, Morningstar Mutual Funds The
-------------- --------- ---
New York Times, Personal Investor, Sylvia Porter's Personal Finance and Money.
-------------- ----------------- -------------------------------- -----
In addition, the Fund may from time to time advertise its performance
relative to certain indices, any component of such indices and benchmark
investments, including but not limited to: (a) the Shearson Lehman
Government/Corporate (Total) Index; (b) Shearson Lehman Government Index; (c)
Merrill Lynch 1-3 Year Treasury Index; (d) Merrill Lynch 2-Year Treasury Curve
Index; (e) the
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<PAGE>
Salomon Brothers Treasury Yield Curve Rate of Return Index; (f) the Payden &
Rygel 2-Year Treasury Note Index; (g) 1 through 3 year U.S. Treasury Notes; (h)
constant maturity U.S. Treasury yield indices; (i) the Consumer Price Index; (j)
the London Interbank Offered Rate; (k) other taxable investments such as
certificates of deposit, money market deposit accounts, checking accounts,
savings accounts, money market mutual funds, repurchase agreements, commercial
paper; (l) 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); (m) 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); (n) Stocks, Bonds, Bills and Inflation published
by Ibbotson Associates (which provides historical performance figures for
stocks, government securities and inflation); (o) 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); (p) the Lehman Brothers Aggregate Bond Index
or its component indices; (q) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. government bonds); (r) the J.P.
Morgan Global Government Bond Index; (s) historical investment data supplied by
the research departments of Goldman Sachs, Lehman Brothers Inc., First Boston
Corporation, Morgan Stanley & Co. Incorporated, Salomon Brothers, Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Donaldson Lufkin and Jenrette
Securities Corporation; (t) Donoghue's Money Fund Report (which provides
industry averages for 7-day annualized and compounded yields of taxable,
tax-free and U.S. government money funds); (u) the Lehman Brothers Municipal
Bond Indices; (v) the Merrill Lynch Municipal Bond Institutional Total Rate of
Return Indices; (w) Bond Buyer Indices; and (x) IBC/Donoghue's Money Fund
Averages/Institutional Only Tax Free; and constant maturity U.S. Treasury yield
indices.
The composition of the investments in the above-referenced indices and the
characteristics of the Fund's benchmark investments are not identical to, and in
some cases may be very different from, those of the Fund's portfolio. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by the Fund to calculate its performance figures.
From time to time advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of the Fund), as well as the views of
Goldman Sachs as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
regulated matters believed to be of relevance to the Fund.
Information used in advertisement and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
. cost associated with aging parents;
. funding a college education (including its actual and estimated cost);
. health care expenses (including actual and projected expenses);
. long-term disabilities (including the availability of, and coverage
provided by, disability insurance):
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<PAGE>
. 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 (taxable money market funds,
U.S. Treasury securities, adjustable rate mortgage securities, government
securities, municipal bonds) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of the Fund's portfolio;
. Volatility of total return of various market indices (i.e., Lehman
Government Bond Index, Standard and Poor's 500, IBC/Donoghue's Money Fund
Average/All Taxable Index) over varying periods of time;
. Credit ratings of domestic government bonds in various countries;
. Price volatility comparisons of types of securities over different periods
of time; or
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' research department by publications such as the Institutional Investor
and the Wall Street Journal in advertisements.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be derived from asset allocation strategies
and the Goldman Sachs mutual funds that may be offered as investment options for
the strategic asset allocations. Such advertisements and information may also
include GSAM's current economic outlook and domestic and international market
views to suggest periodic tactical modifications to current asset allocation
strategies. Such advertisements and information may include other material which
highlight or summarize the services provided in support of an asset allocation
program.
In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information
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<PAGE>
may include symbols, headlines or other material which highlight or summarize
the information discussed in more detail therein.
