<PAGE>
1933 Act Registration No. 33-33316
1940 Act Registration No. 811-6036
As filed with the Securities and Exchange Commission on March 16, 1995
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 15 ( X )
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 ( X )
(Check appropriate box or boxes)
____________
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(Formerly GS Capital Growth Fund, Inc.)
(Exact name of registrant as specified in charter)
One New York Plaza
New York, New York 10004
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
212-902-0800
_____________
with a copy to:
Michael J. Richman Ernest V. Klein
Goldman Sachs Asset Management Hale and Dorr
85 Broad Street 60 State Street
New York, New York Boston, Massachusetts
10004 02109
(name and address of agent for service)
THE TOTAL NUMBER OF PAGES IS _____. THE EXHIBIT INDEX IS ON PAGE ______.
It is proposed that this filing will become effective (check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( ) on ____________, pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on January 30, 1995 pursuant to paragraph (a)(i)
( X ) 75 days after filing pursuant to paragraph (a)(ii) on May 31, 1995
( ) on (date) pursuant to paragraph (a)(ii) of rule 485
REGISTRANT HAS REGISTERED AN UNLIMITED NUMBER OF ITS SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24F-2. ON MARCH 31, 1994, REGISTRANT FILED A RULE
24F-2 NOTICE FOR THE FISCAL YEAR ENDED JANUARY 31, 1994.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495(a)*)
N-1A Item No. Location
- ------------- --------
Part A Caption
- ------ -------
Goldman Sachs Select Equity Fund - Institutional Shares
- -------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objective;
Investment Policies; Special
Investment Methods and Risk
Factors; Reports to
Shareholders; Shares of the
Company; Additional
Information
Item 5. Management of Fund Investment Adviser and
Administrator; Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Institutional
Being Offered Shares; Net Asset Value;
Additional Information
Item 8. Redemption or Redemption of Institutional
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Select Equity Fund - Administration Shares
- --------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Summary;
<PAGE>
of Registrant Investment Objective;
Investment Policies; Special
Investment Methods and Risk
Factors; Reports to
Shareholders; Shares of the
Company; Administration Plan;
Additional Information
Item 5. Management of Fund Investment Adviser and
Administrator; Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Administration
Being Offered Shares; Net Asset Value;
Additional Information
Item 8. Redemption or Redemption of Administration
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Mid-Cap Equity Fund - Institutional Shares
- --------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objective;
Investment Policies; Special
Investment Methods and Risk
Factors; Reports to
Shareholders; Shares of the
Company; Additional
Information
Item 5. Management of Fund Investment Adviser and
Administrator; Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Institutional
Being Offered Shares; Net Asset Value;
Additional Information
<PAGE>
Item 8. Redemption or Redemption of Institutional
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Goldman Sachs Mid-Cap Equity Fund - Administration Shares
- ---------------------------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Summary;
of Registrant Investment Objective;
Investment Policies; Special
Investment Methods and Risk
Factors; Reports to
Shareholders; Shares of the
Company; Administration Plan;
Additional Information
Item 5. Management of Fund Investment Adviser and
Administrator; Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional
Information
Item 7. Purchase of Securities Purchase of Administration
Being Offered Shares; Net Asset Value;
Additional Information
Item 8. Redemption or Redemption of Administration
Repurchase Shares; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
Part B
Goldman Sachs Select Equity Fund and Goldman Sachs Mid-Cap
- ----------------------------------------------------------
Equity Fund - Institutional Shares and Administration Shares
- ------------------------------------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information Introduction
and History
Item 13. Investment Objectives Investment Objective and
<PAGE>
and Policies Policies; Investment
Restrictions
Item 14. Management of the Management
Registrant
Item 15. Control Persons and Not Applicable
Principal Holders of
Securities
Item 16. Investment Advisory and Management
Other Services
Item 17. Brokerage Allocation Portfolio Transactions
and Other Practices
Item 18. Capital Stock and Shares of the Company
Other Securities
Item 19. Purchase, Redemption Management; Net Asset of
and Pricing of Value
Securities Being
Offered
Item 20. Tax Status Taxation
Item 21. Underwriters Management -- Distributor and
Transfer Agent; Management --
Distribution Plan
Item 22. Calculation of Performance Information
Performance Data
Item 23. Financial Statements Not Applicable
Part C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
* THIS POST-EFFECTIVE AMENDMENT IS BEING FILED SOLELY TO (i)
REGISTER THE OFFERING OF INSTITUTIONAL SHARES AND ADMINISTRATION
SHARES OF GOLDMAN SACHS SELECT EQUITY FUND, AN EXISTING SERIES OF
GOLDMAN SACHS EQUITY PORTFOLIOS, INC. AND (ii) TO REGISTER THE
OFFERING OF INSTITUTIONAL SHARES AND ADMINISTRATION SHARES OF
GOLDMAN SACHS MID-CAP EQUITY FUND, A NEW SERIES OF GOLDMAN SACHS
EQUITY PORTFOLIOS, INC. THE PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION FOR THE OTHER SERIES OF GOLDMAN SACHS
EQUITY PORTFOLIOS, INC., INCLUDING THE PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION FOR THE EXISTING CLASS OF GOLDMAN SACHS
SELECT EQUITY FUND, ARE NOT AFFECTED HEREBY AND, THEREFORE, ARE
NOT INCLUDED HEREIN.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MARCH , 1995
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
INSTITUTIONAL SHARES
----------
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," and
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates, Goldman Sachs Funds Management, L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the
"Company"), an open-end, management investment company.
The investment objective of Select Equity Fund is to provide shareholders
with a total return consisting of capital appreciation plus dividend income
that, net of Fund expenses, exceeds the total return realized on the Standard &
Poor's Index of 500 Common Stocks (the "S&P 500 Index"). The investment
objective of Mid-Cap Equity Fund is long-term capital growth. There can be no
assurance that the Funds will achieve their respective investment objectives.
Select Equity Fund seeks to achieve its investment objective by investing in
a portfolio of equity securities selected by a portfolio optimization model
that seeks to maximize Select Equity Fund's reward to risk ratio. The model
selects a portfolio for Select Equity Fund that has risk, capitalization and
industry characteristics similar to the S&P 500 Index but which may provide a
total return that exceeds the total return on the S&P 500 Index. The securities
for Select Equity Fund's portfolio are chosen, using both quantitative and
qualitative analysis, primarily from the securities included in the S&P 500
Index, the Russell 1000 Index and the S&P Mid Cap 400 Index (the "S&P Mid Cap
Index"), as well as any other common stocks that are not included in such
indices but which are followed by Goldman, Sachs & Co.'s Investment Research
Department. Select Equity Fund may also purchase and sell futures contracts on
the S&P 500.
(continued on next page)
----------
INSTITUTIONAL SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN INSTITUTIONAL
SHARES OF THE FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------
The date of this Prospectus is May 31, 1995
<PAGE>
Mid-Cap Equity Fund will seek to meet its objective by investing, under
normal circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations of
between $500 million and $7 billion at the time of investment. However, Mid-
Cap Equity Fund currently intends to emphasize investments in companies with
public stock market capitalizations under $5 billion at the time of
investment. Mid-Cap Equity Fund may invest up to 35% of its total assets in
fixed income securities including mortgage-backed, asset-backed and debt
securities issued by corporations or other entities or by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises if such securities,
in the opinion of the Investment Adviser, offer the potential to further the
Fund's investment objectives. Certain types of investments and techniques that
may be used by Mid-Cap Equity Fund entail certain risks.
---------------------
Goldman Sachs Funds Management, L.P., New York, New York, an affiliate of
Goldman Sachs, serves as the investment adviser to Select Equity Fund. Goldman
Sachs Asset Management, New York, New York, a separate operating division of
Goldman, Sachs & Co., serves as investment adviser to Mid-Cap Equity Fund and
as the administrator to each Fund. Goldman Sachs Funds Management, L.P. and
Goldman Sachs Asset Management are each sometimes referred to as an
"Investment Adviser." Goldman, Sachs & Co. serves as the distributor and
transfer agent for each Fund. The custodian for each Fund is State Street Bank
and Trust Company.
This Prospectus, which sets forth concisely the information about the
Company and each Fund that a prospective investor ought to know before
investing in Institutional Shares of the Funds, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated May 31, 1995, containing further information about the Company and the
Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission, is incorporated herein by reference in its
entirety, and may be obtained without charge, from Goldman, Sachs & Co. by
calling the telephone number, or writing to one of the addresses, listed
below.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
PORTFOLIOS, INC. INVESTMENT ADVISER TO GOLDMAN SACHS
ONE NEW YORK PLAZA SELECT EQUITY FUND
NEW YORK, NEW YORK 10004 ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO. GOLDMAN SACHS ASSET MANAGEMENT
DISTRIBUTOR INVESTMENT ADVISER TO GOLDMAN SACHS
85 BROAD STREET MID-CAP EQUITY FUND
NEW YORK, NEW YORK 10004 ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) 800-621-2550
2
<PAGE>
SUMMARY
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," and
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates, Goldman Sachs Funds Management L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the
"Company"), an open-end, management investment company.
SELECT EQUITY FUND
The investment objective of Select Equity Fund is to provide investors with a
total return consisting of capital appreciation plus dividend income that, net
of Fund expenses, exceeds the total return realized on the Standard & Poor's
Index of 500 Common Stocks (the "S&P 500 Index"). There can be no assurance
that Select Equity Fund will achieve its investment objective.
Select Equity Fund seeks to achieve its investment objective by investing in
a portfolio of equity securities selected by a portfolio optimization model
(the "Optimization Model") that seeks to maximize Select Equity Fund's reward
to risk ratio. The Optimization Model selects a portfolio for Select Equity
Fund that has risk, capitalization and industry characteristics similar to the
S&P 500 Index but which may provide a total return that exceeds the total
return on the S&P 500 Index. The Investment Adviser begins with a universe of
equity securities for potential investment by Select Equity Fund consisting
primarily of the securities included in the S&P 500 Index, the Russell 1000
Index and the S&P Mid Cap Index, as well as any other common stocks that are
not included in such indices but which are followed by Goldman, Sachs & Co.'s
Investment Research Department (the "Research Department"). The Investment
Adviser assigns each equity security in such universe two ratings. The first
rating is assigned by Goldman Sachs Asset Management's proprietary multifactor
model (the "Multifactor Model"). The Multifactor Model is a computerized rating
system for valuing equity securities according to fundamental investment
characteristics including value, yield, growth, momentum, risk and liquidity.
Each equity security in Select Equity Fund's potential investment universe also
is assigned a rating based upon the Research Department's evaluation. By
employing both a quantitative (i.e., the Multifactor Model) and a qualitative
(i.e., the analysts' ratings) method of selecting securities, Select Equity
Fund seeks to overcome the inherent inability of quantitative methods to
analyze non-quantitative factors (such as the impact of a change in management
or a pending lawsuit) and, conversely, the susceptibility of qualitative
methods to subjective influences and biases.
The Optimization Model selects a portfolio for Select Equity Fund based upon
two sets of criteria. First, the Optimization Model considers the ratings
assigned by the Multifactor Model and the Research Department. Second, the
Optimization Model takes into account certain characteristics of the S&P 500
3
<PAGE>
Index, such as industry category, capitalization and volatility. Using these
two criteria, the Optimization Model selects a portfolio that has risk
characteristics and industry weightings similar to the S&P 500 but that is
composed of equity securities with such characteristics that have been assigned
higher ratings. Although it has a bias toward the higher rated securities, the
Optimization Model does not necessarily select only the highest rated
securities but seeks to achieve a balance between ratings and the risk profile
of the S&P 500.
Select Equity Fund, under normal circumstances, invests at least 90% of its
total assets in equity securities. Select Equity Fund may also purchase and
sell futures contracts on the S&P 500 Index, purchase securities on a when-
issued or forward commitment basis and engage in securities lending. See
"Special Investment Methods and Risk Factors." Except for those investments and
cash equivalents, Select Equity Fund expects to be fully invested in equity
securities.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to meet its investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations of
between $500 million and $7 billion at the time of investment. However, Mid-Cap
Equity Fund currently intends to emphasize investments in companies with public
stock market capitalizations under $5 billion at the time of investment. There
can be no assurance that Mid-Cap Equity Fund will achieve its investment
objective.
Potential investments for Mid-Cap Equity Fund are evaluated using fundamental
analysis including criteria such as earnings, cash flow, asset values and
dividend-paying ability. The Fund intends to purchase securities of companies
that are, in the Investment Adviser's view, underpriced relative to the
company's long-term future growth prospects, current cash flow and dividend-
paying ability. Mid-Cap Equity Fund may purchase securities of companies that
have experienced difficulties and that the Investment Adviser believes are thus
available at attractive prices relative to the Investment Adviser's view of
earnings potential.
Equity securities in which Mid-Cap Equity Fund may invest consist of common
stocks, preferred stocks, convertible securities, warrants and other stock
purchase rights, equity interests in trusts limited partnerships, joint
ventures and similar enterprises and interests in real estate investment
trusts. These securities may or may not pay a current dividend. Securities in
which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operations. Mid-Cap Equity Fund may invest up to 35% of its total assets in the
equity securities of companies with public stock market capitalizations greater
or less than Mid Cap Companies and fixed income securities including mortgaged-
backed, asset-backed and debt
4
<PAGE>
securities issued by corporations or other entities or by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises if such securities, in
the opinion of the Investment Adviser, offer the potential to further Mid-Cap
Equity Fund's investment objective. In addition, Mid-Cap Equity Fund may engage
in certain investment techniques that entail special risks. See "Investment
Objective and Policies--Mid-Cap Equity Fund" and "Special Investment Methods
and Risk Factors."
INVESTMENT ADVISERS AND ADMINISTRATOR
Pursuant to separate Investment Advisory Agreements, Goldman Sachs Funds
Management, L.P., an affiliate of Goldman Sachs, serves as the investment
adviser for Select Equity Fund and Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs, serves as the investment adviser for Mid-
Cap Equity Fund. For advisory services rendered in connection with Select
Equity Fund, its Investment Adviser receives a monthly fee equal on an annual
basis to % of the average daily net assets of Select Equity Fund. For
advisory services rendered in connection with Mid-Cap Equity Fund, its
Investment Adviser receives a monthly fee equal on an annual basis to % of
the average daily net assets of Mid-Cap Equity Fund. Each Investment Adviser is
registered with the Securities and Exchange Commission ("SEC") as an investment
adviser. In performing their advisory services, the Investment Advisers, while
remaining ultimately responsible for the management of the Funds, are able to
draw upon the research and expertise of their affiliate offices for portfolio
decisions and management with respect to certain portfolio securities. See
"Management--Investment Advisers and Administrator."
Goldman Sachs Asset Management serves as the administrator for each Fund
pursuant to separate Administration Agreements. For services rendered in
connection with Select Equity Fund, the administrator receives from Select
Equity Fund a monthly fee equal on an annual basis to % of the average
daily net assets of Select Equity Fund. For services rendered in connection
with Mid-Cap Equity Fund, the administrator receives from Mid-Cap Equity Fund a
monthly fee equal on an annual basis to % of the average daily net assets of
Mid-Cap Equity Fund. See "Management--Investment Advisers and Administrator."
PURCHASE AND REDEMPTION OF INSTITUTIONAL SHARES
The minimum initial investment is $250,000 in Institutional Shares of each
Fund alone or in combination with Institutional Shares of any other mutual fund
sponsored by Goldman Sachs and designated an eligible fund for this purpose and
the relevant class of any portfolio of Goldman Sachs Money Market Trust.
Institutional Shares of each Fund may be purchased through Goldman Sachs at the
current net asset value per share without the imposition of a sales load. See
"Purchase of Institutional Shares." Each Fund will redeem its Institutional
Shares upon request of a shareholder on any Business Day at the net asset value
next determined after receipt of such request in proper form. See "Redemption
of Institutional Shares."
5
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs serves as the distributor and transfer agent for each Fund.
Under a Distribution Agreement with the Company, Goldman Sachs acts as
exclusive agent for each Fund in the sale of its shares. Under a Transfer
Agency Agreement with the Company, Goldman Sachs provides transfer agency
services and responds to shareholder inquiries. See "Management--Distributor
and Transfer Agent."
DIVIDEND POLICY
Each Fund intends that all or substantially all of its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends at least annually. Shareholders will
receive dividends in additional shares of the Fund paying the dividend or may
elect to receive cash as described under "Dividends."
RISK FACTORS
GENERAL. Each Fund is intended for long-term investors who can accept the
risks associated with investing primarily in equity securities. Changes in the
value of these securities will cause a Fund's share price to fluctuate, and the
value of a Fund's shares when redeemed may be more or less than their original
cost. Investing in equity securities involves different risks and may involve
greater risks than are customarily associated with investing in debt
securities. In addition, certain of the potential investments and management
techniques entail special risks. Mid-Cap Equity Fund is a newly organized
portfolio of the Company and involves risks of investing in Mid-Cap Companies.
There can be no assurance that the Funds will achieve their investment
objectives. See "Investment Objective and Policies" and "Special Investment
Methods and Risk Factors."
INVESTMENTS IN RESTRICTED SECURITIES. The Funds may purchase securities that
are not registered or are offered in an exempt non-public offering ("restricted
securities") under the Securities Act of 1933. The purchase price and
subsequent valuation of restricted securities normally reflect a discount from
the price at which such securities would trade if they were not restricted,
since the restriction makes them less liquid. This investment practice could
have the effect of increasing the level of illiquidity in a Fund.
INVESTMENTS IN FIXED INCOME, MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. As
described below, Mid-Cap Equity Fund may make a variety of investments,
including investments in mortgage-
6
<PAGE>
backed, asset-backed and debt securities issued by corporations or other
entities or by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises which may be rated B or better, at the time of
investment, by Standard & Poor's Ratings Group ("Standard and Poor's") or by
Moody's Investors Service, Inc. ("Moody's") or, if unrated by such rating
organizations, determined by the Investment Adviser to be of comparable credit
quality. Fixed income securities rated B or below (or comparable unrated
securities) are commonly referred to as "junk bonds" and are considered
speculative and payments of principal and interest thereon may be questionable.
In some cases, such bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, investment
in such securities will entail greater speculative risks than those associated
with investment in investment grade bonds (i.e., bonds rated AAA, AA, A or BBB
by Standard & Poor's or Aaa, Aa, A or Baa by Moody's). Mid-Cap Equity Fund may
invest up to 35% of its total assets in these fixed income securities and will
limit its investments in debt securities rated below investment grade to no
more than 10% of its total assets. Accordingly, the performance of Mid-Cap
Equity Fund may be affected in part by interest rate changes. To the extent
Mid-Cap Equity Fund invests in such securities, its investments will tend to
decrease in value when interest rates rise, and increase in value when interest
rates fall.
INVESTMENT IN SECURITIES OF FOREIGN ISSUERS. Mid-Cap Equity Fund may invest
in foreign securities. Select Equity Fund may invest in securities of foreign
issuers that are traded in the United States and that comply with U.S.
accounting standards. Investing in securities of foreign issuers may involve
risks not present in U.S. investments. Foreign issuers may not be subject to
accounting standards or governmental supervision comparable to that applicable
to U.S. issuers and there may be less publicly available information about
their operations. Foreign securities markets generally provide less liquidity
(and thus potentially greater price volatility), and typically provide fewer
regulatory protections for investors. Foreign securities can be affected by
political and financial instability abroad. In addition, the value of
securities quoted or denominated in a foreign currency will be affected by
changes in currency exchange rates or exchange control regulations.
OTHER INVESTMENTS AND PRACTICES. The Funds may engage in certain investment
practices and enter into transactions in certain derivative instruments. Select
Equity Fund may purchase and sell future contracts on the S&P 500 Index,
purchase securities on a when-issued or forward commitment basis and engage in
securities lending. In the case of Mid-Cap Equity Fund, such investment
practices and instruments include futures contracts, options, options on
futures contracts, forward commitments, forward foreign currency transactions,
lending portfolio securities and repurchase agreements. The Funds may enter
into these transactions, except for transactions with respect to currencies,
for hedging purposes and to seek to increase total return. The use of such
investment practices and derivative instruments by the Funds involves certain
risks, including the risk of loss if an Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates in
connection with transactions to increase total return and, in the case of
hedging transactions, a possible lack of correlation between changes in the
value of a hedging instrument and the portfolio security being hedged.
7
<PAGE>
CONFLICTS OF INTEREST. The involvement of Goldman Sachs, and its affiliates,
divisions (including the Investment Advisers), partners and officers in the
investment activities and business operations of the Funds may present certain
conflicts of interest, as described under "Management--Investment Advisers and
Administrator."
8
<PAGE>
FEES AND EXPENSES
(INSTITUTIONAL SHARES)*
<TABLE>
<CAPTION>
SELECT MID-CAP
EQUITY EQUITY
FUND FUND
------ -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases....................... None None
Maximum Sales Load Imposed on Reinvestment Dividends.......... None None
Redemption Fees............................................... None None
Exchange Fees................................................. None None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average
daily net assets)
Management Fees**............................................. % %
Distribution (Rule 12b-1) Fees................................ None None
Other Expenses (after expense limitation)***
Transfer Agency Fees......................................... .04% .04%
Other Expenses............................................... % %
% %
---- ----
TOTAL FUND OPERATING EXPENSES** (AFTER EXPENSE LIMITATION)... .65% .85%
==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a hy-
pothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the
end of each time period
Select Equity Fund............................ $ 7 $21 $36 $81
Mid-Cap Equity Fund........................... $ 9 $27 N/A N/A
</TABLE>
- --------------------
* The information set forth in the foregoing table and hypothetical example
relates only to Institutional Shares of the Funds. See "Shares of the
Company." Administration Shares of the Funds and, in the case of Select
Equity Fund, Class A Shares are subject to different fees and expenses.