Performance data is based on historical results and is not intended to
indicate future performance. Total return, 30-day yield and distribution rate
will vary based on changes in market conditions, portfolio expenses, portfolio
investments and other factors. The value of the Fund's shares will fluctuate and
an investor's shares may be worth more or less than their original cost upon
redemption. The Trust may also, at its discretion, from time to time make a list
of the Fund's holdings available to investors upon request.
Performance quotations will be calculated separately for each class of
shares in existence. Because each class of shares is subject to different
expenses, the performance of each class of shares of the Fund will differ.
OTHER INFORMATION
As stated in the Prospectuses, the Trust may authorize Authorized Dealers
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. Certain institutions may enter into sub-transfer agency agreements
with the Trust or Goldman Sachs with respect to their services.
The Investment Adviser, Distributor and/or their affiliates may pay, out of
their own assets, compensation to Authorized Dealers and other financial
intermediaries ("Intermediaries") in connection with the sale and distribution
of shares of the Fund and/or servicing of these shares. These payments
("Additional Payments") would be in addition to the payments by the Fund
described in the Fund's Prospectuses and this Additional Statement for
distribution and shareholder servicing and processing and would also be in
addition to the sales commissions payable to Authorized Dealers set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Intermediary's examination of the Fund and payments for
providing extra employee training and information relating to the Fund;
"listing" fees for the placement of the Funds on a dealer's list of mutual funds
available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Fund; "marketing support" fees for providing
assistance in promoting the sale of the Fund's shares; and payments for the sale
of shares and/or the maintenance of share balances. In addition, the Investment
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 Fund. The
Additional Payments made by the Investment 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 Investment
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
Investment 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.
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The Fund will redeem shares solely in cash up to the lesser of $250,000 or
1% of the net asset value of the Fund during any 90- day period for any one
shareholder. The Fund, however, reserves the right to pay redemptions exceeding
$250,000 or 1% of the net asset value of the Fund at the time of redemption by a
distribution in kind of securities (instead of cash) from the Fund. The
securities distributed in kind would be readily marketable and would be valued
for this purpose using the same method employed in calculating the Fund's net
asset value per share. See "Net Asset Value." If a shareholder receives
redemption proceeds in kind, the shareholder should expect to incur transaction
costs upon the disposition of the securities received in the redemption.
The right of a shareholder to redeem shares and the date of payment by the
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for the Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of the Fund. (The
Trust may also suspend or postpone the recommendation of the transfer of shares
upon the occurrence of any of the foregoing conditions).
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.
OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
The following information supplements the information in the Prospectus
under the captions "Shareholder Guide" and "Dividends." Please see the
Prospectus for more complete information.
Other Purchase Information
--------------------------
The sales load waivers on the Fund's 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 the Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the
Fund 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
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concerning the account or to obtain information about the account. The transfer
of shares in a "street name" account to an account with another dealer or to an
account directly with the Fund involves special procedures and will require the
beneficial owner to obtain historical purchase information about the shares in
the account from the Authorized Dealer.
Right of Accumulation
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
Fund and Class A Shares of any other Goldman Sachs Fund total the requisite
amount for receiving a discount. For example, if a shareholder owns shares with
a current market value of $465,000 and purchases additional Class A Shares of
the Fund with a purchase price of $45,000, the sales charge for the $45,000
purchase would be 1.0% (the rate applicable to a single purchase of more than
$500,000). Class A Shares purchased without the imposition of a sales charge and
shares of another class of the Fund may not be aggregated with Class A Shares
purchased subject to a sales charge. Class A Shares of the Fund and any other
Goldman Sachs Fund purchased (a) by an individual, his spouse and his children;
and (b) 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 Fund 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 Fund 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: (a) the business organization's, group's or
firm's agreement to cooperate in the offering of the Fund's shares to eligible
persons; and (b) notification to the Fund at the time of purchase that the
investor is eligible for this right of accumulation. In addition, in connection
with SIMPLE IRA accounts, cumulative quantity discounts are available on a per
plan basis if (a) your employee has been assigned a cumulative discount number
by Goldman Sachs; and (b) your account, alone or in combination with the
accounts of other plan participants also invested in Class A shares of the
Goldman Sachs Funds totals the requisite aggregate amount as described in the
Prospectuses.
Statement of Intention
If a shareholder anticipates purchasing at least $500,000, not counting
reinvestments of dividends and distributions, of Class A Shares of the Fund
alone or in combination with Class A Shares of any other Goldman Sachs Fund
within a 13-month period, the shareholder may purchase shares of the Fund at a
reduced sales charge by submitting a Statement of Intention (the "Statement").
Shares purchased pursuant to a Statement will be eligible for the same sales
charge discount that would have been available if all of the purchases had been
made at the same time. The shareholder or his Authorized Dealer must inform
Goldman Sachs that the Statement is in effect each time shares are purchased.
There is no obligation to purchase the full amount of shares indicated in the
Statement. A shareholder may include the value of all Class A Shares on which a
sales charge has previously been paid as an "accumulation credit" toward the
completion of the Statement, but a price readjustment will be made only on Class
A Shares purchased within 90 days before submitting the Statement. The Statement
authorizes the Transfer Agent to hold in escrow a sufficient number of shares
which can be
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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.
The provisions applicable to the Statement, and the terms of the related
escrow agreement, are set forth in Appendix C to this Additional Statement.
Cross-Reinvestment of Dividends and Distributions
-------------------------------------------------
Shareholders may receive dividends and distributions in additional shares
of the same class of the Fund in which they have invested or they 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 (the "ILA
Portfolios"). A Portfolio shareholder should obtain and read the prospectus
relating to any other Goldman Sachs Fund or ILA Fund and its shares or units and
consider its investment objective, policies and applicable fees before electing
cross-reinvestment into that Fund. 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 ILA Portfolios is
available only in states where such reinvestment may legally be made.
Automatic Exchange Program
--------------------------
A shareholder may elect to exchange automatically a specified dollar amount
of shares of the Fund into an identical account of another Fund or an account
registered in a different name or with a different address, social security or
other taxpayer identification number, provided that the account in the acquired
fund has been established, appropriate signatures have been obtained and the
minimum initial investment requirement has been satisfied. A Fund shareholder
should obtain and read the prospectus relating to any other Goldman Sachs 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 the Fund whose shares are worth at least $5,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the Fund at net asset value. The Transfer Agent acts as agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The Systematic Withdrawal Plan may
be terminated at any time. Goldman Sachs reserves the right to initiate a fee of
up to $5 per withdrawal, upon 30 days written notice to the shareholder.
Withdrawal payments should not be considered to be dividends, yield or income.
If periodic withdrawals continuously exceed new purchases and reinvested
dividends and capital gains distributions, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted. The maintenance of a
withdrawal plan concurrently with purchases of additional Class A Shares would
be disadvantageous because of the sales charge imposed on purchases of Class A
Shares. 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
B-55
<PAGE>
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.
Offering Price
--------------
Class A Shares of Fund are sold at a maximum sales charge of 1.5%. Assuming
a $10.00 initial offering price per share, the maximum offering price of the
Fund's Class A shares would be: net asset value, $10.00; Maximum Sales Charge
1.5%; offering price to public, $ 10.15.
DISTRIBUTION AND SERVICE PLAN
Distribution and Service Plan. As described in the Prospectus, the Trust
-----------------------------
has adopted, on behalf of Class A Shares of the Fund, a distribution and service
plan ("Plan") pursuant to Rule 12b-1 under the Act.
The Plan was initially approved with respect to the Fund on ___________,
2000 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 Plan, cast in person at a meeting called for the
purpose of approving the Plan.
The compensation for distribution services payable under the Plan may not
exceed 0.25% per annum of the Fund's average daily net assets attributable 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.