Administration Shares are sold at net asset value and are subject to an
administration fee of up to 0.25% of average daily net assets. Class A
Shares are sold at net asset value plus a sales charge of up to 5.5% and
are subject to a distribution and service fee of up to 0.50% of average
daily net assets. Institutional Shares and Administration Shares pay a
transfer agency fee on the basis of a percentage of assets attributable to
such classes and Class A Shares are subject to a transfer agency fee based
upon a fixed per account charge plus transaction fees. All other expenses
related to Administration Shares and Class A Shares are the same as for
Institutional Shares.
** Management fees for Select Equity Fund include advisory fees of % and
administration fees of %. Management fees for Mid-Cap Equity Fund include
advisory fees of % and administration fees of %.
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*** The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding advisory, transfer agency,
administration and distribution and service fees, payments to Service
Organizations (as defined below), taxes, interest and brokerage and
litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed % and % per annum of the average daily
net assets of Select Equity Fund and Mid-Cap Equity Fund, respectively.
The Investment Advisers may discontinue or modify such expense limitations
at any time. If the Investment Advisers did not agree to reduce or
otherwise limit certain "Other Expenses" of the Funds, the other expenses
and total operating expenses attributable to Institutional Shares of
Select Equity Fund would be % and %, respectively; and the other
expenses and total operating expenses of the Institutional Shares of Mid-
Cap Equity Fund would be % and %, respectively. The foregoing table
and example also reflect current operating expenses that will be
applicable on an ongoing basis. Annual operating expenses incurred by
Select Equity Fund during the fiscal year ended January 31, 1995
(expressed as a percentage of average daily net assets) were as follows:
Management Fees, Distribution and Service Fees and Other Expenses of
0.75%, 0.25% and 0. %, respectively for total operating expenses of 0. %.
See "Management--Investment Advisers and Administrator."
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of the Funds that an investor in the Funds will
bear directly or indirectly. Since the Mid-Cap Equity Fund has no operating
history and Select Equity Fund has lowered its historical fees, the costs and
expenses included in the table and hypothetical example above are based upon
estimated fees and expenses for the current year, and should not be considered
as representative of future expenses. Actual fees and expenses may be greater
or less than those indicated. Moreover, while the example assumes a 5% annual
return, the actual performance of each Fund will vary and may result in an
actual return greater or less than 5%. See "Management--Investment Advisers and
Administrator."
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FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OUTSTANDING OF SELECT EQUITY FUND THROUGHOUT
EACH PERIOD
The following data with respect to Class A shares of Select Equity Fund
outstanding during the periods indicated has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report incorporated
by reference and attached to the Additional Statement from Select Equity
Fund's Annual Report to shareholders for the year ended January 31, 1994 (the
"Annual Report"). This information should be read in conjunction with the
financial statements and related notes incorporated by reference and attached
to the Additional Statement. The Annual Report also contains performance
information and is available upon request and without charge by writing to one
of the addresses on the inside cover of this Prospectus. No Institutional or
Administration Shares of the Fund were outstanding during the periods
indicated.
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INVESTMENT OBJECTIVE AND POLICIES
SELECT EQUITY FUND
The investment objective of Select Equity Fund is to provide investors with
a total return consisting of capital appreciation plus dividend income that,
net of fund expenses, exceeds the total return realized on the S&P 500 Index.
There is no assurance that Select Equity Fund will achieve its investment
objective.
Select Equity Fund seeks to achieve its investment objective by investing in
a portfolio of equity securities selected by a portfolio optimization model
(the "Optimization Model") that seeks to maximize Select Equity Fund's reward
to risk ratio. The Optimization Model selects a portfolio for Select Equity
Fund that has risk, capitalization and industry characteristics similar to the
S&P 500 Index but which may provide a total return that exceeds the total
return on the S&P 500 Index.
The Investment Adviser begins with a universe of equity securities for
potential investment by Select Equity Fund consisting primarily of the
securities included in the S&P 500 Index, the Russell 1000 Index and the S&P
Mid Cap Index, as well as any other common stocks that are not included in
such indices but which are followed by Goldman Sach's Investment Research
Department (the "Research Department"). The Investment Adviser assigns each
equity security in such universe two ratings. The first rating is assigned by
Goldman Sachs Asset Management's proprietary multifactor model (the
"Multifactor Model"). The Multifactor Model is a sophisticated computerized
rating system for valuing equity securities according to fundamental
investment characteristics. The factors used by the Multifactor Model
incorporate many variables studied by traditional fundamental analysis, and
cover measures of value, yield, growth, momentum, risk and liquidity, which
include price/earnings ratio, book/price ratio, long and short term growth
estimates, earning estimates, price momentum, volatility and liquidity. All of
the factors used by the Multifactor Model have been shown to significantly
impact the performance of equity securities. The weightings assigned to the
factors are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Furthermore, because it includes many disparate factors, the
Investment Adviser believes that the Multifactor Model is broader in scope and
provides a more thorough evaluation than most conventional, value-oriented
quantitative models. As a result, the securities ranked highest by the
Multifactor Model do not have one dominant investment characteristic (such as
a low price/earnings ratio); rather, such securities possess many different
investment characteristics.
Each equity security in Select Equity Fund's potential investment universe
is also assigned a rating based upon the Research Department's evaluation. The
Research Department assigns a rating of one (recommended for purchase) to four
(likely to underperform) to each equity security. With an annual budget of
more than $140 million, the Research Department has a staff of approximately
150 senior professionals who follow over 1,700 issuers. By employing both
quantitative (i.e., the Multifactor Model) and qualitative (i.e., the
analysts' ratings) methods of selecting securities, Select Equity Fund seeks
to overcome the inherent inability of quantitative methods to analyze non-
quantitative factors (such as the impact of a change in management or a
pending lawsuit) and, conversely, the susceptibility of qualitative methods to
subjective influences and biases.
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Each equity security in Select Equity Fund's investment universe will be
processed by the Optimization Model. The Optimization Model selects a
portfolio for Select Equity Fund based upon two sets of criteria. First, the
Optimization Model considers the ratings assigned by the Multifactor Model and
the Research Department. Second, the Optimization Model takes into account
certain characteristics of the S&P 500 Index, such as industry category,
capitalization and volatility. Using these two criteria, the Optimization
Model selects a portfolio that has risk characteristics and industry
weightings similar to the S&P 500 but that is composed of equity securities
that have been assigned higher ratings. Although it has a bias toward higher
rated securities, the Optimization Model does not necessarily select only
highest rated securities but seeks to achieve a balance between ratings and
the risk profile of the S&P 500. Under normal market conditions, the
Investment Adviser will not modify the portfolio recommended by the
Optimization Model. Under normal conditions, the securities of any one issuer
may not exceed 5% of Select Equity Fund's net assets.
The composition of Select Equity Fund's portfolio will be periodically
reviewed. The frequency of such review depends upon a number of factors
including the Fund's cash flows from sales and redemptions and changes in
rating of securities included in the Fund's investment universe. In
determining whether to recommend an adjustment to Select Equity Fund's
portfolio, the Optimization Model takes into account transaction costs
inherent in such rebalancing in determining the portfolio that is anticipated
to produce the highest return.
The investment strategy described above will be implemented to the extent it
is consistent with maintaining Select Equity Fund's qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code") (see "Taxation--Federal Taxes"). Select Equity Fund's
strategy may be limited, in particular, by the requirement for such
qualification that less than 30% of its annual gross income be derived from
the sale or other disposition of stocks or securities (including futures
contracts) held for less than three months.
Select Equity Fund maintains cash balances to satisfy shareholder redemption
requests. Such cash balances will normally range from 2% to 10% of the Fund's
net assets. Select Equity Fund may purchase futures contracts on the S&P 500
Index in order to keep the Fund's effective equity exposure close to 100%. For
example, if cash balances are equal to 10% of the net assets, Select Equity
Fund may enter into long futures contracts covering an amount equal to 10% of
the Fund's net assets. As cash balances fluctuate based on new contributions
or withdrawals, the Fund may enter into additional contracts or close out
existing positions. See "Special Investment Methods and Risk Factors."
Under normal circumstances, Select Equity Fund invests at least 90% of its
total net assets in equity securities. Select Equity Fund may also purchase
and sell futures contracts on the S&P 500 Index, purchase securities on a
when-issued or forward commitment basis and engage in securities lending. See
"Special Investment Methods and Risk Factors" below. Except for these
investments and cash equivalents, Select Equity Fund expects to be fully
invested in equity securities.
Under normal circumstances, for liquidity purposes only, Select Equity Fund
may hold up to 10% of its assets in cash, securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, commercial paper rated
at least A-1 by Standard & Poor's or P-1 by Moody's,
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certificates of deposit, bankers' acceptances, repurchase agreements or non-
convertible preferred stocks or non-convertible corporate bonds with less than
one year to maturity. Under unusual circumstances, Select Equity Fund may
temporarily hold up to 35% of its assets in cash or such short-term
instruments for liquidity purposes.
It is possible that the Optimization Model will select securities for Select
Equity Fund issued by 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 Select
Equity Fund's flexibility in purchasing and selling such securities. When
Goldman Sachs is engaged in an 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 Select Equity Fund. See "Management--Investment Advisers and
Administrator."
Except as stated under "Investment Restrictions," Select Equity Fund's
investment objective and policies are not fundamental and may be changed
without a vote of the shareholders. If there is a change in Select Equity
Fund's investment objective, shareholders should consider whether Select
Equity Fund remains an appropriate investment in light of their then current
financial position and needs.
Market risks are inherent in all securities in varying degrees. Therefore,
there can be no assurance that Select Equity Fund will be successful in
meeting its investment objective. Investors should not consider Select Equity
Fund a complete investment program. Investors may also wish to complement an
investment in Select Equity Fund with other types of investments.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to achieve its investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations
(based upon shares available for trading on an unrestricted basis) of between
$500 million and $7 billion at the time of investment. However, Mid-Cap Equity
Fund currently intends to emphasize investments in Mid Cap Companies with
public stock market capitalizations of below $5 billion at the time of
investment. Equity securities in which Mid-Cap Equity Fund may invest include
common stocks, preferred stocks, convertible securities, warrants, stock
purchase rights and interests in real estate investment trusts. Securities in
which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operation. Mid-Cap Equity Fund may invest up to 35% of its total assets in
mortgage-backed, asset-backed and fixed income securities issued by
corporations or other entities or by the U.S. Government or its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further the investment
objectives of Mid-Cap Equity Fund. In addition, investments in Mid Cap
Companies as well as certain investment techniques may involve special risks.
See "Special Investment Methods and Risk Factors."
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Potential investments for Mid-Cap Equity Fund are evaluated by the
Investment Adviser using fundamental analysis including criteria such as
earnings, cash flow, asset values and dividend-paying ability. The Investment
Adviser intends to purchase securities of companies that are, in the
Investment Adviser's view, underpriced relative to the company's long-term
growth prospects, current cash flow and dividend-paying ability. In addition,
Mid-Cap Equity Fund may purchase securities of companies that have experienced
difficulties and that the Investment Adviser believes are thus available at
attractive prices. Mid-Cap Equity Fund may also purchase securities of
companies able to generate high returns in sectors experiencing relatively
slow growth. Consideration will be given to the business quality of the
underlying issuer. Factors positively affecting the Investment Adviser's view
of that quality include the competitiveness and degree of regulation in the
markets in which the company operates, the return on capital invested in the
business, the market position of the company in the markets in which it
operates, the acceptability of the level of the company's financial leverage
and the existence of a management team with a record of success.
Portfolio securities will generally be sold when the Investment Adviser
believes their market price fully reflects or exceeds their fundamental
valuation or due to an increase in risk beyond acceptable levels. Under normal
circumstances, Mid-Cap Equity Fund's cash position will be a reflection of the
availability of attractive investment alternatives.
The Investment Adviser evaluates investments for Mid-Cap Equity Fund using
fundamental analysis and through field research. In addition, the Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Research Department as well as information provided by other securities
dealers.
The Investment Adviser expects that Mid-Cap Equity Fund will typically
invest in the securities of approximately to companies. The number of
stocks owned is intended to provide Mid-Cap Equity Fund with a moderate level
of diversification while at the same time not diluting the impact of any one
investment. Mid-Cap Equity Fund will be considered "diversified" as defined in
the Investment Company Act of 1940 (the "Act"). See "Special Investment
Methods and Risk Factors."
OTHER INVESTMENT POLICIES AND RISKS
Mid-Cap Equity Fund may invest up to 35% of its total assets in mortgage-
backed, asset-backed and fixed income securities issued or guaranteed by
corporations or other entities or by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further Mid-Cap Equity
Fund's investment objective. The fixed income securities in which Mid-Cap
Equity Fund may invest may be rated B or better, at the time of investment, by
Standard & Poor's or by Moody's or, if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. Fixed
income securities rated B or below by Standard & Poor's or B or below by
Moody's (or comparable unrated securities), commonly called junk bonds, are
considered speculative and payments of principal and interest thereon may be
questionable. Mid-Cap Equity Fund will limit its investments in fixed income
securities rated below investment grade to no more than 10% of its total
assets. See Appendix A to the Additional Statement for a description of the
ratings issued by investment rating organizations. In addition,
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although Mid-Cap Equity Fund will invest primarily in U.S. securities, it may
invest up to 25% of its total assets in foreign securities, including American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs").
When in the judgment of the Investment Adviser market conditions warrant
Mid-Cap Equity Fund may for temporary defensive purposes to preserve capital,
hold part or all of its assets in cash, cash equivalents, such as certificates
of deposit, commercial paper, time deposits and bankers' acceptances issued by
a bank the unsecured commercial paper of which is rated at least A-1 by
Standard & Poor's or P-1 by Moody's, securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, instrumentalities
or sponsored enterprises, repurchase agreements and foreign currencies.
Except as otherwise stated under "Investment Restrictions," Mid-Cap Equity
Fund's investment objective and policies are not fundamental and may be
changed without a vote of the shareholders. If there is a change in Mid-Cap
Equity Fund's investment objective, shareholders should consider whether Mid-
Cap Equity Fund remains an appropriate investment in light of their then
current financial positions and needs.
Market risks are inherent in all securities in varying degrees. Therefore,
there can be no assurance that Mid-Cap Equity Fund will be successful in
meeting its investment objective. An investment in shares of Mid-Cap Equity
Fund does not constitute a complete investment program. Investors may wish to
complement an investment in Mid-Cap Equity Fund with other types of
investments. See "Special Investment Methods and Risk Factors."
INVESTMENT ADVISERS AND ADMINISTRATOR
The investment adviser for Select Equity Fund is Goldman Sachs Fund
Management, L.P., an affiliate of Goldman Sachs. Goldman Sachs Asset
Management, a separate operating division of Goldman Sachs, is Mid-Cap Equity
Fund's investment adviser. The administrator for each Fund is Goldman Sachs
Asset Management. The management services provided by each Investment Adviser
are subject to the general supervision of the Company's Board of Directors.
The Investment Advisers serve a wide range of clients including private and
public pension funds, endowments, foundations, banks, thrifts, insurance
companies, corporations, and private investors and family groups.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in virtually
every field of investing and financing, participating in financial markets
worldwide and serving individuals, institutions, corporations and governments.
Goldman Sachs is headquartered in New York and has offices throughout the
United States and in Beijing, Frankfurt, George Town, Hong Kong, London,
Madrid, Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich.
The Investment Advisers are able to draw on the research and market
expertise of Goldman Sachs, whose investment research effort is one of the
largest in the industry. The in-depth information and analyses generated by
Goldman Sachs' research analysts, economists and portfolio strategists are
constantly available to the Investment Advisers.
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SPECIAL INVESTMENT METHODS AND RISK FACTORS
EQUITY SECURITIES
Because both Funds invest primarily in equity securities, consisting of
common stocks, preferred stocks, convertible securities, warrants and other
stock purchase rights, equity interests in trusts limited partnerships, joint
ventures and similar enterprises and interests in real estate investment
trusts, the Funds are subject to certain market risks, such as the possibility
that the price of a security held by a Fund will decline over a short or even
an extended period of time. The market for equity securities in the United
States tends to be cyclical, with periods when the prices of securities
generally rise and periods when they generally decline. All equity securities
are usually influenced to some extent by price movements in the equities
market. To a limited extent, each Fund may purchase the securities of issuers
with less than three years' continuous operating history.
CONVERTIBLE SECURITIES
Convertible securities may 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 fixed income
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 decline in price to the same extent as the
underlying common stock. Convertible securities rank senior to common stocks
in an issuer's capital structure and consequently entail less risk than the
issuer's common stock. However, the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security. In evaluating a convertible
security, an Investment Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible securities in
which Mid-Cap Equity Fund invests are subject to the same rating criteria as
its investments in fixed income securities. The convertible securities in
which the Select Equity Fund invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
the Funds' investment policies.
WARRANTS AND STOCK PURCHASE RIGHTS
Warrants and stock purchase rights are securities permitting, but not
obligating, their holder to subscribe for other securities on, or on or
before, a fixed date in the future at a predetermined price. Generally,
warrants and stock purchase rights do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets
of the issuer. As a result, an investment in warrants and stock purchase
rights may be considered to entail greater investment risk than certain other
types of investment. In addition, the values of warrants and stock purchase
rights do not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
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expiration date. Investment in warrants and stock purchase rights increases
the potential profit or loss to be realized from the investment of a given
amount of the Fund's assets as compared with investment of the same amount in
the stock which underlies such warrants or stock purchase rights.
FIXED INCOME SECURITIES
Corporate and foreign governmental fixed income securities are subject to
the risk of the issuer's inability to meet principal and interest payments on
the obligations (credit risk). Fixed income securities may also be subject to
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Except to the extent that values are independently affected by
currency exchange rate fluctuations, when interest rates decline, the value of
fixed income securities can generally be expected to rise. Conversely, when
interest rates rise, the value of fixed income securities can be expected to
decline. The Investment Adviser will consider both credit risk and market risk
in selecting fixed income securities for Mid-Cap Equity Fund's portfolio. The
interest rate payable on certain fixed income securities in which Mid-Cap
Equity Fund may invest are not fixed and may fluctuate based upon changes in
market rates of interest.
Fixed income securities rated in the BBB or Baa category are considered
medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. Also, to the extent that the
rating assigned to a security in Mid-Cap Equity Fund's portfolio is downgraded
by a rating organization, the market price and liquidity of such security may
be adversely affected. Fixed income securities rated BB, Ba or B (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative with respect to an issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations and involve a major risk of exposure to adverse business,
financial or economic conditions. In some cases, these obligations may be
highly speculative and have poor prospects for obtaining investment standing.
GOVERNMENT DEBT OBLIGATIONS. Fixed income securities in which Mid-Cap Equity
Fund may invest include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprises thereof supported by the full
faith and credit of the U.S. Government, the authority of the issuer to borrow
from the U.S. Treasury, or the discretionary authority of the U.S. Government
to purchase the obligations of the agency, instrumentality or enterprise;
obligations fully guaranteed as to principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; obligations of
U.S. Government agencies, instrumentalities or sponsored enterprises which are
not guaranteed; and obligations of states, municipalities or state or
municipal government agencies or instrumentalities, which may or may not be
entitled to the full faith and credit of the issuer.
Mid-Cap Equity Fund may also invest in zero coupon U.S. Treasury securities
and in zero coupon securities issued by financial institutions, which rep
resent a proportionate interest in underlying U.S. Treasury securities. A zero
coupon security pays no interest to its holder during its life and its value
consists of the difference between its face value at maturity and its cost.
The market prices of zero coupon securities generally are more volatile than
the market prices of securities that pay interest periodically. Mid-Cap Equity
Fund's investments in zero coupon securities may require the Fund to
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sell certain of its portfolio securities to generate sufficient cash to
satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mid-Cap Equity Fund may invest
in mortgage-backed securities, which represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mid-Cap Equity Fund may also invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sale contracts, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other
categories of receivables. Such securities are generally issued by trusts and
special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates 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 mortgage-
backed and asset-backed securities can be expected to accelerate, and thus
impair the Fund's ability to reinvest the returns of principal at comparable
yields. Accordingly, the market values of such securities will vary with
changes in market interest rates generally and in yield differentials among
various kinds of U.S. Government securities and other mortgage-backed and
asset-backed securities. Asset-backed securities present certain additional
risks that are not presented by mortgage-backed securities because asset-
backed securities generally do not have the benefit of a security interest in
collateral that is comparable to mortgage assets. There is the possibility
that, in some case, recoveries on repossessed collateral may not be available
to support payments on these securities.
RISK OF INVESTING IN SMALL CAP COMPANIES
Each of Mid-Cap Equity Fund and Select Equity Fund may, to the extent
consistent with their investment policies, invest in Equity Securities of
issuers with small market capitalizations ("Small Cap Companies").
Historically, the equity securities of Small Cap Companies have been more
volatile in price than securities of companies with greater capitalizations.
Among the reasons for the greater price volatility of these smaller
capitalization and unseasoned stocks are the less certain growth prospects of
small and medium sized firms, the lower degree of liquidity in the markets for
such stocks and the greater sensitivity of small and medium sized companies to
changing economic conditions. For example, these companies are associated with
higher investment risk than that normally associated with larger, more mature,
better known firms due to the greater business risks of their smaller size and
more limited product lines, markets, distribution channels and financial
managerial resources.
The values of stocks of Small Cap Companies may fluctuate independently of
prices of stocks of companies with greater public market capitalizations. The
stocks of Small Cap Companies may decline in price as market prices of large
company stock rise, or rise in price as large company stock prices decline.
Furthermore, the securities of Small Cap Companies may trade less frequently
and with less volume than securities of companies with larger public market
capitalizations.