Prior to the date of this Additional Statement, no shares of the Fund had
been offered and, accordingly, no fees were paid by the Fund to Goldman Sachs
pursuant to the Plan.
The 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 Plan may be paid by Goldman Sachs as distributor to entities which provide
financing for payments to Authorized Dealers in respect of sales of Class A
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 Fund's Class A Shares.
Under the Plan, Goldman Sachs, as distributor of the Fund's Class A 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 and amounts expended by Goldman Sachs under the Plan and the purposes
for which such services were performed and expenditures were made.
B-56
<PAGE>
The Plan will remain in effect until May 1, 2001 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
Plan. The Plan may not be amended to increase materially the amount of
distribution compensation described therein without approval of a majority of
the outstanding Class A Shares of the Fund. All material amendments of Plan must
also be approved by the Trustees of the Trust in the manner described above. The
Plan may be terminated at any time as to the Fund 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 Fund's Class A Shares. If the Plan was terminated by the
Trustees of the Trust and no successor plan was adopted, the Fund 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 the
Plan is in effect, the selection and nomination of non-interested Trustees of
the Trust may 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 Plan will benefit the Fund and its
Class A shareholders.
B-57
<PAGE>
APPENDIX A
Commercial Paper Ratings
------------------------
A Standard & Poor's commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard & 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 Standard and Poor's 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 charges and high
1-A
<PAGE>
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.
"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.
2-A
<PAGE>
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 best 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 uncertain 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 a
capacity for meeting financial commitments which is highly uncertain and solely
reliant upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial 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 Financial 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 Financial 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 Financial BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
3-A
<PAGE>
Corporate Long-Term Debt Ratings
--------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate 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.
"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 Standard and Poor's
believes that such payments will be made during such grace
4-A
<PAGE>
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.
"c" - The "c" subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* - Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
"r" - The "r" highlights derivative, hybrid and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or interest return indexed to equities
or currencies; certain swaps and options; and interest-only and principal-only
mortgage securities. The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.
N.R. Indicated that no rating has been requested, that there is
insufficient information on which to bast a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy. Debt obligations of
issuers outside the United States and its territories are rated on the same
basis as domestic corporate issues. The rating measure the creditworthiness of
the obligor but do not take into account currency exchange and related
uncertainties.
The following summarizes the ratings used by Moody's for corporate 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
5-A
<PAGE>
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 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. This is the lowest
investment grade category.
6-A
<PAGE>
"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
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. This is the lowest investment grade category.
"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", "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.
7-A
<PAGE>
"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations in
this category are based on their prospects for achieving partial or full
recovery in a reorganization of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following
serve as general guidelines: "DDD" obligations have the highest potential for
recovery, around 90% - 100% of outstanding amounts and accrued interest. "DD"
indicates potential recoveries in the range of 50% - 90%, and "D" the lowest
recovery potential, i.e. below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
"NR" indicates the Fitch IBCA does not rate the issuer or issue in
question.
"Withdrawn": A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for a potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
Thomson Financial 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 Financial 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.
8-A
<PAGE>
"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" - A rating of BB suggests that the likelihood of default is
considerable less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.
"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"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.
9-A
<PAGE>
APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of the
firm's activities and serve as the basis for its distinguished reputation among
investors worldwide.
Our client's interests always come first. Our experience shows that if we
serve our clients well, our own success will follow.
Our assets are our people, capital and reputation. If any of these is ever
diminished, the last 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 other 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.
Our profits are a key to our success. They replenish our capital and
attract and keep our best people. It is our practice to share our profits
generously with all who help create them. Profitability is crucial to our
future.
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
1-B
<PAGE>
the loyalty, the intimacy and the esprit de corps that we all treasure and that
contribute greatly to our success.
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 extinction.
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 to 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.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING
AND SECURITIES ACTIVITIES
Goldman Sachs is a leading financial services firm traditionally known on Wall
Street and around the world for its institutional and private client service.
. 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 issues from 1989-
1997.
. The number one lead manager of U.S. common stock offerings for the past
nine years (1989-1997).*
. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1997).
* Source: Securities Data Corporation. Common stock ranking excludes REITS,
-----------------------------------
Investment Trusts and Rights.
3-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman, Sachs & Co. joins New York Stock Exchange
1906 Goldman, Sachs & Co. takes Sears Roebuck & Co. public (at 93 years,
the firm's longest-standing client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman, Sachs & Co. finances Warner Brothers, producer of the first
talking film
1956 Goldman, Sachs & Co. co-manages Ford's public offering, the largest to
date
1970 Goldman, Sachs & Co. opens London office
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman, Sachs & Co. takes Microsoft public
1988 Goldman Sachs Asset Management is formally established
1991 Goldman, Sachs & Co. provides advisory services for the largest
privatization in the region of the sale of Telefonos de Mexico
1995 Goldman Sachs Asset Management introduces Global Tactical Asset
Allocation Program
Dow Jones Industrial Average breaks 5000
1996 Goldman, Sachs & Co. takes Deutsche Telekom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs Asset Management increases assets under management by
100% over 1996
1998 Goldman Sachs Asset Management reaches $195.5 billion in assets under
management
Dow Jones Industrial Average breaks 9000
1999 Goldman Sachs becomes a public companyPHTRANS\315068\1
4-B
<PAGE>
APPENDIX C
Statement of Intention
If a shareholder anticipates purchasing within a 13-month period Class A
Shares of the Fund alone or in combination with Class A Shares of another
Goldman Sachs Fund in the amount of $500,000 or more, the shareholder may obtain
shares of the Fund at the same reduced sales charge as though the total quantity
were invested in one lump sum by checking and filing the Statement of Intention
in the Account Application. Income dividends and capital gain distributions
taken in additional shares will not apply toward the completion of the Statement
of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman Sachs that the Statement of Intention is in effect
each time shares are purchased. Subject to the conditions mentioned below, each
purchase will be made at the public offering price applicable to a single
transaction of the dollar amount specified on the Account Application. The
investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5% of
the dollar amount specified on the Account Application will be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name. All
income dividends and capital gains distributions on escrowed shares will be paid
to the investor or to his or her order. When the minimum investment so specified
is completed (either prior to or by the end of the 13th month), the investor
will be notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be asked to
remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the sales
charge, the Transfer Agent will redeem, pursuant to the authority given by the
investor in the Account Application, an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Transfer Agent.
1-C
<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); to 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); to Post-Effective Amendment No. 52 to such Registration
Statement (Accession No. 0000950130-99-000742); to Post-Effective Amendment No.
53 to such Registration Statement (Accession No. 0000950130-99-001069); to Post-
Effective Amendment No. 54 to such Registration Statement (Accession No.
0000950130-99-002212); to Post-Effective Amendment No. 55 to such Registration
Statement (Accession No. 0000950109-99-002544); to Post-Effective Amendment No.
56 to such Registration Statement (Accession No. 0000950130-99-005294); to Post-
Effective Amendment No. 57 to such Registration Statement (Accession No.
0000950109-99-003474); to Post-Effective Amendment No. 58 to such Registration
Statement (Accession No. 0000950109-99-004208); to Post-Effective Amendment No.
59 to such Registration Statement (Accession No. 0000950130-99-006810); to Post-
Effective Amendment No. 60 to such Registration Statement (Accession No.
0000950109-99-004538) (no exhibits filed as part of this Amendment), to Post-
Effective Amendment No. 61 to such Registration Statement (Accession No.
0000950130-00-000099) (no exhibits filed as part of this Amendment); to Post-
Effective Amendment No. 62 to such Registration Statement (Accession No.
0000950109-00-000585), to Post-
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<PAGE>
Effective Amendment No. 63 to such Registration Statement (Accession No.