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WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advanta-
geous price and yield to the Fund at the time of entering into the transac-
tion. Each Fund may also purchase securities on a forward commitment basis;
that is, make contracts to purchase securities for a fixed price at a future
date beyond customary settlement time. Each Fund is required to hold and main-
tain in a segregated account with the Fund's custodian until the settlement
date, cash or liquid, high grade debt obligations in an amount sufficient to
meet the purchase price. Alternatively, each Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. The purchase
of securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the set-
tlement date. Although a Fund would generally purchase securities on a when-
issued or forward commitment basis with the intention of acquiring securities
for its portfolio, the Fund may dispose of a when-issued security or forward
commitment prior to settlement if its Investment Adviser deems it appropriate
to do so.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Mid-Cap Equity Fund may write (sell) covered call and put options on any se-
curities in which it may invest. Mid-Cap Equity Fund may also write call write
call and put options on any securities index composed of securities in which
it may invest. In addition, Mid-Cap Equity Fund may purchase call and put op-
tions on any securities in which it may invest or options on any securities
index composed of securities in which it may invest. Mid-Cap Equity Fund will
purchase and write such options on securities that are listed on national se-
curities exchanges or traded in the over-the-counter market.
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 increase to-
tal 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 depends in part on the Invest-
ment Adviser's ability to predict future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment Ad-
viser is incorrect in its expectation of changes in securities prices or its
determination of the correlation between the securities indices on which op-
tions are written and purchased and the securities in Mid-Cap Equity Fund's
investment portfolio, the investment performance of Mid-Cap Equity Fund will
be less favorable than it would have been in the absence of such options
transactions. The writing of options could significantly increase the Mid-Cap
Equity Fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Select Equity Fund may purchase and sell futures contracts on the S&P 500
Index. To hedge against changes in interest rates, securities prices or cur-
rency exchange rates or to seek to increase total return, Mid-Cap Equity Fund
may purchase and sell various kinds of futures contracts, and purchase and
write call and put options on any of such futures contracts. Each Fund will
engage in
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futures and Mid-Cap Equity Fund will engage in related options transactions
only for bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or, except for futures on foreign currencies pur-
chased or sold by Mid-Cap Equity Fund, to seek to increase total return to the
extent permitted by such regulations.
Neither Fund may purchase or sell futures contracts or purchase or sell re-
lated options to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial mar-
gin deposits and premiums paid on a Fund's outstanding positions in futures
and related options entered into for the purpose of seeking to increase total
return would exceed 5% of the market value of a Fund's net assets. These
transactions involve brokerage costs, require margin deposits and, in the case
of contracts and options obligating the Mid-Cap Equity Fund to purchase secu-
rities or currencies, require a Fund to segregate liquid, high grade debt se-
curities in an amount equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while the Funds may benefit from
the use of futures, unanticipated changes in securities prices may result in a
poorer overall performance for the Funds than if they had not entered into any
futures contracts or option transactions. The loss incurred by Mid-Cap Equity
Fund in writing options on futures is potentially unlimited and may exceed the
amount of premium received.
Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's net asset value. The profitability of the Fund's trad-
ing in futures to increase total return will depend on the ability of the In-
vestment Adviser to correctly analyze the futures markets. In addition, be-
cause of the low margin deposits normally required in futures trading, a rela-
tively small price movement in a futures contract may result in substantial
losses to Fund. Further, futures contracts may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection
may not be obtained and a Fund may be exposed to risk of loss. Perfect corre-
lation between a Fund's futures positions and portfolio positions will be im-
possible to achieve. A Fund's transactions in futures contracts and, for Mid-
Cap Equity Fund, options may be limited by the requirements of the Code for
qualification as a regulated investment company.
FOREIGN TRANSACTIONS
FOREIGN SECURITIES. Mid-Cap Equity Fund may invest up to 25% of its total
assets, calculated at the time of purchase, in foreign equity and fixed income
securities, including ADRs, EDRs and GDRs. Select Equity Fund may invest in
equity securities, including ADRs, of foreign issuers that are traded in the
United States and comply with U.S. accounting standards.
ADRs are receipts issued by a U.S. bank or trust company which evidence own-
ership of underlying securities of foreign corporations. ADRs are traded on
domestic exchanges or in the U.S. over-the-counter market and, generally, are
in registered form. To the extent that a Fund acquires ADRs through
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banks which do not have a contractual relationship with the foreign issuer of
the security underlying the ADR to issue and service such ADRs, there may be
an increased possibility that a Fund would not become aware of and be able to
respond in a timely manner to corporate actions such as stock splits or rights
offerings involving the foreign issuer. In addition, the lack of information
may result in inefficiencies in the valuation of such instruments. However, by
investing in ADRs rather than directly in the stock of non-U.S. issuers, a
Fund will avoid currency risks during the settlement period for either pur-
chases or sales. In general, there is a large, liquid market in the United
States for ADRs quoted on a national securities exchange or the NASD's na-
tional market system. The information available for certain ADRs is subject to
the accounting, auditing and financial reporting standards of the U.S. market
or exchange on which they are traded, which standards are more uniform and
more exacting than those to which many non-U.S. issuers may be subject.
Mid-Cap Equity Fund may also invest in EDRs and GDRs, which are receipts ev-
idencing an arrangement with a non-U.S. bank similar to that for ADRs and are
designed for use in the non-U.S. securities markets. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security.
Investments in foreign securities may offer potential benefits not available
from investments solely in securities of U.S. issuers. Such benefits may in-
clude the opportunity to invest in foreign issuers that appear, in the opinion
of an Investment Adviser, to offer better opportunity for capital appreciation
or current income than investments in securities of U.S. issuers, the opportu-
nity to invest in foreign countries with economic policies or business cycles
different from those of the United States and the opportunity to reduce fluc-
tuations in portfolio value by taking advantage of foreign securities markets
that do not necessarily move in a manner parallel to U.S. markets.
Investing in securities of foreign issuers involves considerations that are
not typically associated with investing in U.S. issuers. Such investments may
be affected by changes in currency rates and in exchange control regulations
(e.g., currency blockage). There may be less publicly available information
about a foreign company than about a U.S. company. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. companies; however, Select
Equity Fund will invest only in equity securities of foreign issuers that com-
ply with U.S. accounting standards. Some foreign securities markets in which
Mid-Cap Equity Fund may invest may have substantially less volume than U.S.
securities markets and securities of some foreign companies may be less liquid
than securities of comparable U.S. companies. Also, commissions on transac-
tions in foreign securities markets may be higher than those for similar trans
actions on U.S. stock markets. There is generally less government regulation
of foreign securities markets, stock exchanges, brokers, and listed and un-
listed companies than in the United States. In addition, with respect to cer-
tain foreign countries, there is a possibility of expropriation or confisca-
tory taxation, imposition of withholding taxes on dividend or interest pay-
ments, limitations on the removal of funds or other assets, political or so-
cial instability or diplomatic developments which could affect investments in
those countries. Individual foreign economies may differ favorably or unfavor-
ably from the U.S. economy in such respects as growth of gross national prod-
uct, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Such factors may affect the
22
<PAGE>
value of a Fund's investment in securities of foreign issuers whether the se-
curities are traded in the United States or a foreign market.
Mid-Cap Equity Fund's investment in foreign securities may include securi-
ties of issuers in countries with emerging economies or securities markets,
including certain countries in Asia and Latin America. Political and economic
structures in many of such countries may be undergoing significant evolution
and rapid development, and such countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of such
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As
a result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated politi-
cal or social developments may affect the values of Mid-Cap Fund's investments
in those countries. The small size and inexperience of the securities markets
in certain of such countries and the limited volume of trading in securities
in those countries may make Mid-Cap Equity Fund's investments in such coun-
tries illiquid and more volatile than investments in more developed countries,
and Mid-Cap Equity Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries. There
may be little financial or accounting information available with respect to
issuers located in certain of such countries, and it may be difficult as a re-
sult to assess the value or prospects of an investment in such issuers.
FOREIGN CURRENCY TRANSACTIONS. Mid-Cap Equity Fund, to the extent it invests
in foreign securities, may enter into forward currency exchange contracts in
order to protect against adverse changes in future foreign currency exchange
rates. The value of the assets of Mid-Cap Equity Fund invested in securities
of foreign issuers as measured in U.S. dollars will be affected by changes in
foreign currency exchange rates because investments in foreign issuers will
usually involve currencies of foreign countries. Mid-Cap Equity Fund may incur
costs in connection with conversions between various currencies. Select Equity
Fund will not engage in foreign currency transactions.
Mid-Cap Equity Fund may enter into forward contracts to purchase foreign
currencies to protect against an anticipated rise in the U.S. dollar price of
securities it intends to purchase. Mid-Cap Equity Fund may enter into forward
contracts to sell foreign currencies to protect against the decline in value
of its foreign currency quoted or denominated portfolio securities, or a de-
cline in the value of anticipated dividends or interest from such securities,
due to a decline in the value of foreign currencies against the U.S. dollar.
Contracts to sell foreign currency could limit any potential gain which might
be realized by Mid-Cap Equity Fund if the value of the hedged currency in-
creased. If Mid-Cap Equity Fund enters into a forward foreign currency ex-
change contract to buy foreign currency, Mid-Cap Equity Fund will be required
to place cash or liquid, high grade debt securities in a segregated account
with Mid-Cap Equity Fund's custodian in an amount equal to the value of the
assets committed to the consummation of the forward contract. If the value of
the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to the contract.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits
23
<PAGE>
of investments in different countries, actual or anticipated changes in inter-
est rates and other complex factors, as seen from an international perspec-
tive. Currency exchange rates also can be affected unpredictably by interven-
tion by U.S. or foreign governments or central banks or the failure to inter-
vene or by currency controls or political developments in the U.S. or abroad.
Markets for trading forward foreign currency exchange contracts offer less
protection against defaults than is available when trading in currency instru-
ments on an exchange. Since a forward foreign currency exchange contract is
not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive Mid-Cap Equity Fund of unrealized profits or force the Fund to
cover its commitments for purchase or resale, if any, at the current market
price.
OPTIONS ON FOREIGN CURRENCIES. Mid-Cap Equity Fund may, to the extent it in-
vests in foreign securities, purchase and write put and call options on for-
eign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign portfolio securities and anticipated dividends or in-
terest on such securities and against increases in the U.S. dollar cost of
foreign securities to be acquired. As with other kinds of option transactions,
however, the writing of an option on foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If and when Mid-Cap
Equity Fund seeks to close out an option, the Fund could be required to pur-
chase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to the Fund's position, Mid-Cap Equity Fund
may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by Mid-Cap Equity
Fund will be traded on U.S. and foreign exchanges or over-the-counter.
RISKS OF DERIVATIVE TRANSACTIONS
Select Equity Fund's transactions in futures and Mid-Cap Equity Fund's
transactions in futures, options, options on futures and currency forward con-
tracts involve certain risks, including a possible lack of correlation between
changes in the value of hedging instruments and the portfolio assets being
hedged, the potential illiquidity of the markets for derivative instruments,
the risks arising from the margin requirements and related leverage factors
associated with such transactions. The use of these management techniques to
increase total return also involves the risk of loss if an Investment Adviser
is incorrect in its expectation of fluctuations in securities prices or inter-
est rates.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S. Govern-
ment 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 re-
purchase obligation. If the other party or "seller" defaults, a Fund might
suffer a loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the re-
lated repurchase agreement are less than the repurchase price. Repurchase
agreements maturing in more than seven days are considered by the Funds to be
illiquid. In addition, each Fund, together with other registered investment
companies having advisory agreements with the Investment Adviser or any of its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repur-
chase agreements.
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<PAGE>
ILLIQUID AND RESTRICTED SECURITIES
Neither Fund will invest more than 15% of its net assets in illiquid invest-
ments, which includes securities (both foreign and U.S.) that are not readily
marketable, repurchase agreements maturing in more than seven days, and secu-
rities that are not registered or are offered in an exempt non-public offering
("restricted securities") under the Securities Act of 1933 (the "1933 Act"),
unless it is determined, based upon a continuing review of the trading markets
for the specific restricted security, that such restricted security is eligi-
ble for resale under Rule 144A and is liquid. The Board of Directors may adopt
guidelines and delegate to the Investment Advisers the daily function of de-
termining and monitoring the liquidity of restricted securities. The Board of
Directors, however, will retain sufficient oversight and be ultimately respon-
sible for the determinations. Since it is not possible to predict with assur-
ance exactly how this market for restricted securities sold and offered under
Rule 144A will develop, the Board of Directors will carefully monitor each
Fund's investments in these securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquid-
ity in a Fund to the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities. The purchase
price and subsequent valuation of restricted securities normally reflect a
discount from the price at which such securities would trade if they were not
restricted, since the restriction makes 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, if any, who will
bear the expenses of registering the restricted securities and prevailing sup-
ply and demand conditions.
OTHER INVESTMENT COMPANIES
Each Fund reserves the right to invest up to 10% of its total assets, calcu-
lated at the time of purchase, in the securities of other investment companies
including business development companies and small business investment compa-
nies. Neither Fund may invest more than 5% of its total assets in the securi-
ties of any one investment company or acquire more than 3% of the voting secu-
rities of any other investment company. Pursuant to an exemptive order ob-
tained from the SEC, other investment companies in which the Funds may invest
include money market funds for which the Investment Advisers or any of their
affiliates serves as investment adviser. Each Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by invest-
ment companies in which it invests in addition to the advisory and administra-
tion fees paid by the Fund. However, to the extent that a Fund invests in a
money market fund for which the Investment Advisers or any of their affiliates
acts as adviser, the advisory and administration fees payable by the Fund to
the Investment Adviser will be reduced by an amount equal to the Fund's pro-
portionate share of the advisory and administration fees paid by such money
market fund to the Investment Advisers or any of their affiliates.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio securi-
ties. Under present regulatory policies, such loans may be made to institu-
tions, such as broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the se-
curities loaned. Cash collateral may be invested in cash equivalents. If the
Investment Adviser determines to make securities loans, the value of the secu-
rities loaned may not exceed 33 1/3% of the value of the total
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<PAGE>
assets of a Fund. See "Investment Restrictions" in the Additional Statement. A
Fund may experience a loss or delay in the recovery of its securities if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
UNSEASONED COMPANIES
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated for less
than three years. The securities of such companies may have limited liquidity,
which can result in their being priced lower than might otherwise be the case.
In addition, investments in unseasoned companies are more speculative and en-
tail greater risk than do investments in companies with an established operat-
ing record.
SHORT SALES AGAINST-THE-BOX
Mid-Cap Equity Fund may make short sales of securities or maintain a short
position, provided that at all time when a short position is open Mid-Cap Eq-
uity Fund owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for an
equal amount of the securities of the same issuer as the securities sold short
(a short sale against-the-box). Not more than 25% of Mid-Cap Equity Fund's net
assets (determined at the time of short sale) may be subject to such short
sale. Short sale will be made primarily to defer realization of gain or loss
for federal tax purposes; a gain or loss in Mid-Cap Equity Fund's long posi-
tion will be offset by a gain or loss in its short position.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions which, as described
in more detail in the Additional Statement, are fundamental policies that can-
not be changed without approval of a majority of the outstanding shares of the
Fund. Among other restrictions, neither Fund, with respect to 75% of its total
assets, may invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government securities) or acquire more than 10% of the
outstanding voting securities of any one issuer. In addition, neither Fund may
invest more than 25% of its total assets in any one industry, except that this
limitation does not apply to investments in obligations of the U.S. Government
or any of its agencies or instrumentalities. In addition, neither Fund may
borrow money, except for temporary, emergency or clearance purposes in an ag-
gregate amount not exceeding 33 1/3% of the value of the Fund's total assets
(including the amount borrowed). Neither Fund may purchase securities while
such borrowings exceed 5% of the value of the Fund's total assets. In addi-
tion, each Fund may borrow in connection with the redemption of Fund shares,
provided that the Fund maintains asset coverage of 300% for all borrowings.
For a more complete description of the investment restrictions to which each
Fund is subject, see the Additional Statement.
PORTFOLIO TURNOVER
Neither Fund expects its annual portfolio turnover rate to exceed 100%. A
high rate of portfolio turnover (above 100%) involves correspondingly greater
expenses which must be borne by a Fund and its shareholders and may under cer-
tain circumstances make it more difficult for a Fund to qualify as a regulated
investment company under the Code. The portfolio turnover rate is calculated
by dividing the lesser of the dollar amount of sales or purchases of portfolio
securities by the average
26
<PAGE>
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, each Investment Adviser may, from time to time, make short-term in-
vestments when it believes such investments are in the best interest of a
Fund. The Funds are not expected to trade in securities for short-term gain.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for deciding matters of gen-
eral policy and reviewing the actions of the Investment Advisers, administra-
tor, distributor and transfer agent. The officers of the Company conduct and
supervise the Funds' daily business operations. The Additional Statement con-
tains information as to the identity of, and other information about, the Di-
rectors and officers of the Company.
INVESTMENT ADVISERS AND ADMINISTRATOR
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York,
Plaza, New York, New York, 10004, an affiliate of Goldman Sachs, acts as in-
vestment adviser to Select Equity, Fund. Goldman Sachs Asset Management, One
New York Plaza, New York, New York 10004, a separate operating division of
Goldman Sachs, acts as the investment adviser to Mid-Cap Equity Fund. Goldman
Sachs Asset Management also acts as administrator to each Fund. Goldman Sachs
and Goldman Sachs Funds Management, L.P., were registered as investment advis-
ers in 1981 and 1990, respectively. As of January 31, 1995, Goldman Sachs As-
set Management, together with its affiliates, acted as investment adviser, ad-
ministrator or distributor for approximately $48.7 billion in assets.
Under the Investment Advisory Agreements with the Funds, each Fund's Invest-
ment Adviser, subject to the general supervision of the Company's Board of Di-
rectors, provides day-to-day advice as to each Fund's portfolio transactions.
Goldman Sachs has agreed to permit the Company to use the name "Goldman Sachs"
or a derivative thereof as part of each Fund's name for as long as the Invest-
ment Advisory Agreements are in effect. In performing their investment advi-
sory services, the Investment Advisers, while remaining ultimately responsible
for the management of the Funds, are able to draw upon the research and market
expertise of their affiliate offices for portfolio decisions and management
with respect to certain portfolio securities.
It is the responsibility of the Investment Advisers to make investment deci-
sions for the Funds and to place the purchase and sale orders for the Funds'
portfolio transactions. Such orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs or
its affiliates.
Select Equity Fund's Portfolio Manager is Robert C. Jones. Mr. Jones brings
15 years of investment experience to his work in developing and implementing
the Investment Advisers' quantitative equity management services. Prior to
joining GSAM in 1989, Mr. Jones was the senior quantitative analyst in Goldman
Sachs' Investment Research Department and the author of the monthly Stock Se-
lection publication. Before joining Goldman Sachs in 1987, Mr. Jones provided
quantitative research
27
<PAGE>
for both a major investment firm and an options consulting firm. He is a mem-
ber of the New York Society of Security Analysts the Institute for Quantita-
tive Research in Finance (the "Q Group") and is President of the Society of
Quantitative Analysts. He has presented his research to a variety of confer-
ences and symposiums and his articles on quantitative techniques have been
published in leading financial journals. A Chartered Financial Analyst, Mr.
Jones received a B.A. from Brown University in 1978 and an M.B.A. from the
University of Michigan in 1980.
The portfolio managers for Mid-Cap Equity Fund are Paul D. Farrell, Mitchell
E. Cantor and Ronald E. Gutfleish. Mr. Farrell is a Vice President and Chief
Investment Officer of U.S. Active Equity and is responsible for analyzing in-
dividual companies and managing equity portfolios for private investors and
institutions, as well as mutual funds. Prior to joining Goldman Sachs Asset
Management, Mr. Farrell served as a managing director at Plaza Investments,
the investment subsidiary of GEICO Corp., a major insurance company. He was
previously employed by Goldman Sachs as a Vice President in the research de-
partment and was responsible for the formation of the firm's Emerging Growth
Research Group. Mr. Cantor joined Goldman Sachs Asset Management in 1991 and
is a Vice President and Senior Equity Portfolio Manager. Prior to 1991, he
served as a principal, research director of the Institutional Division and as
the investment management research director for Sanford C. Bernstein & Co.,
Inc. Mr. Gutfleish joined Goldman Sachs Asset Management in 1993 and is a Vice
President and Portfolio Manager. Prior to 1993, he was a principal of Sanford
C. Bernstein & Co., Inc. in its Investment Management Research Department.
As compensation for the services rendered to Mid-Cap Equity Fund by Goldman
Sachs Asset Management pursuant to its Investment Advisory Agreement, and the
assumption by Goldman Sachs Asset Management of the related expenses, Mid-Cap
Equity Fund pays Goldman Sachs Asset Management a fee, computed daily and pay-
able monthly, at an annual rate equal to 0. % of Mid-Cap Equity Fund's average
daily net assets. As compensation for the services rendered to Select Equity
Fund by Goldman Sachs pursuant to its Investment Advisory Agreement, and the
assumption by Goldman Sachs of the related expenses, Select Equity Fund pays
Goldman Sachs a fee, computed daily and payable monthly, at an annual rate of
equal to 0. % of Select Equity Fund's average daily net assets. Each Invest-
ment Adviser has voluntarily agreed to reduce or limit certain "Other Ex-
penses" of the Funds (excluding advisory, transfer agency, administration and
distribution and service fees, payments to Service Organizations (as defined
below), taxes, interest and brokerage and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0. % per an-
num of the applicable Fund's average daily net assets. Such reductions or lim-
its, if any, are calculated monthly on a cumulative basis and may be discon-
tinued or modified by the Investment Advisers in their discretion at any time.
Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it (to the extent of its fees) by the amount, if any, that a Fund's expenses
would exceed the applicable expense limitations imposed by state securities
administrators. See "Management--Expenses" in the Additional Statement.