0000950109-00-001365), to Post-Effective Amendment No. 64 to such Registration
Statement (Accession No. 0000950130-00-002072), to Post- Effective Amendment No.
65 to such Registration Statement (Accession No. 0000950130-00-002509) and to
Post-Effective Amendment No. 66 to such Registration Statement (Accession No.
0000950130-00-003033).
(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.)
(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.)
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<PAGE>
(a)(10). Amendment No. 9 dated April 28, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950109-99-002544.)
(a)(11). Amendment No. 10 dated July 27, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-99-005294.)
(a)(12). Amendment No. 11 dated July 27, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-99-005294.)
(a)(13). Amendment No. 12 dated October 26, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-004208.)
(a)(14). Amendment No. 13 dated February 3, 2000 to Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950109-00-000585.)
(a)(15). Amendment No. 14 dated April 26, 2000 to Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-00-002509.)
(b). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997. (Accession No. 0000950130-97-000573.)
(b)(2). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997, as amended and restated July 27, 1999.
(Accession No. 0000950130-99-005294.)
(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.)
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<PAGE>
(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 between Registrant,
Goldman Sachs Asset Management, Goldman Sachs Fund Management
L.P. and Goldman, Sachs Asset 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 Asset Management (Conservative Strategy Portfolio)
(Accession No. 0000950130-99-000742.)
(d)(9). Amended Annex A dated April 28, 1999 to Management Agreement
dated April 30, 1997. (Accession No. 0000950109-99-002544.)
(d)(10). Amended Annex A dated July 27, 1999 to Management Agreement dated
April 30, 1997. (Accession No. 0000950130-99-005294.)
(d)(11). Amended Annex A dated October 26, 1999 to Management Agreement
dated April 30, 1997. (Accession No. 0000950130-99-004208.)
(d)(12). Amended Annex A dated February 3, 2000 to Management Agreement
dated April 30, 1997 (Accession No. 0000950109-00-001365.)
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<PAGE>
(e). None.
(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 S.A. as its subcustodian
and certain other matters, filed as Exhibit 8(f). (Accession No.
0000950130-98-000965.)
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<PAGE>
(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, pertaining to the latter's designation of Security
Pacific National Bank as its
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<PAGE>
subcustodian 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.)
(g)(20). Fee schedule dated April 12, 1999 relating to Custodian Agreement
dated April 6, 1990 between Registrant and State Street Bank and
Trust Company (Strategic Growth and Growth Opportunities
Portfolios). (Accession No. 0000950109-99-002544.)
(g)(21). Fee schedule dated July 19, 1999 relating to Custodian Agreement
dated April 6, 1990 between Registrant and State Street Bank and
Trust Company (Internet Tollkeeper Fund). (Accession No.
0000950130-99-005294.)
(g)(22). Fee schedule dated October 1, 1999 relating to the Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank
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<PAGE>
and Trust Company (Large Cap Value Fund). (Accession No.
0000950130-99-006810.)
(g)(23). Fee schedule dated January 12, 2000 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (CORE Tax-Managed Equity Fund). (Accession
No. 0000950109-00-000585.)
(g)(24). Fee schedule dated January 6, 2000 relating to Custodian
Agreement dated July 15, 1991 between Registrant and State Street
Bank and Trust Company (High Yield Municipal Fund). (Accession
No. 0000950109-00-000585.)
(g)(25). Fee schedule dated April 14, 2000 relating to Custodian Agreement
dated April 6, 1990 to between Registrant and State Street Bank
and Trust Company (Research Select Fund). (Accession No.
0000950130-00-002509.)
(g)(26). Fee schedule dated April 14, 2000 relating to Custodian Agreement
dated July 15, 1991 between Registrant and State Street Bank and
Trust Company (Enhanced Cash Fund). (Accession No. 0000950130-
00-002509.)