EXPENSES. Except as set forth above under "Management--Investment Advisers
and Administrator," each Fund is responsible for the payment of its expenses.
The expenses borne by a Fund include, without limitation, the fees payable to
its Investment Adviser and Goldman Sachs, including transfer agent fees, the
fees and expenses of the Fund's custodian and subcustodians, brokerage
28
<PAGE>
fees and commissions, filing fees for the registration or qualification of the
Fund's shares under federal or state securities laws, expenses of the organi-
zation of the Fund, a portion of the fees and expenses incurred by the Company
in connection with membership in investment company organizations, taxes, in-
terest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for dam-
ages or other relief asserted against, the Company for violation of any law,
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investments Advisers and
Goldman Sachs with respect to the Company), expenses of preparing and setting
in type prospectuses, statements of additional information, proxy material,
reports and notices and the printing and distributing of the same to the
Fund's shareholders and regulatory authorities, any expenses assumed by the
Fund pursuant to its Distribution and/or Administration plan and the Fund's
allocable share of the compensation and expenses of the Company's "non-inter-
ested" Directors and extraordinary expenses, if any, incurred by the Company.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, and Goldman Sachs
and their affiliates in the management of, or their interest in, other ac-
counts and other activities of Goldman Sachs may present conflicts of interest
with respect to the Funds or limit their investment activities. Goldman Sachs
and its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in or compete for transactions in the same type of securities, curren-
cies and instruments as the Funds. Goldman Sachs and its affiliates will not
have any obligation to make available any information regarding their proprie-
tary activities or strategies, or the activities or strategies, used for other
accounts managed by them, for the benefit of the management of the Funds and
it is not anticipated that the Investment Advisers will have access to propri-
etary information for the purpose of managing the Funds. The results of a
Fund's investment activities, therefore, may differ from those of Goldman
Sachs and its affiliates and it is possible that a Fund could sustain losses
during periods in which Goldman Sachs and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other ac-
counts. From time to time, a Fund's activities may be limited because of regu-
latory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See "Activ-
ities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.
ADMINISTRATOR. As administrator, pursuant to separate Administration Agree-
ments with the Funds, Goldman Sachs Asset Management provides personnel for
supervisory, administrative, and clerical functions; oversees the performance
of administrative and professional services to the Funds by others; provides
office facilities; and prepares, but does not pay for, reports to sharehold-
ers, the SEC and other regulatory authorities. As compensation for the serv-
ices rendered to the Funds by Goldman Sachs Asset Management pursuant to the
Administration Agreements, each Fund pays Goldman Sachs Asset Management a
fee, computed daily and payable monthly, at an annual rate equal to 0. % of
the Fund's average daily net assets. Goldman Sachs Asset Management has agreed
to reduce its fees payable (to the extent of its fees) by the amount (if any)
that a Fund's expenses exceed the applicable expense limitations imposed by
state securities administrators. See "Management-Expenses" in the Additional
Statement.
29
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the ex-
clusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois, also serves as each Fund's transfer agent (the "Transfer
Agent") and as such performs various shareholder servicing functions. Share-
holders of record with inquiries regarding a Fund should contact Goldman Sachs
(as Transfer Agent) at the address or the telephone number set forth on the
inside front cover page of this Prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is calculated by the Fund's custo-
dian as of the close of regular trading on the New York Stock Exchange (nor-
mally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each Business Day
(as such term is defined under "Additional Information"). Net asset value per
share of each class is calculated by determining the net assets attributable
to each class and dividing by the number of outstanding shares of that class.
Portfolio securities are valued based on market quotations or, if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Company's Board of Directors.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in ad-
vertisements and communications to shareholders or prospective investors. Av-
erage annual total return is determined by computing the average annual per-
centage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter, as-
suming reinvestment of all dividends and distributions at net asset value. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In ad-
dition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at net asset value. Any performance data
which is based on the net asset value per share would be reduced if a sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain performance
rankings and indices.
The investment results of each Fund will fluctuate over time and any presen-
tation of investment results for any prior period should not be considered a
representation of what an investment may earn or what the Fund's performance
may be in any future period. In addition to information provided in share-
holder reports, the Fund may, in its discretion, from time to time make a list
of its holdings available to investors upon request.
Total return will be calculated separately for each class of shares in ex-
istence. Because each class of shares may be subject to different expenses,
total return calculations with respect to each class of
30
<PAGE>
shares of a Fund for the same period will differ. Due to the fees payable un-
der the Distribution Plan and the Administration Plan, the investment perfor-
mance, for any period, of the Institutional Shares will always be higher than
that of Class A Shares and Administration Shares and the investment perfor-
mance of the Administration Shares will always be higher than that of Class A
Shares.
SHARES OF THE COMPANY
Each Fund is a series of the Company, which was incorporated under the laws
of the State of Maryland on September 27, 1989. The authorized capital stock
of the Company consists of 1,000,000,000 shares of common stock, par value
$.001 per share. The Directors of the Company have authority under the
Company's Charter to create and classify shares of capital stock in separate
series, without further action by shareholders. As of the date of this Pro-
spectus, the Directors have authorized shares of the Funds and seven other se-
ries. Additional series may be added in the future. The Directors also have
authority to classify and reclassify any series or portfolio of shares into
one or more classes.
The Board of Directors has authorized the issuance of two classes of shares
of Mid-Cap Equity Fund; Institutional Shares and Administration Shares. The
Board of Directors has authorized the issuance of three classes of Select Eq-
uity Fund: Institutional Shares, Administration Shares and Class A Shares.
Each Institutional Share, Administration Share and Class A Share of a Fund
represents an equal proportionate interest in the assets belonging to the
Fund. All expenses of a Fund are based on a percentage of the Fund's aggregate
average net assets, except that the respective fees under an Administration
Plan or Distribution Plan relating to a particular class will be borne exclu-
sively by that class. Institutional Shares may be purchased at net asset value
with no sales load for accounts in the name of an investor or institution that
is not compensated by a Fund for services provided to the institution's cus-
tomers. It is contemplated that most Administration Shares will be held in ac-
counts of which the record owner is a bank or other institution acting, di-
rectly or through an agent, as nominee for its customers who are the benefi-
cial owners of the shares or another organization designated by such bank or
institution. Administration Shares will be each marketed only to such institu-
tional investors at net asset value with no sales load. Institutional Shares
may be purchased for accounts in the name of an investor or institution that
is not compensated by the Fund for services provided to the institution's cus-
tomers. Administration Shares may be purchased 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 or 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. Class A Shares of
a Fund may be bought at net asset value plus a sales charge of up to 5.5% of
the purchase price through Goldman Sachs and certain investment dealers ("Au-
thorized Dealers"), including members of the National Association of Securi-
ties Dealers, Inc. and certain other firms that have entered into sales agree-
ments with Goldman Sachs. To become an Authorized Dealer, a dealer or finan-
cial service firm must enter into a sales agreement with Goldman Sachs. The
minimum investment requirements, services, program and purchase and redemption
options for shares purchased through a particular Authorized Dealer may be
different from those available to investors purchasing through other Autho-
rized Dealers. Class A Shares bear the cost of distribution and service fees
at the annual rate of up to 0.50% of the average daily net asset of such Class
A Shares. (Institutions that provide services to holders of Administration
Shares are referred to in this Prospectus as "Service Organizations").
31
<PAGE>
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration and Class A Shares) to
its customers and thus receive different compensation with respect to differ-
ent classes of shares of a Fund. Administration Shares and Class A Shares may
each have certain exclusive voting rights on matters relating to their respec-
tive plans. Currently, shares of each class may be exchanged only for shares
of the same class in another fund and certain money market funds sponsored by
Goldman Sachs. The Funds may amend such policy in the future. Dividends paid
by a Fund, if any, with respect to each class of shares will be calculated in
the same manner, at the same time and on the same day and will be in the same
amount, except for differences caused by the fact that the respective fees un-
der Administration and Distribution Plans will be borne exclusively by the ap-
plicable class. Similarly, the net asset value per share will vary depending
on the class of shares purchased.
When issued, shares are fully paid and nonassessable. In the event of liqui-
dation, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to such shareholders. All shares entitle their
holders to one vote per share, are freely transferable and have no preemptive,
subscription or conversion rights.
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Company to hold annual meetings of shareholders. As a result, Fund
shareholders may not consider each year the election of Directors or the ap-
pointment of independent accountants. However, pursuant to the Company's By-
Laws, the recordholders of at least 10% of the shares outstanding and entitled
to vote at a special meeting may require the Company to hold a special meeting
of shareholders for any purpose and recordholders may, under certain circum-
stances as permitted by the Act, communicate with other shareholders in con-
nection with requiring a special meeting of shareholders. Shareholders of the
Company may remove a Director by the affirmative vote of a majority of the
Company's outstanding voting shares. The Board of Directors, however, will
call a special meeting of shareholders for the purpose of electing Directors
if, at any time, less than a majority of Directors holding office at the time
were elected by shareholders.
In the interest of economy and convenience, the Company does not issue share
certificates. Instead, the Transfer Agent maintains a record of each share-
holder's ownership. Each shareholder receives confirmation of purchase and re-
demption orders from the Transfer Agent. Fund shares and any dividends and
distributions paid by the Fund are reflected in account statements from the
Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Select Equity
Fund has elected and Mid-Cap Equity Fund intends to elect to be treated as a
regulated investment company and to qualify for such treatment for each tax-
able year under Subchapter M of the Code. To qualify as such, each Fund must
satisfy certain requirements relating to the sources of its income, diversifi-
cation of its assets and distribution of its income to shareholders. As a reg-
ulated investment company, each 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 require-
ments of the Code.
32
<PAGE>
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply regard-
less of whether distributions are received in cash or reinvested in shares. A
Fund's dividends that are paid to its corporate shareholders and are attribut-
able to qualifying dividends such Fund receives from U.S. domestic corpora-
tions may be eligible, in the hands of such corporate shareholders, for the
corporate dividends-received deduction, subject to certain holding period re-
quirements and debt financing limitations under the Code. Certain distribu-
tions paid by a Fund in January of a given year may be taxable to shareholders
as if received the prior December 31. Shareholders will be informed annually
about the amount and character of distributions received from the Funds for
federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the rec-
ord date for a distribution will pay a per share price that includes the value
of the anticipated distribution and will be taxed on the distribution even
though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events on which a share-
holder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and ex-
changes if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup with-
holding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject
to nonresident alien withholding at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from a
Fund.
Mid-Cap Equity Fund and/or Select Equity Fund may be subject to foreign
withholding or other foreign taxes on income (possibly including, in some
cases, capital gains) earned on certain foreign securities. Neither Fund will
qualify to pass through such taxes to its shareholders. Consequently, share-
holders will not be able to include in their gross incomes their pro rata
shares of any foreign taxes paid by a Fund and will not be entitled to take
federal income tax credits or deductions with respect to such taxes.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from a Fund. A state income (and possi-
bly local income and/or intangible property) tax exemption is generally avail-
able to the extent (if any) the Fund's distributions are derived from interest
on (or, in the case of intangibles taxes, the value of its net assets is at-
tributable to) certain U.S. Government obligations, provided in some states
that certain thresholds for holdings of such obligations and/or reporting re-
quirements are satisfied.
33
<PAGE>
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state and local taxes as well as to any foreign tax-
es. See the Additional Statement for a further discussion of certain tax con-
sequences of investing in shares of a Fund.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day, Good Friday, Memorial Day, Inde-
pendence Day, Labor Day, Thanksgiving Day and Christmas Day (observed).
34
<PAGE>
REPORTS TO INSTITUTIONAL SHAREHOLDERS
Institutional Shareholders will receive annual reports containing audited
financial statements and semi-annual reports. Each Institutional Shareholder
will also be provided with a printed confirmation for each transaction in the
shareholder's account and an individual monthly statement. A year-to-date
statement for any account will be provided upon request made to Goldman Sachs.
SUB-ACCOUNTING SERVICE
Each Fund has designed special procedures to assist banks and other institu-
tional investors desiring to establish multiple accounts (master accounts and
their sub-accounts). Sub-accounts may be established with registration by name
and/or number, the share balance at the month end and the income, if any, to-
gether with the total share balance and income, if any, for the master ac-
count.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid (i) in cash or (ii) in additional Institutional
Shares of such Fund. This election should initially be made on a shareholder's
Account Information Form and may be changed upon written notice to Goldman
Sachs at any time prior to the record date for a particular dividend or dis-
tribution. If no election is made, all dividends from net investment income
and capital gains distributions will be reinvested in Institutional Shares of
the Fund paying the dividend. If cash dividends are elected with respect to a
Fund's net investment income dividends then cash dividends must also be
elected with respect to the short-term capital gains component, if any, of the
Fund's annual dividend.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Institutional Shares of the Fund will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Institutional Shares of a Fund.
Each Fund intends that all or substantially all its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends at least annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securi-
ties. Therefore, subsequent distributions (or portions thereof) of taxable in-
come or realized appreciation on such shares may be taxable to the investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
PURCHASE OF INSTITUTIONAL SHARES
Institutional Shares of a Fund may be purchased through Goldman Sachs at the
net asset value per share next determined after receipt of an order without
the imposition of a sales load. If, by 3:00 p.m. Chicago time (4:00 p.m. New
York), an order, a check or a Federal Reserve draft is received
35
<PAGE>
by Goldman Sachs, the price per share will be the net asset value per share
computed on the day the purchase order or such form of payment is received.
See "Net Asset Value."
PURCHASE PROCEDURES
Purchases of Institutional Shares may be made by placing an order with
Goldman Sachs at 800-621-2550 and either wiring Federal Funds to The Northern
Trust Company ("Northern") as subcustodian for State Street Bank and Trust
Company ("State Street") on the next Business Day or initiating an ACH trans-
fer to ensure receipt by Northern on the next Business Day. Purchases may also
be made by check (except that a check drawn on a foreign bank will not be ac-
cepted) or Federal Reserve draft made payable to "Goldman Sachs Equity Portfo-
lios, Inc.--[GS Mid-Cap Equity Fund] [GS Select Equity Fund]" and should be
directed to "GS Equity Portfolios, Inc.--[GS Mid-Cap Equity Fund] [GS Select
Equity Fund]", c/o GSAM Shareholder Services, 4900 Sears Tower, Chicago, Illi-
nois 60606. Payment of the proceeds of redemption of shares purchased by check
may be delayed for a period of time as described under "Redemption of Institu-
tional Shares."
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing necessary information to the Fund or
Goldman Sachs. An Account Information Form, a copy of which is attached to
this Prospectus, should be used to establish such an account. Subsequent pur-
chases of shares may be made in the manner set forth in the preceding para-
graph.
The minimum initial investment for each Fund is $250,000 in Institutional
Shares of the Fund alone or in combination with Institutional Shares of any
other mutual fund sponsored by Goldman Sachs and designated as an eligible
fund for this purpose and the relevant class of any portfolio of Goldman Sachs
Money Market Trust. The minimum investment requirement may be waived for cur-
rent and former officers, partners, directors or employees of Goldman Sachs or
any of its affiliates or for other investors at the discretion of the
Company's officers. No minimum amount is required for subsequent investments.
Each Fund reserves the right to redeem the Institutional Shares of any Insti-
tutional Shareholder whose account balance is less than [$100] as a result of
earlier redemptions. Such redemptions will not be implemented if the value of
an Institutional Shareholder's account falls below the minimum account balance
solely as a result of market conditions. The Company will give sixty (60)
days' prior written notice to Institutional Shareholders whose Institutional
Shares are being redeemed to allow them to purchase sufficient additional In-
stitutional Shares of a Fund to avoid such redemption.
OTHER PURCHASE INFORMATION
Banks, trust companies or other institutions through which investors acquire
Institutional Shares may impose charges in connection with transactions in In-
stitutional Shares. Such institutions should be consulted for information re-
garding such charges.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). Each Fund or Goldman
Sachs may reject or restrict purchases or exchanges of Institutional Shares by
a particular purchaser or group of related purchasers, for example, when a
pattern of frequent purchases and sales or exchanges of Institutional Shares
of a Fund is evident, or if the purchase and sale or exchange orders are, or a
subsequent abrupt redemption might be, of a size that would disrupt management
of the Fund.
36
<PAGE>
EXCHANGE PRIVILEGE
Institutional Shares of the Fund may be exchanged for (i) Institutional
Shares of any other mutual fund sponsored by Goldman Sachs and designated as
an eligible fund for this purpose and (ii) the relevant class of any portfolio
of Goldman Sachs Money Market Trust at the net asset value next determined ei-
ther by writing to Goldman Sachs, Attention: Goldman Sachs Equity Portfolios,
Inc.-- [GS Select Equity Fund] [GS Mid-Cap Equity Fund], c/o GSAM Shareholder
Services, 4900 Sears Tower, Chicago, Illinois 60606 or, if previously elected
in the Fund's Account Information Form, by telephone at 800-621-2550 (7:00
a.m. to 3:00 p.m. Chicago time). A shareholder should obtain and read the pro-
spectus relating to any other Fund and its shares or units and consider its
investment objective, policies and applicable fees before making an exchange.
Under the telephone exchange privilege, Institutional Shares may be exchanged
among accounts with different names, addresses and social security or other
taxpayer identification numbers only if the exchange request is in writing and
is received in accordance with the procedures set forth under "Redemptions of
Institutional Shares."
In times of drastic economic or market changes the telephone exchange privi-
lege may be difficult to implement. In an effort to prevent unauthorized or
fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures
as set forth under "Redemption of Institutional Shares" to confirm that such
instructions are genuine. For federal income tax purposes, an exchange is
treated as a sale of the shares surrendered in the exchange on which an in-
vestor may realize a gain or loss, followed by a purchase of Institutional
Shares, or the relevant class of any portfolio of Goldman Sachs Money Market
Trust received in the exchange. Shareholders should consult their own tax ad-
viser concerning the tax consequences of an exchange.
All exchanges which represent an initial investment in a fund must satisfy
the minimum investment requirements of the Fund into which the Institutional
Shares are being exchanged, except that this requirement may be waived at the
discretion of the officers of such Fund. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be mod-
ified or withdrawn at any time on sixty (60) days' written notice to Institu-
tional Shareholders and is subject to certain limitations. See "Purchase of
Institutional Shares."
REDEMPTION OF INSTITUTIONAL SHARES
Each Fund will redeem its Institutional Shares upon request of an Institu-
tional Shareholder on any Business Day at the net asset value next determined
after the receipt by the Transfer Agent of such request in proper form. See
"Net Asset Value." If Institutional Shares to be redeemed were recently pur-
chased by check, a Fund may delay transmittal of redemption proceeds until
such time as it has assured itself that good funds have been collected for the
purchase of such Institutional Shares. This may take up to fifteen (15) days.
Redemption request may be made by writing to or calling the Transfer Agent at
the address or telephone number set forth on the inside front cover page of
this Prospectus. An Institutional Shareholder may request redemptions by tele-
phone if the optional telephone redemption privilege is elected on the Account
Information Form accompanying this Prospectus. It may be difficult to imple-
ment redemptions by telephone in times of drastic economic or market changes.
In an effort to prevent unauthorized or fraudulent redemption or exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Company to confirm that such
37
<PAGE>
instructions are genuine. Among other things, any redemption request that re-
quires money to go to an account or address other than that designated on the
Account Information Form must be in writing and signed by an authorized person
designated on the Account Information Form. Any such written request is also
confirmed by telephone with both the requesting party and the designated bank
account to verify instructions. Exchanges among accounts with different names,
addresses and social security or other taxpayer identification numbers must be
in writing and signed by an authorized person designated on the Account Infor-
mation Form. Other procedures may be implemented from time to time. If reason-
able procedures are not implemented, the Company may be liable for any loss
due to unauthorized or fraudulent transactions. In all other cases, neither
the Funds, the Company nor Goldman Sachs will be responsible for the authen-
ticity of redemption or exchange instruction received by telephone.
Written requests for redemptions must be signed by each Institutional Share-
holder whose signature has been guaranteed by a bank, a securities broker or
dealer, a credit union having authority to issue signature guarantees, a sav-
ings and loan association, a building and loan association, a cooperative
bank, a federal savings bank or association, a national securities exchange, a
registered securities association or a clearing agency, provided that such in-
stitution satisfies the standards established by the Transfer Agent.
Each Fund will arrange for the proceeds of redemptions effected by any means
to be wired as Federal Funds to the bank account designated in the Institu-
tional Shareholder's Account Information Form or, if the shareholder elects in
writing, by check. Redemption proceeds paid by wire transfer of Federal Funds
will normally be wired on the next Business Day in Federal Funds (for a total
one-day delay), but may be paid up to seven (7) days after receipt of a prop-
erly executed redemption request. Wiring of redemption proceeds may be delayed
one additional Business Day if the Federal Reserve Bank is closed on the day
redemption proceeds would originally be wired. With respect to redemption pro-
ceeds paid by check, a check for the redemption proceeds will normally be
mailed to the address of record within 5 Business Days of receipt of a prop-
erly executed redemption request. In order to change the bank designated on
the Account Information Form to receive redemption proceeds or the record ad-
dress, a written request must be received by the Transfer Agent. This request
must be signature guaranteed as set forth above. Further documentation may be
required for executors, trustees or corporations. Once wire transfer instruc-
tions have been given by Goldman Sachs, neither the Funds, the Company nor
Goldman Sachs assumes any further responsibility for the performance of inter-
mediaries or the Institutional Share holder's bank in the transfer process. If
a problem with such performance arises, the Institutional Shareholder should
deal directly with such intermediaries or bank.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by Goldman Sachs. The request
for such redemption will not be considered to have been received in proper
form until such additional documentation has been received.
Except with respect to Institutional Shareholders whose account balances are
less than $100, Institutional Shares are not redeemable at the option of a
Fund unless the Board of Directors determines in its sole discretion that
failure to so redeem may have material adverse consequences to the sharehold-
ers of the Funds. Each Fund, however, assumes no responsibility to compel
redemptions.
38
<PAGE>
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON ACCOUNT
INFORMATION FORM
You are required by law to provide the Fund with your correct Social
Security or Other Taxpayer Identification Number (TIN), regardless of whether
you file tax returns. Failure to do so may subject you to penalties. Failure
to provide your correct TIN, to check the appropriate boxes in, and to sign
your name in the Social Security Number or Other Taxpayer Identification
Number Certification section (the "Certification Section") of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account. The Fund reserves the right to refuse
to open an account for, or to close the account of, any investor who fails to
(1) provide a TIN or (2) certify that such TIN is correct (if required to do
so under applicable law) in establishing an account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). If you do not have a TIN but have applied for or intend
to apply for one, you should check the first box in the Certification Section.
In this event, you should provide your TIN and required certifications within
60 days. Backup withholding could also apply to payments relating to your
account prior to the Fund's receipt of your TIN and required certifications.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
Section.
If you are an exempt recipient, you should furnish your TIN and check the
second box in the Certification Section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, check the third box in the
Certification Section and provide a completed Form W-8 to the Fund in order to
avoid backup withholding on certain payments. Other payments to you may be
subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THE FUNDS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... 3
Financial Highlights....................................................... 11
Investment Objective and Policies.......................................... 12
Investment Adviser and Administrator....................................... 16
Special Investment Methods and Risk Factors................................ 17
Investment Restrictions.................................................... 26
Portfolio Turnover......................................................... 26
Management................................................................. 27
Net Asset Value............................................................ 30
Performance Information.................................................... 30
Shares of the Company...................................................... 31
Taxation................................................................... 32
Additional Information..................................................... 34
Report to Institutional Shareholders....................................... 35
Dividends.................................................................. 35
Purchase of Institutional Shares........................................... 35
Exchange Privilege......................................................... 37
Redemption of Institutional Shares......................................... 37
Appendix A................................................................. A-1
Account Information Form...................................................
</TABLE>
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GOLDMAN SACHS SELECT EQUITY FUND
INSTITUTIONAL SHARES
MANAGED BY
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.,
AN AFFILIATE OF
GOLDMAN, SACHS & CO.
GOLDMAN SACHS MID-CAP EQUITY FUND
INSTITUTIONAL SHARES
MANAGED BY
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MARCH , 1995
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
ADMINISTRATION SHARES
----------
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," and
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates, Goldman Sachs Funds Management, L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate diversified portfolio of the Goldman Sachs Equity Portfolios, Inc.
(the "Company"), an open-end management investment company.
The investment objective of Select Equity Fund is to provide shareholders
with a total return consisting of capital appreciation plus dividend income
that, net of Fund expenses, exceeds the total return realized on the Standard &
Poor's Index of 500 Common Stocks (the "S&P 500 Index"). The investment
objective of Mid-Cap Equity Fund is long-term capital growth. There can be no
assurance that the Funds will achieve their respective investment objectives.
Select Equity Fund seeks to achieve its investment objective by investing in
a portfolio of equity securities selected by a portfolio optimization model
that seeks to maximize Select Equity Fund's reward to risk ratio. The model
selects a portfolio for Select Equity Fund that has risk, capitalization and
industry characteristics similar to the S&P 500 Index but which may provide a
total return that exceeds the total return on the S&P 500 Index. The securities
for Select Equity Fund's portfolio are chosen, using both quantitative and
qualitative analysis, primarily from the securities included in the S&P 500
Index, the Russell 1000 Index and the S&P Mid Cap 400 Index (the "S&P Mid Cap
Index"), as well as any other common stocks that are not included in such
indices but which are followed by Goldman, Sachs & Co.'s Investment Research
Department. Select Equity Fund may also purchase and sell futures contracts on
the S&P 500.
(continued on next page)
----------
ADMINISTRATION SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN ADMINISTRATION
SHARES OF THE FUNDS INVOLVES INVESTMENT RISKS INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------
The date of this Prospectus is May 31, 1995
<PAGE>
Mid-Cap Equity Fund will seek to meet its objective by investing, under
normal circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations of
between $500 million and $7 billion at the time of investment. However, Mid-
Cap Equity Fund currently intends to emphasize investments in companies with
public stock market capitalizations under $5 billion at the time of
investment. Mid-Cap Equity Fund may invest up to 35% of its total assets in
fixed income securities including mortgage-backed, asset-backed and debt
securities issued by corporations or other entities or by the U.S. Government,
its agencies, instrumentalities or sponsored enterprises if such securities,
in the opinion of the Investment Adviser, offer the potential to further the
Fund's investment objectives. Certain types of investments and techniques that
may be used by Mid-Cap Equity Fund entail certain risks.
Goldman Sachs Funds Management, L.P., New York, New York, an affiliate of
Goldman Sachs, serves as the investment adviser to Select Equity Fund. Goldman
Sachs Asset Management, New York, New York, a separate operating division of
Goldman, Sachs & Co., serves as investment adviser to Mid-Cap Equity Fund and
as the administrator to each Fund. Goldman Sachs Funds Management, L.P. and
Goldman Sachs Asset Management are each sometimes referred to individually as
an "Investment Adviser" and collectively as the "Investment Advisers."
Goldman, Sachs & Co. serves as the distributor and transfer agent for each
Fund. The custodian for each Fund is State Street Bank and Trust Company.
This Prospectus, which sets forth concisely the information about the
Company and each Fund that a prospective investor ought to know before
investing in Administration Shares of the Funds, should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated May 31, 1995, containing further information about the Company and the
Funds which may be of interest to investors, has been filed with the
Securities and Exchange Commission, is incorporated herein by reference in its
entirety, and may be obtained without charge, from institutions ("Service
Organizations") that hold, directly or through an agent, Administration Shares
for the benefit of their customers, or Goldman, Sachs & Co. by calling the
telephone number, or writing to one of the addresses, listed below.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
PORTFOLIOS, INC. INVESTMENT ADVISER TO GOLDMAN SACHS
ONE NEW YORK PLAZA SELECT
NEW YORK, NEW YORK 10004 EQUITY FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO. GOLDMAN SACHS ASSET MANAGEMENT
DISTRIBUTOR INVESTMENT ADVISER TO GOLDMAN SACHS
85 BROAD STREET MID-CAP
NEW YORK, NEW YORK 10004 EQUITY FUND
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) ...................800-621-2550
2
<PAGE>
SUMMARY
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," and
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates Goldman Sachs Funds Management L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the
"Company"), an open-end management investment company.
SELECT EQUITY FUND
The investment objective of Select Equity Fund is to provide investors with a
total return consisting of capital appreciation plus dividend income that, net
of Fund expenses, exceeds the total return realized on the Standard & Poor's
Index of 500 Common Stocks (the "S&P 500 Index"). There can be no assurance
that Select Equity Fund will achieve its investment objective.
Select Equity Fund seeks to achieve its investment objective by investing in
a portfolio of equity securities selected by a portfolio optimization model
(the "Optimization Model") that seeks to maximize Select Equity Fund's reward
to risk ratio. The Optimization Model selects a portfolio for Select Equity
Fund that has risk, capitalization and industry characteristics similar to the
S&P 500 Index but which may provide a total return that exceeds the total
return on the S&P 500 Index. The Investment Adviser begins with a universe of
equity securities for potential investment by Select Equity Fund consisting
primarily of the securities included in the S&P 500 Index, the Russell 1000
Index and the S&P Mid Cap Index, as well as any other common stocks that are
not included in such indices but which are followed by Goldman, Sachs & Co.'s
Investment Research Department (the "Research Department"). The Investment
Adviser assigns each equity security in such universe two ratings. The first
rating is assigned by Goldman Sachs Asset Management's proprietary multifactor
model (the Multifactor Model"). The Multifactor Model is a computerized rating
system for valuing equity securities according to fundamental investment
characteristics including value, yield, growth, momentum, risk and liquidity.
Each equity security in Select Equity Fund's potential investment universe also
is assigned a rating based upon the Research Department's evaluation. By
employing both a quantitative (i.e., the Multifactor Model) and a qualitative
(i.e., the analysts' ratings) method of selecting securities, Select Equity
Fund seeks to overcome the inherent inability of quantitative methods to
analyze non-quantitative factors (such as the impact of a change in management
or a pending lawsuit) and, conversely, the susceptibility of qualitative
methods to subjective influences and biases.
The Optimization Model selects a portfolio for Select Equity Fund based upon
two sets of criteria. First, the Optimization Model considers the ratings
assigned by the Multifactor Model and the Research Department. Second, the
Optimization Model takes into account certain characteristics of the S&P 500
Index, such as industry category, capitalization and volatility. Using these
two criteria, the Optimization
3
<PAGE>
Model selects a portfolio that has risk characteristics and industry weightings
similar to the S&P 500 but that is composed of equity securities with such
characteristics that have been assigned higher ratings. Although it has a bias
toward the higher rated securities, the Optimization Model does not necessarily
select only the highest rated securities but seeks to achieve a balance between
ratings and the risk profile of the S&P 500.
Select Equity Fund, under normal circumstances, invests at least 90% of its
total assets in equity securities. Select Equity Fund may also purchase and
sell futures contracts on the S&P 500 Index, purchase securities on a when-
issued or forward commitment basis and engage in securities lending. See
"Special Investment Methods and Risk Factors." Except for those investments and
cash equivalents, Select Equity Fund expects to be fully invested in equity
securities.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to meet its investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations of
between $500 million and $7 billion at the time of investment. However, Mid-Cap
Equity Fund currently intends to emphasize investments in companies with public
stock market capitalizations under $5 billion at the time of investment. There
can be no assurance that Mid-Cap Equity Fund will achieve its investment
objective.
Potential investments for Mid-Cap Equity Fund are evaluated using fundamental
analysis including criteria such as earnings, cash flow, asset values and
dividend-paying ability. The Fund intends to purchase securities of companies
that are, in the Investment Adviser's view, underpriced relative to the
company's long-term future growth prospects, current cash flow and dividend-
paying ability. Mid-Cap Equity Fund may purchase securities of companies that
have experienced difficulties and that the Investment Adviser believes are thus
available at attractive prices relative to the Investment Adviser's view of
earnings potential.
Equity securities in which Mid-Cap Equity Fund may invest consist of common
stocks, preferred stocks, convertible securities, warrants and other stock
purchase rights, equity interests in trusts limited partnerships, joint
ventures and similar enterprises and interests in real estate investment
trusts. These securities may or may not pay a current dividend. Securities in
which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operations. Mid-Cap Equity Fund may invest up to 35% of its total assets in the
equity securities of companies with public stock market capitalizations greater
or less than Mid Cap Companies and fixed income securities including mortgaged-
backed, asset-backed and debt securities issued by corporations or other
entities or by the U.S. Government, its agencies, instrumentalities or
sponsored enterprises if such securities, in the opinion of the Investment
Adviser, offer the potential to further Mid-Cap Equity Fund's investment
objective. In addition, Mid-Cap Equity
4
<PAGE>
Fund may engage in certain investment techniques that entail special risks. See
"Investment Objective and Policies--Mid-Cap Equity Fund" and "Special
Investment Methods and Risk Factors."
INVESTMENT ADVISERS AND ADMINISTRATOR
Pursuant to separate Investment Advisory Agreements, Goldman Sachs Funds
Management, L.P., an affiliate of Goldman Sachs, serves as the investment
adviser for Select Equity Fund and Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs, serves as investment adviser for Mid-Cap
Equity Fund. For advisory services rendered in connection with Select Equity
Fund, its Investment Adviser receives a monthly fee equal on an annual basis to
% of the average daily net assets of Select Equity Fund. For advisory
services rendered in connection with Mid-Cap Equity Fund, its Investment
Adviser receives a monthly fee equal on an annual basis to % of the average
daily net assets of the Mid-Cap Equity Fund. Goldman Sachs Funds Management,
L.P. and Goldman Sachs are each registered with the Securities and Exchange
Commission ("SEC") as investment advisers. In performing their advisory
services, the Investment Advisers, while remaining ultimately responsible for
the management of the Funds, are able to draw upon the research and expertise
of their affiliate offices for portfolio decisions and management with respect
to certain portfolio securities. See "Management--Investment Advisers and
Administrator."
Goldman Sachs Asset Management serves as the administrator for each Fund
pursuant to separate Administration Agreements. For services rendered in
connection with Select Equity Fund, the administrator receives from Select
Equity Fund a monthly fee equal on an annual basis to % of the average daily
net assets of Select Equity Fund. For services rendered in connection with Mid-
Cap Equity Fund, the administrator receives from Mid-Cap Equity Fund a monthly
fee equal on an annual basis to % of the average daily net assets of Mid-Cap
Equity Fund. See "Management--Investment Advisers and Administrator."
PURCHASE AND REDEMPTION OF ADMINISTRATION SHARES
It is expected that all purchasers of Administration Shares of the Funds will
be Service Organizations or their nominees. Customers of Service Organizations
may invest in Administration Shares only through their Service Organizations.
Administration Shares of each Fund may be purchased by Service Organizations
through Goldman Sachs at the current net asset value per share without the
imposition of a sales load. The Fund does not have any minimum purchase or
account requirements with respect to Administration Shares. A Service
Organization may, however, impose a minimum amount for initial and subsequent
investments in Administration Shares, and may establish other requirements such
as a minimum account balance. See "Purchase of Administration Shares." Each
Fund will redeem its Administration Shares upon request of a shareholder on any
Business Day at the net asset value next determined after receipt of such
request in proper form. See "Redemption of Administration Shares."
5
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs serves as the distributor and transfer agent for each Fund.
Under a Distribution Agreement with the Company, Goldman Sachs acts as
exclusive agent for each Fund in the sale of its shares. Under a Transfer
Agency Agreement with the Company, Goldman Sachs provides transfer agency
services and responds to shareholder inquiries. See "Management--Distributor
and Transfer Agent."
DIVIDEND POLICY
Each Fund intends that substantially all of its net investment income and net
realized long-term and short-term capital gains, after reduction by available
capital losses, including any capital losses carried forward from prior years,
will be declared as dividends at least annually. Shareholders will receive
dividends in additional shares of the Fund paying the dividend or may elect to
receive cash as described under "Dividends."
RISK FACTORS
GENERAL. Each Fund is intended for long-term investors who can accept the
risks associated with investing primarily in equity securities. Changes in the
value of these securities will cause a Fund's share price to fluctuate, and the
value of a Fund's shares when redeemed may be more or less than their original
cost. Investing in equity securities involves different risks and may involve
greater risks than are customarily associated with investing in debt
securities. In addition, certain of the potential investments and management
techniques entail special risks. Mid-Cap Equity Fund is a newly organized
portfolio of the Company and involves risks of investing in Mid-Cap Companies.
There can be no assurance that the Funds will achieve their investment
objectives. See "Investment Objective and Policies" and "Special Investment
Methods and Risk Factors."
INVESTMENTS IN RESTRICTED SECURITIES. The Funds may purchase securities that
are not registered or are offered in an exempt non-public offering ("restricted
securities") under the Securities Act of 1933. The purchase price and
subsequent valuation of restricted securities normally reflect a discount from
the price at which such securities would trade if they were not restricted,
since the restriction makes them less liquid. This investment practice could
have the effect of increasing the level of illiquidity in a Fund.
INVESTMENTS IN FIXED INCOME, MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. As
described below, Mid-Cap Equity Fund may make a variety of investments,
including investments in mortgage-backed, asset-backed and debt securities
issued by corporations or other entities or by the U.S. Government, its
agencies, instrumentalities or sponsored enterprises which may be rated B or
better, at the time of investment, by Standard & Poor's Ratings Group
("Standard and Poor's") or by Moody's Investors Service, Inc. ("Moody's") or,
if unrated by such rating organizations, determined by the Investment Adviser
to be of comparable credit quality. Fixed income securities rated B or below
(or
6
<PAGE>
comparable unrated securities) are commonly referred to as "junk bonds" and are
considered speculative and payments of principal and interest thereon may be
questionable. In some cases, such bonds may be highly speculative, have poor
prospects for reaching investment grade standing and be in default. As a
result, investment in such securities will entail greater speculative risks
than those associated with investment in investment grade bonds (i.e., bonds
rated AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or Baa by Moody's).
Mid-Cap Equity Fund may invest up to 35% of its total assets in these fixed
income securities and will limit its investments in debt securities rated below
investment grade to no more than 10% of its total assets. Accordingly, the
performance of Mid-Cap Equity Fund may be affected in part by interest rate
changes. To the extent Mid-Cap Equity Fund invests in such securities, its
investments will tend to decrease in value when interest rates rise, and
increase in value when interest rates fall.
INVESTMENT IN SECURITIES OF FOREIGN ISSUERS. Mid-Cap Equity Fund may Invest
in foreign securities. Select Equity Fund may invest in securities of foreign
issuers that are traded in the United States and that comply with U.S.
accounting standards. Investing in securities of foreign issuers may involve
risks not present in U.S. investments. Foreign issuers may not be subject to
accounting standards or governmental supervision comparable to that applicable
to U.S. issuers and there may be less publicly available information about
their operations. Foreign securities markets generally provide less liquidity
(and thus potentially greater price volatility), and typically provide fewer
regulatory protections for investors. Foreign securities can be affected by
political and financial instability abroad. In addition, the value of
securities quoted or denominated in a foreign currency will be affected by
changes in currency exchange rates or exchange control regulations.
OTHER INVESTMENTS AND PRACTICES. The Funds may engage in certain investment
practices and enter into transactions in certain derivative instruments. Select
Equity Fund may purchase and sell future contracts on the S&P 500 Index,
purchase securities on a when-issued or forward commitment basis and engage in
securities lending. In the case of Mid-Cap Equity Fund, such investment
practices and instruments include futures contracts, options, options on
futures contracts, forward commitments, forward foreign currency transactions,
lending portfolio securities and repurchase agreements. The Funds may enter
into these transactions, except for transactions with respect to currencies,
for hedging purposes and to seek to increase total return. The use of such
investment practices and derivative instruments by the Funds involves certain
risks, including the risk of loss if an Investment Adviser is incorrect in its
expectation of fluctuations in securities prices or interest rates in
connection with transactions to increase total return and, in the case of
hedging transactions, a possible lack of correlation between changes in the
value of a hedging instrument and the portfolio security being hedged.
CONFLICTS OF INTEREST. The involvement of Goldman Sachs, and its affiliates,
divisions (including the Investment Advisers), partners and officers in the
investment activities and business operations of the Funds may present certain
conflicts of interest, as described under "Management--Investment Advisers and
Administrator."
7
<PAGE>
ADMINISTRATION PLAN
The Company, on behalf of each Fund, has adopted an Administration Plan with
respect to the Administration Shares of each Fund which authorizes each Fund to
compensate Service Organizations for providing account administration services
to their customers who are the beneficial owners of such Shares. The Company,
on behalf of each Fund, will enter into agreements with each Service
Organization which will provide for compensation to the Service Organization in
an amount up to 0.25% (on an annualized basis) of the average daily net assets
of the Administration Shares of a Fund attributable to or held in the name of
the Service Organization for its customers. See "Administration Plans."
8
<PAGE>
FEES AND EXPENSES
(ADMINISTRATION SHARES)*
<TABLE>
<CAPTION>
SELECT MID-CAP
EQUITY EQUITY
FUND FUND
------ -------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases........................ None None
Maximum Sales Load Imposed on Reinvestment Dividends........... None None
Redemption Fees................................................ None None
Exchange Fees.................................................. None None
ANNUAL FUND OPERATING EXPENSES: (as a percentage of average net
assets)
Management Fees***............................................ % %
Account Administration Fees................................... 0.25% 0.25%
Other Expenses (after expense limitations)****
Transfer Agency Fees......................................... .04% .04%
Other Expenses............................................... % %
% %
---- ----
TOTAL FUND OPERATING EXPENSES (AFTER EXPENSE LIMITATION)****. .90% 1.10%
==== ====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
hypothetical $1,000 investment, assuming (1) a
5% annual return and (2) redemption at the end
of each time period
Select Equity Fund........................... $ 9 $29 $50 $111
Mid-Cap Equity Fund.......................... $11 $35 N/A N/A
</TABLE>
- --------------------
* The information set forth in the foregoing table and hypothetical example
relates only to Administration Shares of the Funds. See "Shares of the
Company." Institutional Shares of the Funds and, in the case of the Select
Equity Fund, Class A Shares are subject to different fees and expenses.
Institutional Shares are sold at net asset value and are not subject to an
administration or distribution fee. Class A Shares are sold at net asset
value plus a sales charge of up to 5.5% and are subject to a distribution
and service fee of up to 0.50% of average daily net assets. Institutional
Shares and Administration Shares pay a transfer agency fee on the basis of
a percentage of assets attributable to such classes and Class A Shares are
subject to a transfer agency fee based upon a fixed per account charge
plus transaction fees. All other expenses related to Institutional Shares
and Class A Shares are the same as for Administration Shares.
** Management fees for Select Equity Fund include advisory fees of % and
administration fees of %. Management fees for Mid-Cap Equity Fund
include advisory fees of 0. % and administration fees of %.
*** Service Organizations (other than broker-dealers) may charge other fees to
their customers who are beneficial owners of Administration Shares in
connection with their customer accounts. See "Administration Plans."
9
<PAGE>
**** The Investment Advisers have voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding advisory, transfer agency,
administration and distribution and service fees, payments to Service
Organizations, taxes, interest and brokerage and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed % and % per annum of the average daily net assets of
Select Equity Fund and Mid-Cap Equity Fund, respectively. The Investment
Advisers may discontinue or modify such expense limitations at any time.