(g)(27). Additional Portfolio Agreement dated September 27, 1999 between
Registrant and State Street Bank and Trust Company. (Accession
No. 0000950109-00-000585.)
(g)(28). Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated December 27, 1978. (Accession No. 0000950109-00-
000585.)
(g)(29). Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated April 6, 1990. (Accession No. 0000950109-00-
000585.)
(g)(30). Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated July 15, 1991. (Accession No. 0000950109-00-
000585.)
(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.)
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<PAGE>
(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)(5). 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)(6). Transfer Agency Agreement dated May 1, 1988 between Goldman Sachs
Institutional Liquid Assets and Goldman, Sachs & Co. (Accession
No. 0000950130-98-006081.)
(h)(7). 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)(8). Transfer Agency Agreement dated April 6, 1990 between GS-Capital
Growth Fund, Inc. and Goldman Sachs & Co. (Accession No.
0000950130-98-006081.)
(h)(9). Goldman Sachs - Institutional Liquid Assets Administration Class
Administration Plan dated April 22, 1998. (Accession No.
0000950130-98-006081.)
(h)(10). Goldman Sachs - Institutional Liquid Assets Service Class Service
Plan dated April 22, 1998. (Accession No. 0000950130-98-006081.)
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<PAGE>
(h)(11). Cash Management Shares Service Plan dated May 1, 1998.
(Accession No. 0000950130-98-006081.)
(h)(12). 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)(13). 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)(14). 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.)
(h)(15). Form of Service Agreement on behalf of Goldman Sachs Trust
relating to the Select Class, the Preferred Class, the
Administration Class, the Service Class and the Cash Management
Class, as applicable, of Goldman Sachs Financial Square Funds,
Goldman Sachs - Institutional Liquid Assets Portfolios, Goldman
Sachs Fixed Income Funds, Goldman Sachs Domestic Equity Funds,
Goldman Sachs International Equity Funds and Goldman Sachs Asset
Allocation Portfolios. (Accession No. 0000950130-00-002509.)
(h)(16). FST Select Shares Plan dated October 26, 1999. (Accession No.
0000950130-99-006810.)
(h)(17). FST Administration Class Administration Plan dated April 25,
2000. (Accession No. 0000950130-00-002509.)
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<PAGE>
(h)(18). FST Service Class Service Plan dated April 25, 2000. (Accession
No. 0000950130-00-002509.)
(h)(19). FST Preferred Class Preferred Administration Plan dated April 25,
2000. (Accession No. 0000950130-00-002509.)
(h)(20). Service Class Service Plan dated April 25, 2000. (Accession No.
0000950130-00-002509.)
(h)(21). Administration Class Administration Plan dated April 26, 2000.
(Accession No. 0000950130-00-002509.)
(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.)
(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.)
(i)(7). Opinion of Drinker Biddle & Reath LLP (with respect to the
Conservative Strategy Portfolio). (Accession No. 0000950130-99-
001069.)
(i)(8). Opinion of Drinker Biddle & Reath LLP (with respect to the
Strategic Growth and Growth Opportunities Portfolios).
(Accession No. 0000950109-99-002544.)
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<PAGE>
(i)(9). Opinion of Drinker Biddle & Reath LLP (with respect to the
Internet Tollkeeper Fund). Accession No. 0000950109-99-004208.)
(i)(10). Opinion of Drinker Biddle & Reath LLP (with respect to the Large
Cap Value Fund). (Accession No. 0000950130-99-006810.)
(i)(11). Opinion of Drinker Biddle & Reath LLP (with respect to FST Select
Shares). (Accession No. 0000950109-00-000585.)
(i)(12). Opinion of Drinker Biddle & Reath LLP (with respect to the High
Yield Municipal Fund). (Accession No. 0000950109-00-001365.)
(i)(13). Opinion of Drinker Biddle & Reath LLP (with respect to the CORE
Tax-Managed Equity Fund). (Accession No. 0000950109-00-001365.)
(j). None.