If the Investment Advisers did not agree to reduce or otherwise limit
certain "Other Expenses" of the Funds, the other expenses and total
operating expenses attributable to Administration Shares of Select Equity
Fund would be % and %, respectively; and the other expenses and total
operating expenses of the Administration Shares of Mid-Cap Equity Fund
would be % and %, respectively. Annual operating expenses incurred by
Select Equity Fund during the fiscal year ended January 31, 1995
(expressed as a percentage of average daily net assets) were as follows:
Management Fees, Distribution and Service Fees and Other Expenses of
0.75%, 0.25% and 0. %, respectively for total operating expenses of
0. %. The foregoing table and example also reflect current operating
expenses that will be applicable on an ongoing basis. See "Management--
Investment Advisers and Administrator."
The purpose of the foregoing table is to assist investors in understanding
the various costs and expenses of the Funds that an investor in the Funds will
bear directly or indirectly. Since the Mid-Cap Equity Fund has no operating
history and Select Equity Fund has lowered its historical fees, the costs and
expenses included in the table and hypothetical example above are based on
estimated fees and expenses for the current fiscal year, and should not be
considered as representative of future expenses. Actual fees and expenses may
be greater or less than those indicated. Moreover, while the example assumes a
5% annual return, the actual performance of each Fund will vary and may result
in an actual return greater or less than 5%. See "Management--Investment
Advisers and Administrator."
10
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A CLASS A SHARE OUTSTANDING OF SELECT EQUITY FUND THROUGHOUT
EACH PERIOD
The following data with respect to Class A shares of Select Equity Fund
outstanding during the periods indicated has been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report incorporated
by reference and attached to the Additional Statement from Select Equity
Fund's Annual Report to shareholders for the year ended January 31, 1994 (the
"Annual Report"). This information should be read in conjunction with the
financial statements and related notes incorporated by reference and attached
to the Additional Statement. The Annual Report also contains performance
information and is available upon request and without charge by writing to one
of the addresses on the inside cover of this Prospectus. No Institutional or
Administration Shares of the Fund were outstanding during the periods
indicated.
11
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
SELECT EQUITY FUND
The investment objective of Select Equity Fund is to provide investors with
a total return consisting of capital appreciation plus dividend income that,
net of fund expenses, exceeds the total return realized on the S&P 500 Index.
There is no assurance that Select Equity Fund will achieve its investment
objective.
Select Equity Fund seeks to achieve its investment objective by investing in
a portfolio of equity securities selected by a portfolio optimization model
(the "Optimization Model") that seeks to maximize Select Equity Fund's reward
to risk ratio. The Optimization Model selects a portfolio for Select Equity
Fund that has risk, capitalization and industry characteristics similar to the
S&P 500 Index but which may provide a total return that exceeds the total
return on the S&P 500 Index.
The Investment Adviser begins with a universe of equity securities for
potential investment by Select Equity Fund consisting primarily of the
securities included in the S&P 500 Index, the Russell 1000 Index and the S&P
Mid Cap Index, as well as any other common stocks that are not included in
such indices but which are followed by Goldman Sach's Investment Research
Department (the "Research Department"). The Investment Adviser assigns each
equity security in such universe two ratings. The first rating is assigned by
Goldman Sachs Asset Management's proprietary multifactor model (the
"Multifactor Model"). The Multifactor Model is a sophisticated computerized
rating system for valuing equity securities according to fundamental
investment characteristics. The factors used by the Multifactor Model
incorporate many variables studied by traditional fundamental analysis, and
cover measures of value, yield, growth, momentum, risk and liquidity, which
include price/earnings ratio, book/price ratio, long and short term growth
estimates, earning estimates, price momentum, volatility and liquidity. All of
the factors used by the Multifactor Model have been shown to significantly
impact the performance of equity securities. The weightings assigned to the
factors are derived using a statistical formulation that considers each
factor's historical performance in different market environments. As such, the
Multifactor Model is designed to evaluate each security using only the factors
that are statistically related to returns in the anticipated market
environment. Furthermore, because it includes many disparate factors, the
Investment Adviser believes that the Multifactor Model is broader in scope and
provides a more thorough evaluation than most conventional, value-oriented
quantitative models. As a result, the securities ranked highest by the
Multifactor Model do not have one dominant investment characteristic (such as
a low price/earnings ratio); rather, such securities possess many different
investment characteristics.
Each equity security in Select Equity Fund's potential investment universe
is also assigned a rating based upon the Research Department's evaluation. The
Research Department assigns a rating of one (recommended for purchase) to four
(likely to underperform) to each equity security. With an annual budget of
more than $140 million, the Research Department has a staff of approximately
150 senior professionals who follow over 1,700 issuers. By employing both
quantitative (i.e., the Multifactor Model) and qualitative (i.e., the
analysts' ratings) methods of selecting securities, Select Equity Fund seeks
to overcome the inherent inability of quantitative methods to analyze non-
quantitative factors (such as the impact of a change in management or a
pending lawsuit) and, conversely, the susceptibility of qualitative methods to
subjective influences and biases.
12
<PAGE>
Each equity security in Select Equity Fund's investment universe will be
processed by the Optimization Model. The Optimization Model selects a
portfolio for Select Equity Fund based upon two sets of criteria. First, the
Optimization Model considers the ratings assigned by the Multifactor Model and
the Research Department. Second, the Optimization Model takes into account
certain characteristics of the S&P 500 Index, such as industry category,
capitalization and volatility. Using these two criteria, the Optimization
Model selects a portfolio that has risk characteristics and industry
weightings similar to the S&P 500 but that is composed of equity securities
that have been assigned higher ratings. Although it has a bias toward higher
rated securities, the Optimization Model does not necessarily select only
highest rated securities but seeks to achieve a balance between ratings and
the risk profile of the S&P 500. Under normal market conditions, the
Investment Adviser will not modify the portfolio recommended by the
Optimization Model. Under normal conditions, the securities of any one issuer
may not exceed 5% of Select Equity Fund's net assets.
The composition of Select Equity Fund's portfolio will be periodically
reviewed. The frequency of such review depends upon a number of factors
including the Fund's cash flows from sales and redemptions and changes in
rating of securities included in the Fund's investment universe. In
determining whether to recommend an adjustment to Select Equity Fund's
portfolio, the Optimization Model takes into account transaction costs
inherent in such rebalancing in determining the portfolio that is anticipated
to produce the highest return.
The investment strategy described above will be implemented to the extent it
is consistent with maintaining Select Equity Fund's qualification as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code") (see "Taxation--Federal Taxes"). Select Equity Fund's
strategy may be limited, in particular, by the requirement for such
qualification that less than 30% of its annual gross income be derived from
the sale or other disposition of stocks or securities (including futures
contracts) held for less than three months.
Select Equity Fund maintains cash balances to satisfy shareholder redemption
requests. Such cash balances will normally range from 2% to 10% of the Fund's
net assets. Select Equity Fund may purchase futures contracts on the S&P 500
Index in order to keep the Fund's effective equity exposure close to 100%. For
example, if cash balances are equal to 10% of the net assets, Select Equity
Fund may enter into long futures contracts covering an amount equal to 10% of
the Fund's net assets. As cash balances fluctuate based on new contributions
or withdrawals, the Fund may enter into additional contracts or close out
existing positions. See "Special Investment Methods and Risk Factors."
Under normal circumstances, Select Equity Fund invests at least 90% of its
total net assets in equity securities. Select Equity Fund may also purchase
and sell futures contracts on the S&P 500 Index, purchase securities on a
when-issued or forward commitment basis and engage in securities lending. See
"Special Investment Methods and Risk Factors" below. Except for these
investments and cash equivalents, Select Equity Fund expects to be fully
invested in equity securities.
Under normal circumstances, for liquidity purposes only, Select Equity Fund
may hold up to 10% of its assets in cash, securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, commercial paper rated
at least A-1 by Standard & Poor's or P-1 by Moody's,
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certificates of deposit, bankers' acceptances, repurchase agreements or non-
convertible preferred stocks or non-convertible corporate bonds with less than
one year to maturity. Under unusual circumstances, Select Equity Fund may
temporarily hold up to 35% of its assets in cash or such short-term
instruments for liquidity purposes.
It is possible that the Optimization Model will select securities for Select
Equity Fund issued by 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 Select
Equity Fund's flexibility in purchasing and selling such securities. When
Goldman Sachs is engaged in an 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 Select Equity Fund. See "Management--Investment Advisers and
Administrator."
Except as stated under "Investment Restrictions," Select Equity Fund's
investment objective and policies are not fundamental and may be changed
without a vote of the shareholders. If there is a change in Select Equity
Fund's investment objective, shareholders should consider whether Select
Equity Fund remains an appropriate investment in light of their then current
financial position and needs.
Market risks are inherent in all securities in varying degrees. Therefore,
there can be no assurance that Select Equity Fund will be successful in
meeting its investment objective. Investors should not consider Select Equity
Fund a complete investment program. Investors may also wish to complement an
investment in Select Equity Fund with other types of investments.
MID-CAP EQUITY FUND
The investment objective of Mid-Cap Equity Fund is long-term capital growth.
Dividend income, if any, is an incidental consideration. Mid-Cap Equity Fund
will seek to achieve its investment objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of
companies ("Mid Cap Companies") with public stock market capitalizations
(based upon shares available for trading on an unrestricted basis) of between
$500 million and $7 billion at the time of investment. However, Mid-Cap Equity
Fund currently intends to emphasize investments in Mid Cap Companies with
public stock market capitalizations of below $5 billion at the time of
investment. Equity securities in which Mid-Cap Equity Fund may invest include
common stocks, preferred stocks, convertible securities, warrants, stock
purchase rights and interests in real estate investment trusts. Securities in
which Mid-Cap Equity Fund may invest include foreign securities, restricted
securities and securities of issuers with less than three years' continuous
operation. Mid-Cap Equity Fund may invest up to 35% of its total assets in
mortgage-backed, asset-backed and fixed income securities issued by
corporations or other entities or by the U.S. Government or its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further the investment
objectives of Mid-Cap Equity Fund. In addition, investments in Mid Cap
Companies as well as certain investment techniques may involve special risks.
See "Special Investment Methods and Risk Factors."
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Potential investments for Mid-Cap Equity Fund are evaluated by the
Investment Adviser using fundamental analysis including criteria such as
earnings, cash flow, asset values and dividend-paying ability. The Investment
Adviser intends to purchase securities of companies that are, in the
Investment Adviser's view, underpriced relative to the company's long-term
growth prospects, current cash flow and dividend-paying ability. In addition,
Mid-Cap Equity Fund may purchase securities of companies that have experienced
difficulties and that the Investment Adviser believes are thus available at
attractive prices. Mid-Cap Equity Fund may also purchase securities of
companies able to generate high returns in sectors experiencing relatively
slow growth. Consideration will be given to the business quality of the
underlying issuer. Factors positively affecting the Investment Adviser's view
of that quality include the competitiveness and degree of regulation in the
markets in which the company operates, the return on capital invested in the
business, the market position of the company in the markets in which it
operates, the acceptability of the level of the company's financial leverage
and the existence of a management team with a record of success.
Portfolio securities will generally be sold when the Investment Adviser
believes their market price fully reflects or exceeds their fundamental
valuation or due to an increase in risk beyond acceptable levels. Under normal
circumstances, Mid-Cap Equity Fund's cash position will be a reflection of the
availability of attractive investment alternatives.
The Investment Adviser evaluates investments for Mid-Cap Equity Fund using
fundamental analysis and through field research. In addition, the Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Research Department as well as information provided by other securities
dealers.
The Investment Adviser expects that Mid-Cap Equity Fund will typically
invest in the securities of approximately to companies. The number of
stocks owned is intended to provide Mid-Cap Equity Fund with a moderate level
of diversification while at the same time not diluting the impact of any one
investment. Mid-Cap Equity Fund will be considered "diversified" as defined in
the Investment Company Act of 1940 (the "Act"). See "Special Investment
Methods and Risk Factors."
OTHER INVESTMENT POLICIES AND RISKS
Mid-Cap Equity Fund may invest up to 35% of its total assets in mortgage-
backed, asset-backed and fixed income securities issued or guaranteed by
corporations or other entities or by the U.S. Government, its agencies,
instrumentalities or sponsored enterprises if such securities, in the opinion
of the Investment Adviser, offer the potential to further Mid-Cap Equity
Fund's investment objective. The fixed income securities in which Mid-Cap
Equity Fund may invest may be rated B or better, at the time of investment, by
Standard & Poor's or by Moody's or, if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. Fixed
income securities rated B or below by Standard & Poor's or B or below by
Moody's (or comparable unrated securities), commonly called junk bonds, are
considered speculative and payments of principal and interest thereon may be
questionable. Mid-Cap Equity Fund will limit its investments in fixed income
securities rated below investment grade to no more than 10% of its total
assets. See Appendix A to the Additional Statement for a description of the
ratings issued by investment rating organizations. In addition,
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although Mid-Cap Equity Fund will invest primarily in U.S. securities, it may
invest up to 25% of its total assets in foreign securities, including American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs").
When in the judgment of the Investment Adviser market conditions warrant
Mid-Cap Equity Fund may for temporary defensive purposes to preserve capital,
hold part or all of its assets in cash, cash equivalents, such as certificates
of deposit, commercial paper, time deposits and bankers' acceptances issued by
a bank the unsecured commercial paper of which is rated at least A-1 by
Standard & Poor's or P-1 by Moody's, securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, instrumentalities
or sponsored enterprises, repurchase agreements and foreign currencies.
Except as otherwise stated under "Investment Restrictions," Mid-Cap Equity
Fund's investment objective and policies are not fundamental and may be
changed without a vote of the shareholders. If there is a change in Mid-Cap
Equity Fund's investment objective, shareholders should consider whether Mid-
Cap Equity Fund remains an appropriate investment in light of their then
current financial positions and needs.
Market risks are inherent in all securities in varying degrees. Therefore,
there can be no assurance that Mid-Cap Equity Fund will be successful in
meeting its investment objective. An investment in shares of Mid-Cap Equity
Fund does not constitute a complete investment program. Investors may wish to
complement an investment in Mid-Cap Equity Fund with other types of
investments. See "Special Investment Methods and Risk Factors."
INVESTMENT ADVISERS AND ADMINISTRATOR
The investment adviser for Select Equity Fund is Goldman Sachs Fund
Management, L.P., an affiliate of Goldman Sachs. Goldman Sachs Asset
Management, a separate operating division of Goldman Sachs, is Mid-Cap Equity
Fund's investment adviser. The administrator for each Fund is Goldman Sachs
Asset Management. The management services provided by each Investment Adviser
are subject to the general supervision of the Company's Board of Directors.
The Investment Advisers serve a wide range of clients including private and
public pension funds, endowments, foundations, banks, thrifts, insurance
companies, corporations, and private investors and family groups.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in virtually
every field of investing and financing, participating in financial markets
worldwide and serving individuals, institutions, corporations and governments.
Goldman Sachs is headquartered in New York and has offices throughout the
United States and in Beijing, Frankfurt, George Town, Hong Kong, London,
Madrid, Milan, Montreal, Osaka, Paris, Seoul, Shanghai, Singapore, Sydney,
Taipei, Tokyo, Toronto, Vancouver and Zurich.
The Investment Advisers are able to draw on the research and market
expertise of Goldman Sachs, whose investment research effort is one of the
largest in the industry. The in-depth information and analyses generated by
Goldman Sachs' research analysts, economists and portfolio strategists are
constantly available to the Investment Advisers.
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SPECIAL INVESTMENT METHODS AND RISK FACTORS
EQUITY SECURITIES
Because both Funds invest primarily in equity securities, consisting of
common stocks, preferred stocks, convertible securities, warrants and other
stock purchase rights, equity interests in trusts limited partnerships, joint
ventures and similar enterprises and interests in real estate investment
trusts, the Funds are subject to certain market risks, such as the possibility
that the price of a security held by a Fund will decline over a short or even
an extended period of time. The market for equity securities in the United
States tends to be cyclical, with periods when the prices of securities
generally rise and periods when they generally decline. All equity securities
are usually influenced to some extent by price movements in the equities
market. To a limited extent, each Fund may purchase the securities of issuers
with less than three years' continuous operating history.
CONVERTIBLE SECURITIES
Convertible securities may 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 fixed income
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 decline in price to the same extent as the
underlying common stock. Convertible securities rank senior to common stocks
in an issuer's capital structure and consequently entail less risk than the
issuer's common stock. However, the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security. In evaluating a convertible
security, an Investment Adviser will give primary emphasis to the
attractiveness of the underlying common stock. The convertible securities in
which Mid-Cap Equity Fund invests are subject to the same rating criteria as
its investments in fixed income securities. The convertible securities in
which the Select Equity Fund invest are not subject to any minimum rating
criteria. Convertible debt securities are equity investments for purposes of
the Funds' investment policies.
WARRANTS AND STOCK PURCHASE RIGHTS
Warrants and stock purchase rights are securities permitting, but not
obligating, their holder to subscribe for other securities on, or on or
before, a fixed date in the future at a predetermined price. Generally,
warrants and stock purchase rights do not carry with them the right to
dividends or voting rights with respect to the securities that they entitle
their holder to purchase, and they do not represent any rights in the assets
of the issuer. As a result, an investment in warrants and stock purchase
rights may be considered to entail greater investment risk than certain other
types of investment. In addition, the values of warrants and stock purchase
rights do not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
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expiration date. Investment in warrants and stock purchase rights increases
the potential profit or loss to be realized from the investment of a given
amount of the Fund's assets as compared with investment of the same amount in
the stock which underlies such warrants or stock purchase rights.
FIXED INCOME SECURITIES
Corporate and foreign governmental fixed income securities are subject to
the risk of the issuer's inability to meet principal and interest payments on
the obligations (credit risk). Fixed income securities may also be subject to
price volatility due to such factors as interest rate sensitivity, market
perception of the creditworthiness of the issuer and general market liquidity
(market risk). Except to the extent that values are independently affected by
currency exchange rate fluctuations, when interest rates decline, the value of
fixed income securities can generally be expected to rise. Conversely, when
interest rates rise, the value of fixed income securities can be expected to
decline. The Investment Adviser will consider both credit risk and market risk
in selecting fixed income securities for Mid-Cap Equity Fund's portfolio. The
interest rate payable on certain fixed income securities in which Mid-Cap
Equity Fund may invest are not fixed and may fluctuate based upon changes in
market rates of interest.
Fixed income securities rated in the BBB or Baa category are considered
medium-grade obligations with speculative characteristics, and adverse
economic conditions or changing circumstances may weaken their issuers'
capacity to pay interest and repay principal. Also, to the extent that the
rating assigned to a security in Mid-Cap Equity Fund's portfolio is downgraded
by a rating organization, the market price and liquidity of such security may
be adversely affected. Fixed income securities rated BB, Ba or B (or
comparable unrated securities) are commonly referred to as "junk bonds," are
considered predominately speculative with respect to an issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligations and involve a major risk of exposure to adverse business,
financial or economic conditions. In some cases, these obligations may be
highly speculative and have poor prospects for obtaining investment standing.
GOVERNMENT DEBT OBLIGATIONS. Fixed income securities in which Mid-Cap Equity
Fund may invest include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprises thereof supported by the full
faith and credit of the U.S. Government, the authority of the issuer to borrow
from the U.S. Treasury, or the discretionary authority of the U.S. Government
to purchase the obligations of the agency, instrumentality or enterprise;
obligations fully guaranteed as to principal and interest by an agency,
instrumentality or sponsored enterprise of the U.S. Government; obligations of
U.S. Government agencies, instrumentalities or sponsored enterprises which are
not guaranteed; and obligations of states, municipalities or state or
municipal government agencies or instrumentalities, which may or may not be
entitled to the full faith and credit of the issuer.
Mid-Cap Equity Fund may also invest in zero coupon U.S. Treasury securities
and in zero coupon securities issued by financial institutions, which rep
resent a proportionate interest in underlying U.S. Treasury securities. A zero
coupon security pays no interest to its holder during its life and its value
consists of the difference between its face value at maturity and its cost.
The market prices of zero coupon securities generally are more volatile than
the market prices of securities that pay interest periodically. Mid-Cap Equity
Fund's investments in zero coupon securities may require the Fund to
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sell certain of its portfolio securities to generate sufficient cash to
satisfy certain income distribution requirements. See "Taxation" in the
Additional Statement.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mid-Cap Equity Fund may invest
in mortgage-backed securities, which represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mid-Cap Equity Fund may also invest in asset-backed
securities, which represent participations in, or are secured by and payable
from, assets such as motor vehicle installment sale contracts, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other
categories of receivables. Such securities are generally issued by trusts and
special purpose corporations.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity dates 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 mortgage-
backed and asset-backed securities can be expected to accelerate, and thus
impair the Fund's ability to reinvest the returns of principal at comparable
yields. Accordingly, the market values of such securities will vary with
changes in market interest rates generally and in yield differentials among
various kinds of U.S. Government securities and other mortgage-backed and
asset-backed securities. Asset-backed securities present certain additional
risks that are not presented by mortgage-backed securities because asset-
backed securities generally do not have the benefit of a security interest in
collateral that is comparable to mortgage assets. There is the possibility
that, in some case, recoveries on repossessed collateral may not be available
to support payments on these securities.
RISK OF INVESTING IN SMALL CAP COMPANIES
Each of Mid-Cap Equity Fund and Select Equity Fund may, to the extent
consistent with their investment policies, invest in Equity Securities of
issuers with small market capitalizations ("Small Cap Companies").
Historically, the equity securities of Small Cap Companies have been more
volatile in price than securities of companies with greater capitalizations.
Among the reasons for the greater price volatility of these smaller
capitalization and unseasoned stocks are the less certain growth prospects of
small and medium sized firms, the lower degree of liquidity in the markets for
such stocks and the greater sensitivity of small and medium sized companies to
changing economic conditions. For example, these companies are associated with
higher investment risk than that normally associated with larger, more mature,
better known firms due to the greater business risks of their smaller size and
more limited product lines, markets, distribution channels and financial
managerial resources.
The values of stocks of Small Cap Companies may fluctuate independently of
prices of stocks of companies with greater public market capitalizations. The
stocks of Small Cap Companies may decline in price as market prices of large
company stock rise, or rise in price as large company stock prices decline.
Furthermore, the securities of Small Cap Companies may trade less frequently
and with less volume than securities of companies with larger public market
capitalizations.
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WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an advanta-
geous price and yield to the Fund at the time of entering into the transac-
tion. Each Fund may also purchase securities on a forward commitment basis;
that is, make contracts to purchase securities for a fixed price at a future
date beyond customary settlement time. Each Fund is required to hold and main-
tain in a segregated account with the Fund's custodian until the settlement
date, cash or liquid, high grade debt obligations in an amount sufficient to
meet the purchase price. Alternatively, each Fund may enter into offsetting
contracts for the forward sale of other securities that it owns. The purchase
of securities on a when-issued or forward commitment basis involves a risk of
loss if the value of the security to be purchased declines prior to the set-
tlement date. Although a Fund would generally purchase securities on a when-
issued or forward commitment basis with the intention of acquiring securities
for its portfolio, the Fund may dispose of a when-issued security or forward
commitment prior to settlement if its Investment Adviser deems it appropriate
to do so.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Mid-Cap Equity Fund may write (sell) covered call and put options on any se-
curities in which it may invest. Mid-Cap Equity Fund may also write call write
call and put options on any securities index composed of securities in which
it may invest. In addition, Mid-Cap Equity Fund may purchase call and put op-
tions on any securities in which it may invest or options on any securities
index composed of securities in which it may invest. Mid-Cap Equity Fund will
purchase and write such options on securities that are listed on national se-
curities exchanges or traded in the over-the-counter market.
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 increase to-
tal 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 depends in part on the Invest-
ment Adviser's ability to predict future price fluctuations and the degree of
correlation between the options and securities markets. If the Investment Ad-
viser is incorrect in its expectation of changes in securities prices or its
determination of the correlation between the securities indices on which op-
tions are written and purchased and the securities in Mid-Cap Equity Fund's
investment portfolio, the investment performance of Mid-Cap Equity Fund will
be less favorable than it would have been in the absence of such options
transactions. The writing of options could significantly increase the Mid-Cap
Equity Fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Select Equity Fund may purchase and sell futures contracts on the S&P 500
Index. To hedge against changes in interest rates, securities prices or cur-
rency exchange rates or to seek to increase total return, Mid-Cap Equity Fund
may purchase and sell various kinds of futures contracts, and purchase and
write call and put options on any of such futures contracts. Each Fund will
engage in
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futures and Mid-Cap Equity Fund will engage in related options transactions
only for bona fide hedging purposes as defined in regulations of the Commodity
Futures Trading Commission or, except for futures on foreign currencies pur-
chased or sold by Mid-Cap Equity Fund, to seek to increase total return to the
extent permitted by such regulations.
Neither Fund may purchase or sell futures contracts or purchase or sell re-
lated options to increase total return, except for closing purchase or sale
transactions, if immediately thereafter the sum of the amount of initial mar-
gin deposits and premiums paid on a Fund's outstanding positions in futures
and related options entered into for the purpose of seeking to increase total
return would exceed 5% of the market value of a Fund's net assets. These
transactions involve brokerage costs, require margin deposits and, in the case
of contracts and options obligating the Mid-Cap Equity Fund to purchase secu-
rities or currencies, require a Fund to segregate liquid, high grade debt se-
curities in an amount equal to the amount of the Fund's obligations.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. See
"Investment Objectives and Policies--Futures Contracts and Options on Future
Contracts" in the Additional Statement. Thus, while the Funds may benefit from
the use of futures, unanticipated changes in securities prices may result in a
poorer overall performance for the Funds than if they had not entered into any
futures contracts or option transactions. The loss incurred by Mid-Cap Equity
Fund in writing options on futures is potentially unlimited and may exceed the
amount of premium received.
Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's net asset value. The profitability of the Fund's trad-
ing in futures to increase total return will depend on the ability of the In-
vestment Adviser to correctly analyze the futures markets. In addition, be-
cause of the low margin deposits normally required in futures trading, a rela-
tively small price movement in a futures contract may result in substantial
losses to Fund. Further, futures contracts may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection
may not be obtained and a Fund may be exposed to risk of loss. Perfect corre-
lation between a Fund's futures positions and portfolio positions will be im-
possible to achieve. A Fund's transactions in futures contracts and, for Mid-
Cap Equity Fund, options may be limited by the requirements of the Code for
qualification as a regulated investment company.
FOREIGN TRANSACTIONS
FOREIGN SECURITIES. Mid-Cap Equity Fund may invest up to 25% of its total
assets, calculated at the time of purchase, in foreign equity and fixed income
securities, including ADRs, EDRs and GDRs. Select Equity Fund may invest in
equity securities, including ADRs, of foreign issuers that are traded in the
United States and comply with U.S. accounting standards.
ADRs are receipts issued by a U.S. bank or trust company which evidence own-
ership of underlying securities of foreign corporations. ADRs are traded on
domestic exchanges or in the U.S. over-the-counter market and, generally, are
in registered form. To the extent that a Fund acquires ADRs through
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banks which do not have a contractual relationship with the foreign issuer of
the security underlying the ADR to issue and service such ADRs, there may be
an increased possibility that a Fund would not become aware of and be able to
respond in a timely manner to corporate actions such as stock splits or rights
offerings involving the foreign issuer. In addition, the lack of information
may result in inefficiencies in the valuation of such instruments. However, by
investing in ADRs rather than directly in the stock of non-U.S. issuers, a
Fund will avoid currency risks during the settlement period for either pur-
chases or sales. In general, there is a large, liquid market in the United
States for ADRs quoted on a national securities exchange or the NASD's na-
tional market system. The information available for certain ADRs is subject to
the accounting, auditing and financial reporting standards of the U.S. market
or exchange on which they are traded, which standards are more uniform and
more exacting than those to which many non-U.S. issuers may be subject.
Mid-Cap Equity Fund may also invest in EDRs and GDRs, which are receipts ev-
idencing an arrangement with a non-U.S. bank similar to that for ADRs and are
designed for use in the non-U.S. securities markets. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security.
Investments in foreign securities may offer potential benefits not available
from investments solely in securities of U.S. issuers. Such benefits may in-
clude the opportunity to invest in foreign issuers that appear, in the opinion
of an Investment Adviser, to offer better opportunity for capital appreciation
or current income than investments in securities of U.S. issuers, the opportu-
nity to invest in foreign countries with economic policies or business cycles
different from those of the United States and the opportunity to reduce fluc-
tuations in portfolio value by taking advantage of foreign securities markets
that do not necessarily move in a manner parallel to U.S. markets.
Investing in securities of foreign issuers involves considerations that are
not typically associated with investing in U.S. issuers. Such investments may
be affected by changes in currency rates and in exchange control regulations
(e.g., currency blockage). There may be less publicly available information
about a foreign company than about a U.S. company. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. companies; however, Select
Equity Fund will invest only in equity securities of foreign issuers that com-
ply with U.S. accounting standards. Some foreign securities markets in which
Mid-Cap Equity Fund may invest may have substantially less volume than U.S.
securities markets and securities of some foreign companies may be less liquid
than securities of comparable U.S. companies. Also, commissions on transac-
tions in foreign securities markets may be higher than those for similar trans
actions on U.S. stock markets. There is generally less government regulation
of foreign securities markets, stock exchanges, brokers, and listed and un-
listed companies than in the United States. In addition, with respect to cer-
tain foreign countries, there is a possibility of expropriation or confisca-
tory taxation, imposition of withholding taxes on dividend or interest pay-
ments, limitations on the removal of funds or other assets, political or so-
cial instability or diplomatic developments which could affect investments in
those countries. Individual foreign economies may differ favorably or unfavor-
ably from the U.S. economy in such respects as growth of gross national prod-
uct, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Such factors may affect the
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value of a Fund's investment in securities of foreign issuers whether the se-
curities are traded in the United States or a foreign market.
Mid-Cap Equity Fund's investment in foreign securities may include securi-
ties of issuers in countries with emerging economies or securities markets,
including certain countries in Asia and Latin America. Political and economic
structures in many of such countries may be undergoing significant evolution
and rapid development, and such countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of such
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As
a result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated politi-
cal or social developments may affect the values of Mid-Cap Fund's investments
in those countries. The small size and inexperience of the securities markets
in certain of such countries and the limited volume of trading in securities
in those countries may make Mid-Cap Equity Fund's investments in such coun-
tries illiquid and more volatile than investments in more developed countries,
and Mid-Cap Equity Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries. There
may be little financial or accounting information available with respect to
issuers located in certain of such countries, and it may be difficult as a re-
sult to assess the value or prospects of an investment in such issuers.
FOREIGN CURRENCY TRANSACTIONS. Mid-Cap Equity Fund, to the extent it invests
in foreign securities, may enter into forward currency exchange contracts in
order to protect against adverse changes in future foreign currency exchange
rates. The value of the assets of Mid-Cap Equity Fund invested in securities
of foreign issuers as measured in U.S. dollars will be affected by changes in
foreign currency exchange rates because investments in foreign issuers will
usually involve currencies of foreign countries. Mid-Cap Equity Fund may incur
costs in connection with conversions between various currencies. Select Equity
Fund will not engage in foreign currency transactions.
Mid-Cap Equity Fund may enter into forward contracts to purchase foreign
currencies to protect against an anticipated rise in the U.S. dollar price of
securities it intends to purchase. Mid-Cap Equity Fund may enter into forward
contracts to sell foreign currencies to protect against the decline in value
of its foreign currency quoted or denominated portfolio securities, or a de-
cline in the value of anticipated dividends or interest from such securities,
due to a decline in the value of foreign currencies against the U.S. dollar.
Contracts to sell foreign currency could limit any potential gain which might
be realized by Mid-Cap Equity Fund if the value of the hedged currency in-
creased. If Mid-Cap Equity Fund enters into a forward foreign currency ex-
change contract to buy foreign currency, Mid-Cap Equity Fund will be required
to place cash or liquid, high grade debt securities in a segregated account
with Mid-Cap Equity Fund's custodian in an amount equal to the value of the
assets committed to the consummation of the forward contract. If the value of
the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to the contract.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits
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of investments in different countries, actual or anticipated changes in inter-
est rates and other complex factors, as seen from an international perspec-
tive. Currency exchange rates also can be affected unpredictably by interven-
tion by U.S. or foreign governments or central banks or the failure to inter-
vene or by currency controls or political developments in the U.S. or abroad.
Markets for trading forward foreign currency exchange contracts offer less
protection against defaults than is available when trading in currency instru-
ments on an exchange. Since a forward foreign currency exchange contract is
not guaranteed by an exchange or clearinghouse, a default on the contract
would deprive Mid-Cap Equity Fund of unrealized profits or force the Fund to
cover its commitments for purchase or resale, if any, at the current market
price.
OPTIONS ON FOREIGN CURRENCIES. Mid-Cap Equity Fund may, to the extent it in-
vests in foreign securities, purchase and write put and call options on for-
eign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign portfolio securities and anticipated dividends or in-
terest on such securities and against increases in the U.S. dollar cost of
foreign securities to be acquired. As with other kinds of option transactions,
however, the writing of an option on foreign currency will constitute only a
partial hedge, up to the amount of the premium received. If and when Mid-Cap
Equity Fund seeks to close out an option, the Fund could be required to pur-
chase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event
of exchange rate movements adverse to the Fund's position, Mid-Cap Equity Fund
may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by Mid-Cap Equity
Fund will be traded on U.S. and foreign exchanges or over-the-counter.
RISKS OF DERIVATIVE TRANSACTIONS
Select Equity Fund's transactions in futures and Mid-Cap Equity Fund's
transactions in futures, options, options on futures and currency forward con-
tracts involve certain risks, including a possible lack of correlation between
changes in the value of hedging instruments and the portfolio assets being
hedged, the potential illiquidity of the markets for derivative instruments,
the risks arising from the margin requirements and related leverage factors
associated with such transactions. The use of these management techniques to
increase total return also involves the risk of loss if an Investment Adviser
is incorrect in its expectation of fluctuations in securities prices or inter-
est rates.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S. Govern-
ment 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 re-
purchase obligation. If the other party or "seller" defaults, a Fund might
suffer a loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the re-
lated repurchase agreement are less than the repurchase price. Repurchase
agreements maturing in more than seven days are considered by the Funds to be
illiquid. In addition, each Fund, together with other registered investment
companies having advisory agreements with the Investment Adviser or any of its
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repur-
chase agreements.
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ILLIQUID AND RESTRICTED SECURITIES
Neither Fund will invest more than 15% of its net assets in illiquid invest-
ments, which includes securities (both foreign and U.S.) that are not readily
marketable, repurchase agreements maturing in more than seven days, and secu-
rities that are not registered or are offered in an exempt non-public offering
("restricted securities") under the Securities Act of 1933 (the "1933 Act"),
unless it is determined, based upon a continuing review of the trading markets
for the specific restricted security, that such restricted security is eligi-
ble for resale under Rule 144A and is liquid. The Board of Directors may adopt
guidelines and delegate to the Investment Advisers the daily function of de-
termining and monitoring the liquidity of restricted securities. The Board of
Directors, however, will retain sufficient oversight and be ultimately respon-
sible for the determinations. Since it is not possible to predict with assur-
ance exactly how this market for restricted securities sold and offered under
Rule 144A will develop, the Board of Directors will carefully monitor each
Fund's investments in these securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquid-
ity in a Fund to the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities. The purchase
price and subsequent valuation of restricted securities normally reflect a
discount from the price at which such securities would trade if they were not
restricted, since the restriction makes 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, if any, who will
bear the expenses of registering the restricted securities and prevailing sup-
ply and demand conditions.
OTHER INVESTMENT COMPANIES
Each Fund reserves the right to invest up to 10% of its total assets, calcu-
lated at the time of purchase, in the securities of other investment companies
including business development companies and small business investment compa-
nies. Neither Fund may invest more than 5% of its total assets in the securi-
ties of any one investment company or acquire more than 3% of the voting secu-
rities of any other investment company. Pursuant to an exemptive order ob-
tained from the SEC, other investment companies in which the Funds may invest
include money market funds for which the Investment Advisers or any of their
affiliates serves as investment adviser. Each Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by invest-
ment companies in which it invests in addition to the advisory and administra-
tion fees paid by the Fund. However, to the extent that a Fund invests in a
money market fund for which the Investment Advisers or any of their affiliates
acts as adviser, the advisory and administration fees payable by the Fund to
the Investment Adviser will be reduced by an amount equal to the Fund's pro-
portionate share of the advisory and administration fees paid by such money
market fund to the Investment Advisers or any of their affiliates.
LENDING OF PORTFOLIO SECURITIES
Each Fund may also seek to increase its income by lending portfolio securi-
ties. Under present regulatory policies, such loans may be made to institu-
tions, such as broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the se-
curities loaned. Cash collateral may be invested in cash equivalents. If the
Investment Adviser determines to make securities loans, the value of the secu-
rities loaned may not exceed 33 1/3% of the value of the total
25
<PAGE>
assets of a Fund. See "Investment Restrictions" in the Additional Statement. A
Fund may experience a loss or delay in the recovery of its securities if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
UNSEASONED COMPANIES
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies (including predecessors) which have operated for less
than three years. The securities of such companies may have limited liquidity,
which can result in their being priced lower than might otherwise be the case.
In addition, investments in unseasoned companies are more speculative and en-
tail greater risk than do investments in companies with an established operat-
ing record.
SHORT SALES AGAINST-THE-BOX
Mid-Cap Equity Fund may make short sales of securities or maintain a short
position, provided that at all time when a short position is open Mid-Cap Eq-
uity Fund owns an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further consideration, for an
equal amount of the securities of the same issuer as the securities sold short
(a short sale against-the-box). Not more than 25% of Mid-Cap Equity Fund's net
assets (determined at the time of short sale) may be subject to such short
sale. Short sale will be made primarily to defer realization of gain or loss
for federal tax purposes; a gain or loss in Mid-Cap Equity Fund's long posi-
tion will be offset by a gain or loss in its short position.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions which, as described
in more detail in the Additional Statement, are fundamental policies that can-
not be changed without approval of a majority of the outstanding shares of the
Fund. Among other restrictions, neither Fund, with respect to 75% of its total
assets, may invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government securities) or acquire more than 10% of the
outstanding voting securities of any one issuer. In addition, neither Fund may
invest more than 25% of its total assets in any one industry, except that this
limitation does not apply to investments in obligations of the U.S. Government
or any of its agencies or instrumentalities. In addition, neither Fund may
borrow money, except for temporary, emergency or clearance purposes in an ag-
gregate amount not exceeding 33 1/3% of the value of the Fund's total assets
(including the amount borrowed). Neither Fund may purchase securities while
such borrowings exceed 5% of the value of the Fund's total assets. In addi-
tion, each Fund may borrow in connection with the redemption of Fund shares,
provided that the Fund maintains asset coverage of 300% for all borrowings.
For a more complete description of the investment restrictions to which each
Fund is subject, see the Additional Statement.
PORTFOLIO TURNOVER
Neither Fund expects its annual portfolio turnover rate to exceed 100%. A
high rate of portfolio turnover (above 100%) involves correspondingly greater
expenses which must be borne by a Fund and its shareholders and may under cer-
tain circumstances make it more difficult for a Fund to qualify as a regulated
investment company under the Code. The portfolio turnover rate is calculated
by dividing the lesser of the dollar amount of sales or purchases of portfolio
securities by the average
26
<PAGE>
monthly value of a Fund's portfolio securities, excluding securities having a
maturity at the date of purchase of one year or less. Notwithstanding the
foregoing, each Investment Adviser may, from time to time, make short-term in-
vestments when it believes such investments are in the best interest of a
Fund. The Funds are not expected to trade in securities for short-term gain.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for deciding matters of gen-
eral policy and reviewing the actions of the Investment Advisers, administra-
tor, distributor and transfer agent. The officers of the Company conduct and
supervise the Funds' daily business operations. The Additional Statement con-
tains information as to the identity of, and other information about, the Di-
rectors and officers of the Company.
INVESTMENT ADVISERS AND ADMINISTRATOR
INVESTMENT ADVISERS. Goldman Sachs Funds Management, L.P., One New York,
Plaza, New York, New York, 10004, an affiliate of Goldman Sachs, acts as in-
vestment adviser to Select Equity, Fund. Goldman Sachs Asset Management, One
New York Plaza, New York, New York 10004, a separate operating division of
Goldman Sachs, acts as the investment adviser to Mid-Cap Equity Fund. Goldman
Sachs Asset Management also acts as administrator to each Fund. Goldman Sachs
and Goldman Sachs Funds Management, L.P., were registered as investment advis-
ers in 1981 and 1990, respectively. As of January 31, 1995, Goldman Sachs As-
set Management, together with its affiliates, acted as investment adviser, ad-
ministrator or distributor for approximately $48.7 billion in assets.
Under the Investment Advisory Agreements with the Funds, each Fund's Invest-
ment Adviser, subject to the general supervision of the Company's Board of Di-
rectors, provides day-to-day advice as to each Fund's portfolio transactions.
Goldman Sachs has agreed to permit the Company to use the name "Goldman Sachs"
or a derivative thereof as part of each Fund's name for as long as the Invest-
ment Advisory Agreements are in effect. In performing their investment advi-
sory services, the Investment Advisers, while remaining ultimately responsible
for the management of the Funds, are able to draw upon the research and market
expertise of their affiliate offices for portfolio decisions and management
with respect to certain portfolio securities.
It is the responsibility of the Investment Advisers to make investment deci-
sions for the Funds and to place the purchase and sale orders for the Funds'
portfolio transactions. Such orders may be directed to any broker including,
to the extent and in the manner permitted by applicable law, Goldman Sachs or
its affiliates.
Select Equity Fund's Portfolio Manager is Robert C. Jones. Mr. Jones brings
15 years of investment experience to his work in developing and implementing
the Investment Advisers' quantitative equity management services. Prior to
joining GSAM in 1989, Mr. Jones was the senior quantitative analyst in Goldman
Sachs' Investment Research Department and the author of the monthly Stock Se-
lection publication. Before joining Goldman Sachs in 1987, Mr. Jones provided
quantitative research
27
<PAGE>
for both a major investment firm and an options consulting firm. He is a mem-
ber of the New York Society of Security Analysts the Institute for Quantita-
tive Research in Finance (the "Q Group") and is President of the Society of
Quantitative Analysts. He has presented his research to a variety of confer-
ences and symposiums and his articles on quantitative techniques have been
published in leading financial journals. A Chartered Financial Analyst, Mr.
Jones received a B.A. from Brown University in 1978 and an M.B.A. from the
University of Michigan in 1980.