(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.)
(n). None.
(o). Plan dated October 26, 1999 entered into by Registrant pursuant
to Rule 18f-3. (Accession No. 0000950130-99-006810.)
(p)(1). Code of Ethics - Goldman Sachs Trust and Goldman Sachs Variable
Insurance Trust, dated April 23, 1997, as amended October 21,
1997 and April 25, 2000. (Accession No. 0000950130-00-002509.)
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<PAGE>
(p)(2). Code of Ethics - Goldman Sachs Asset Management, Goldman Sachs
Funds Management L.P. and Goldman Sachs Asset Management
International, effective January 23, 1991 (as revised April 1,
2000). (Accession No. 0000950130-00-002509.)
(q)(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.)
(q)(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:
(e). Distribution Agreement dated April 30, 1997 as amended April 26,
2000 between Registrant and Goldman, Sachs & Co.
(j)(1). Consent of Independent Auditors.
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
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<PAGE>
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 April 26, 2000 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 included herewith as Exhibit (e). The
Transfer Agency Agreements are incorporated by reference as Exhibits (h)(3),
(h)(6), (h)(7) and (h)(8), respectively, to the Registrant's Registration
Statement.
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Trust for Credit Unions, 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
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division thereof currently serves as administrator and distributor of the units
or shares of 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 Management Committee. None of the members of the
management committee holds a position or office with the Registrant, except John
P. McNulty who is a trustee of the Registrant.
GOLDMAN SACHS MANAGEMENT COMMITTEE
Name and Principal
Business Address Position
------------------ --------
Henry M. Paulson, Jr. (1) Chairman and Chief
Executive Officer
Robert J. Hurst (1) Vice Chairman
John A. Thain (1)(3) President and Co-Chief
Operating Officer
John L. Thornton (3) President and Co-Chief
Operating Officer
Lloyd C. Blankfein (1) Managing Director
Richard A. Friedman (1) Managing Director
Steven M. Heller (1) Managing Director
Robert S. Kaplan (1) Managing Director
Robert J. Katz (1) Managing Director
John P. McNulty (2) Managing Director
Michael P. Mortara (1) Managing Director
Daniel M. Neidich (1) Managing Director
Robin Neustein (2) Managing Director
Mark Schwartz (4) Managing Director
Robert K. Steel (2) Managing Director
Leslie C. Tortora (2) Managing Director
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<PAGE>
Name and Principal
Business Address Position
------------------ --------
Patrick J. Ward (3) Managing Director
Gregory K. Palm (1) Counsel and 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
(4) ARK Mori Building, 12-32 Akasaka I-Chome Minato-KY, Tokyo 107-6019,
Japan
(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, 32 Old Slip, New York, New York 10005. 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.
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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. 67 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 15th day
of June, 2000.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/ Michael J. Richman
----------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Name Title Date
---- ----- ----
*Douglas C. Grip President and
--------------- Trustee June 15, 2000
Douglas C. Grip
*John M. Perlowski Principal Accounting
----------------- Officer and Principal
John M. Perlowski Financial Officer June 15, 2000
*David B. Ford Trustee June 15, 2000
-------------
David B. Ford
*Mary Patterson McPherson Trustee June 15, 2000
------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Chairman and Trustee June 15, 2000
---------------
Ashok N. Bakhru
*Alan A. Shuch Trustee June 15, 2000
-------------
Alan A. Shuch
*John P. McNulty Trustee June 15, 2000
---------------
John P. McNulty
*William H. Springer Trustee June 15, 2000
-------------------
William H. Springer
*Richard P. Strubel Trustee June 15, 2000
------------------
Richard P. Strubel
*By: /s/ Michael J. Richman
------------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
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EXHIBIT INDEX
(e) Distribution Agreement dated April 30, 1997 as amended April 26, 2000
between Registrant and Goldman, Sachs & Co.
(j)(1) Consent of Independent Auditors.
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