The portfolio managers for Mid-Cap Equity Fund are Paul D. Farrell, Mitchell
E. Cantor and Ronald E. Gutfleish. Mr. Farrell is a Vice President and Chief
Investment Officer of U.S. Active Equity and is responsible for analyzing in-
dividual companies and managing equity portfolios for private investors and
institutions, as well as mutual funds. Prior to joining Goldman Sachs Asset
Management, Mr. Farrell served as a managing director at Plaza Investments,
the investment subsidiary of GEICO Corp., a major insurance company. He was
previously employed by Goldman Sachs as a Vice President in the research de-
partment and was responsible for the formation of the firm's Emerging Growth
Research Group. Mr. Cantor joined Goldman Sachs Asset Management in 1991 and
is a Vice President and Senior Equity Portfolio Manager. Prior to 1991, he
served as a principal, research director of the Institutional Division and as
the investment management research director for Sanford C. Bernstein & Co.,
Inc. Mr. Gutfleish joined Goldman Sachs Asset Management in 1993 and is a Vice
President and Portfolio Manager. Prior to 1993, he was a principal of Sanford
C. Bernstein & Co., Inc. in its Investment Management Research Department.
As compensation for the services rendered to Mid-Cap Equity Fund by Goldman
Sachs Asset Management pursuant to its Investment Advisory Agreement, and the
assumption by Goldman Sachs Asset Management of the related expenses, Mid-Cap
Equity Fund pays Goldman Sachs Asset Management a fee, computed daily and pay-
able monthly, at an annual rate equal to 0. % of Mid-Cap Equity Fund's average
daily net assets. As compensation for the services rendered to Select Equity
Fund by Goldman Sachs pursuant to its Investment Advisory Agreement, and the
assumption by Goldman Sachs of the related expenses, Select Equity Fund pays
Goldman Sachs a fee, computed daily and payable monthly, at an annual rate of
equal to 0. % of Select Equity Fund's average daily net assets. Each Invest-
ment Adviser has voluntarily agreed to reduce or limit certain "Other Ex-
penses" of the Funds (excluding advisory, transfer agency, administration and
distribution and service fees, payments to Service Organizations (as defined
below), taxes, interest and brokerage and litigation, indemnification and
other extraordinary expenses) to the extent such expenses exceed 0. % per an-
num of the applicable Fund's average daily net assets. Such reductions or lim-
its, if any, are calculated monthly on a cumulative basis and may be discon-
tinued or modified by the Investment Advisers in their discretion at any time.
Each Investment Adviser has voluntarily agreed to reduce the fees payable to
it (to the extent of its fees) by the amount, if any, that a Fund's expenses
would exceed the applicable expense limitations imposed by state securities
administrators. See "Management--Expenses" in the Additional Statement.
EXPENSES. Except as set forth above under "Management--Investment Advisers
and Administrator," each Fund is responsible for the payment of its expenses.
The expenses borne by a Fund include, without limitation, the fees payable to
its Investment Adviser and Goldman Sachs, including transfer agent fees, the
fees and expenses of the Fund's custodian and subcustodians, brokerage
28
<PAGE>
fees and commissions, filing fees for the registration or qualification of the
Fund's shares under federal or state securities laws, expenses of the organi-
zation of the Fund, a portion of the fees and expenses incurred by the Company
in connection with membership in investment company organizations, taxes, in-
terest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for dam-
ages or other relief asserted against, the Company for violation of any law,
legal and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of the Investments Advisers and
Goldman Sachs with respect to the Company), expenses of preparing and setting
in type prospectuses, statements of additional information, proxy material,
reports and notices and the printing and distributing of the same to the
Fund's shareholders and regulatory authorities, any expenses assumed by the
Fund pursuant to its Distribution and/or Administration plan and the Fund's
allocable share of the compensation and expenses of the Company's "non-inter-
ested" Directors and extraordinary expenses, if any, incurred by the Company.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, and Goldman Sachs
and their affiliates in the management of, or their interest in, other ac-
counts and other activities of Goldman Sachs may present conflicts of interest
with respect to the Funds or limit their investment activities. Goldman Sachs
and its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in or compete for transactions in the same type of securities, curren-
cies and instruments as the Funds. Goldman Sachs and its affiliates will not
have any obligation to make available any information regarding their proprie-
tary activities or strategies, or the activities or strategies, used for other
accounts managed by them, for the benefit of the management of the Funds and
it is not anticipated that the Investment Advisers will have access to propri-
etary information for the purpose of managing the Funds. The results of a
Fund's investment activities, therefore, may differ from those of Goldman
Sachs and its affiliates and it is possible that a Fund could sustain losses
during periods in which Goldman Sachs and its affiliates and other accounts
achieve significant profits on their trading for proprietary or other ac-
counts. From time to time, a Fund's activities may be limited because of regu-
latory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. See "Activ-
ities of Goldman Sachs and its Affiliates and Other Accounts Managed by
Goldman Sachs" in the Additional Statement for further information.
ADMINISTRATOR. As administrator, pursuant to separate Administration Agree-
ments with the Funds, Goldman Sachs Asset Management provides personnel for
supervisory, administrative, and clerical functions; oversees the performance
of administrative and professional services to the Funds by others; provides
office facilities; and prepares, but does not pay for, reports to sharehold-
ers, the SEC and other regulatory authorities. As compensation for the serv-
ices rendered to the Funds by Goldman Sachs Asset Management pursuant to the
Administration Agreements, each Fund pays Goldman Sachs Asset Management a
fee, computed daily and payable monthly, at an annual rate equal to 0. % of
the Fund's average daily net assets. Goldman Sachs Asset Management has agreed
to reduce its fees payable (to the extent of its fees) by the amount (if any)
that a Fund's expenses exceed the applicable expense limitations imposed by
state securities administrators. See "Management-Expenses" in the Additional
Statement.
29
<PAGE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the ex-
clusive distributor of each Fund's shares. Goldman Sachs, 4900 Sears Tower,
Chicago, Illinois, also serves as each Fund's transfer agent (the "Transfer
Agent") and as such performs various shareholder servicing functions. Share-
holders of record with inquiries regarding a Fund should contact Goldman Sachs
(as Transfer Agent) at the address or the telephone number set forth on the
inside front cover page of this Prospectus.
NET ASSET VALUE
The net asset value per share of the Fund is calculated by the Fund's custo-
dian as of the close of regular trading on the New York Stock Exchange (nor-
mally 3:00 p.m. Chicago time, 4:00 p.m. New York time), on each Business Day
(as such term is defined under "Additional Information"). Net asset value per
share of each class is calculated by determining the net assets attributable
to each class and dividing by the number of outstanding shares of that class.
Portfolio securities are valued based on market quotations or, if accurate
quotations are not readily available, at fair value as determined in good
faith under procedures established by the Company's Board of Directors.
PERFORMANCE INFORMATION
From time to time each Fund may publish average annual total return in ad-
vertisements and communications to shareholders or prospective investors. Av-
erage annual total return is determined by computing the average annual per-
centage change in value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter, as-
suming reinvestment of all dividends and distributions at net asset value. The
total return calculation assumes a complete redemption of the investment at
the end of the relevant period. Each Fund may also from time to time advertise
total return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules. In ad-
dition, each Fund may furnish total return calculations based on investments
at various sales charge levels or at net asset value. Any performance data
which is based on the net asset value per share would be reduced if a sales
charge were taken into account. In addition to the above, each Fund may from
time to time advertise its performance relative to certain performance
rankings and indices.
The investment results of each Fund will fluctuate over time and any presen-
tation of investment results for any prior period should not be considered a
representation of what an investment may earn or what the Fund's performance
may be in any future period. In addition to information provided in share-
holder reports, the Fund may, in its discretion, from time to time make a list
of its holdings available to investors upon request.
Total return will be calculated separately for each class of shares in ex-
istence. Because each class of shares may be subject to different expenses,
total return calculations with respect to each class of
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<PAGE>
shares of a Fund for the same period will differ. Due to the fees payable un-
der the Distribution Plan and the Administration Plan, the investment perfor-
mance, for any period, of the Institutional Shares will always be higher than
that of Class A Shares and Administration Shares and the investment perfor-
mance of the Administration Shares will always be higher than that of Class A
Shares.
SHARES OF THE COMPANY
Each Fund is a series of the Company, which was incorporated under the laws
of the State of Maryland on September 27, 1989. The authorized capital stock
of the Company consists of 1,000,000,000 shares of common stock, par value
$.001 per share. The Directors of the Company have authority under the
Company's Charter to create and classify shares of capital stock in separate
series, without further action by shareholders. As of the date of this Pro-
spectus, the Directors have authorized shares of the Funds and seven other se-
ries. Additional series may be added in the future. The Directors also have
authority to classify and reclassify any series or portfolio of shares into
one or more classes.
The Board of Directors has authorized the issuance of two classes of shares
of Mid-Cap Equity Fund; Institutional Shares and Administration Shares. The
Board of Directors has authorized the issuance of three classes of Select Eq-
uity Fund: Institutional Shares, Administration Shares and Class A Shares.
Each Institutional Share, Administration Share and Class A Share of a Fund
represents an equal proportionate interest in the assets belonging to the
Fund. All expenses of a Fund are based on a percentage of the Fund's aggregate
average net assets, except that the respective fees under an Administration
Plan or Distribution Plan relating to a particular class will be borne exclu-
sively by that class. Institutional Shares may be purchased at net asset value
with no sales load for accounts in the name of an investor or institution that
is not compensated by a Fund for services provided to the institution's cus-
tomers. It is contemplated that most Administration Shares will be held in ac-
counts of which the record owner is a bank or other institution acting, di-
rectly or through an agent, as nominee for its customers who are the benefi-
cial owners of the shares or another organization designated by such bank or
institution. Administration Shares will be each marketed only to such institu-
tional investors at net asset value with no sales load. Institutional Shares
may be purchased for accounts in the name of an investor or institution that
is not compensated by the Fund for services provided to the institution's cus-
tomers. Administration Shares may be purchased 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 or 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. Class A Shares of
a Fund may be bought at net asset value plus a sales charge of up to 5.5% of
the purchase price through Goldman Sachs and certain investment dealers ("Au-
thorized Dealers"), including members of the National Association of Securi-
ties Dealers, Inc. and certain other firms that have entered into sales agree-
ments with Goldman Sachs. To become an Authorized Dealer, a dealer or finan-
cial service firm must enter into a sales agreement with Goldman Sachs. The
minimum investment requirements, services, program and purchase and redemption
options for shares purchased through a particular Authorized Dealer may be
different from those available to investors purchasing through other Autho-
rized Dealers. Class A Shares bear the cost of distribution and service fees
at the annual rate of up to 0.50% of the average daily net asset of such Class
A Shares. (Institutions that provide services to holders of Administration
Shares are referred to in this Prospectus as "Service Organizations").
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<PAGE>
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration and Class A Shares) to
its customers and thus receive different compensation with respect to differ-
ent classes of shares of a Fund. Administration Shares and Class A Shares may
each have certain exclusive voting rights on matters relating to their respec-
tive plans. Currently, shares of each class may be exchanged only for shares
of the same class in another fund and certain money market funds sponsored by
Goldman Sachs. The Funds may amend such policy in the future. Dividends paid
by a Fund, if any, with respect to each class of shares will be calculated in
the same manner, at the same time and on the same day and will be in the same
amount, except for differences caused by the fact that the respective fees un-
der Administration and Distribution Plans will be borne exclusively by the ap-
plicable class. Similarly, the net asset value per share will vary depending
on the class of shares purchased.
When issued, shares are fully paid and nonassessable. In the event of liqui-
dation, shareholders are entitled to share pro rata in the net assets of the
Fund available for distribution to such shareholders. All shares entitle their
holders to one vote per share, are freely transferable and have no preemptive,
subscription or conversion rights.
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Company to hold annual meetings of shareholders. As a result, Fund
shareholders may not consider each year the election of Directors or the ap-
pointment of independent accountants. However, pursuant to the Company's By-
Laws, the recordholders of at least 10% of the shares outstanding and entitled
to vote at a special meeting may require the Company to hold a special meeting
of shareholders for any purpose and recordholders may, under certain circum-
stances as permitted by the Act, communicate with other shareholders in con-
nection with requiring a special meeting of shareholders. Shareholders of the
Company may remove a Director by the affirmative vote of a majority of the
Company's outstanding voting shares. The Board of Directors, however, will
call a special meeting of shareholders for the purpose of electing Directors
if, at any time, less than a majority of Directors holding office at the time
were elected by shareholders.
In the interest of economy and convenience, the Company does not issue share
certificates. Instead, the Transfer Agent maintains a record of each share-
holder's ownership. Each shareholder receives confirmation of purchase and re-
demption orders from the Transfer Agent. Fund shares and any dividends and
distributions paid by the Fund are reflected in account statements from the
Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes. Select Equity
Fund has elected and Mid-Cap Equity Fund intends to elect to be treated as a
regulated investment company and to qualify for such treatment for each tax-
able year under Subchapter M of the Code. To qualify as such, each Fund must
satisfy certain requirements relating to the sources of its income, diversifi-
cation of its assets and distribution of its income to shareholders. As a reg-
ulated investment company, each 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 require-
ments of the Code.
32
<PAGE>
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to its shareholders as ordinary income. Dividends paid by a
Fund from the excess of net long-term capital gain over net short-term capital
loss will be taxable as long-term capital gains regardless of how long the
shareholders have held their shares. These tax consequences will apply regard-
less of whether distributions are received in cash or reinvested in shares. A
Fund's dividends that are paid to its corporate shareholders and are attribut-
able to qualifying dividends such Fund receives from U.S. domestic corpora-
tions may be eligible, in the hands of such corporate shareholders, for the
corporate dividends-received deduction, subject to certain holding period re-
quirements and debt financing limitations under the Code. Certain distribu-
tions paid by a Fund in January of a given year may be taxable to shareholders
as if received the prior December 31. Shareholders will be informed annually
about the amount and character of distributions received from the Funds for
federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the rec-
ord date for a distribution will pay a per share price that includes the value
of the anticipated distribution and will be taxed on the distribution even
though the distribution represents a return of a portion of the purchase
price.
Redemptions and exchanges of shares are taxable events on which a share-
holder may recognize a gain or loss.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on distributions, redemptions and ex-
changes if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup with-
holding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject
to nonresident alien withholding at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from a
Fund.
Mid-Cap Equity Fund and/or Select Equity Fund may be subject to foreign
withholding or other foreign taxes on income (possibly including, in some
cases, capital gains) earned on certain foreign securities. Neither Fund will
qualify to pass through such taxes to its shareholders. Consequently, share-
holders will not be able to include in their gross incomes their pro rata
shares of any foreign taxes paid by a Fund and will not be entitled to take
federal income tax credits or deductions with respect to such taxes.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from a Fund. A state income (and possi-
bly local income and/or intangible property) tax exemption is generally avail-
able to the extent (if any) the Fund's distributions are derived from interest
on (or, in the case of intangibles taxes, the value of its net assets is at-
tributable to) certain U.S. Government obligations, provided in some states
that certain thresholds for holdings of such obligations and/or reporting re-
quirements are satisfied.
33
<PAGE>
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state and local taxes as well as to any foreign tax-
es. See the Additional Statement for a further discussion of certain tax con-
sequences of investing in shares of a Fund.
ADDITIONAL INFORMATION
The term "a vote of the majority of the outstanding shares" of a Fund means
the vote of the lesser of (i) 67% or more of the shares present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding
shares of the Fund.
As used in this Prospectus, the term "Business Day" means any day the New
York Stock Exchange is open for trading, which is Monday through Friday except
for holidays. The New York Stock Exchange is closed on the following holidays:
New Year's Day (observed), Presidents' Day, Good Friday, Memorial Day, Inde-
pendence Day, Labor Day, Thanksgiving Day and Christmas Day (observed).
34
<PAGE>
ADMINISTRATION PLANS
The Company, on behalf of each Fund, has adopted an Administration Plan with
respect to the Administration Shares which authorizes each Fund to compensate
Service Organizations for providing account administration services to their
customers who are beneficial owners of such Shares. The Company, on behalf of
each Fund, will enter into agreements with Service Organizations which pur-
chase Administration Shares on behalf of their customers ("Service Agree-
ments"). The Service Agreements will provide for compensation to the Service
Organizations in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the Administration Shares of a Fund attributable to or
held in the name of the Service Organization for its customers. The services
provided by the Service Organizations may include acting, directly or through
an agent, as the sole shareholder of record, maintaining account records for
customers and processing orders to purchase, redeem or exchange Administration
Shares for customers.
Holders of Administration Shares of a Fund will bear all expenses and fees
paid to Service Organizations with respect to such Shares as well as any other
expenses which are directly attributable to such Shares.
Services Organizations (other than broker-dealers) may charge other fees to
their customers who are the beneficial owners of Administration Shares in con-
nection with their customer accounts. These fees would be in addition to any
amounts received by the Service Organization under a Service Agreement and may
affect the return earned on an investment in a Fund. The Company, on behalf of
each Fund, will accrue payments made pursuant to a Service Agreement daily.
All inquiries of beneficial owners of Administration Shares should be directed
to such owners' Service Organization.
REPORTS TO SHAREHOLDERS
Recordholders of Administration Shares of a Fund will receive an annual re-
port containing audited financial statements and a semi-annual report. Each
recordholder of Administration Shares will also be provided with a printed
confirmation for each transaction in its account and a monthly account state-
ment. A year-to-date statement for any account will be provided to a Service
Organization upon request made to Goldman Sachs.
Service Organizations will be responsible for providing services similar to
those described above to their customers who are the beneficial owners of such
Shares. For example, Service Organizations are responsible for providing each
customer exercising investment discretion with monthly statements with respect
to such customer's account in lieu of an immediate confirmation of each trans-
action.
DIVIDENDS
Each dividend from net investment income and capital gains distributions, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid (i) in cash or (ii) in additional Administration
Shares of such Fund. This election should initially be made on a sharehold-
35
<PAGE>
er's Account Information Form and may be changed upon written notice to
Goldman Sachs at any time prior to the record date for a particular dividend
or distribution. If no election is made, all dividends from net investment in-
come and capital gains distributions will be reinvested in Administration
Shares of the Fund paying the dividend. If cash dividends are elected with re-
spect to a Fund's net investment income dividends then cash dividends must
also be elected with respect to the short-term capital gains component, if
any, of the Fund's annual dividend.
The election to reinvest dividends and distributions paid by a Fund in addi-
tional Administration Shares of the Fund will not affect the tax treatment of
such dividends and distributions, which will be treated as received by the
shareholder and then used to purchase Administration Shares of a Fund.
Each Fund intends that all or substantially all its net investment income
and net realized long-term and short-term capital gains, after reduction by
available capital losses, including any capital losses carried forward from
prior years, will be declared as dividends at least annually.
At the time of an investor's purchase of shares of a Fund a portion of the
net asset value per share may be represented by undistributed income of the
Fund or realized or unrealized appreciation of the Fund's portfolio securi-
ties. Therefore, subsequent distributions (or portions thereof) of taxable in-
come or realized appreciation on such shares may be taxable to the investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the cost of such shares and the distributions (or
portions thereof) represent a return of a portion of the purchase price.
PURCHASE OF ADMINISTRATION SHARES
It is expected that all direct purchasers of Administration Shares of the
Funds will be Service Organizations or their nominees. Customers of Service
Organizations may invest in Administration Shares only through Service Organi-
zations. Administration Shares of a Fund may be purchased by a Service Organi-
zation through Goldman Sachs at the net asset value per share next determined
after receipt from a Service Organization of an order without the imposition
of a sales load. If, by 3:00 p.m. Chicago time (4:00 p.m. New York), an order,
a check or a Federal Reserve draft is received from a Service Organization by
Goldman Sachs, the price per share will be the net asset value per share com-
puted on the day the purchase order or such form of payment is received. See
"Net Asset Value."
PURCHASE PROCEDURES
Purchases of Administration Shares by a Service Organization may be made by
placing an order with Goldman Sachs at 800-621-2550 and either wiring Federal
Funds to The Northern Trust Company ("Northern") as subcustodian for State
Street Bank and Trust Company ("State Street") on the next Business Day or in-
itiating an ACH transfer to ensure receipt by Northern on the next Business
Day. Purchases may also be made by a Service Organization by check (except
that a check drawn on a foreign bank will not be accepted) or Federal Reserve
draft made payable to "Goldman Sachs Equity Portfolios, Inc.--[Goldman Sachs
Mid-Cap Equity Fund] [Goldman Sachs Select Equity Fund"] and should be di-
rected to "Goldman Sachs Equity Portfolios, Inc.--[Goldman Sachs Mid-Cap Eq-
uity Fund] [Goldman Sachs Select Equity Fund"], c/o GSAM Shareholder Services,
4900 Sears Tower, Chicago,
36
<PAGE>
Illinois 60606. Payment of the proceeds of redemption of shares purchased by
check may be delayed for a period of time as described under "Redemption of
Administration Shares."
The Service Organizations are responsible for the timely transmittal of pur-
chase orders to Goldman Sachs and payments to Northern or Goldman Sachs. In
order to facilitate timely transmittal, the Service Organizations have estab-
lished times by which purchase orders and payments must be received by them.
OTHER PURCHASE INFORMATION
Neither Fund has any minimum purchase or account requirements with respect
to Administration Shares. A Service Organization may, however, impose a mini-
mum amount for initial and subsequent investments in Administration Shares,
and may establish other requirements such as a minimum required account bal-
ance. A Service Organization may effect redemptions of noncomplying accounts,
and may impose a charge for any special services rendered to its customers.
Customers should contact their Service Organization for further information
concerning such requirements and charges.
Each Fund reserve the right to redeem Administration Shares of any Service
Organization whose account balance is less than $100 as a result of earlier
redemptions. Such redemptions will not be implemented if the value of such
shareholder's account falls below the minimum account balance solely as a re-
sult of market conditions. The Company will give sixty (60) days prior written
notice of Service Organizations whose Administration Shares are being redeemed
to allow them to purchase sufficient additional Administration Shares to avoid
such redemption.
The Funds and Goldman Sachs each reserves the right to reject any specific
purchase order (including exchanges) or to restrict purchases or exchanges by
a particular purchaser (or group of related purchasers). Each Fund or Goldman
Sachs may reject or restrict purchases or exchanges of Administration Shares
by a particular purchaser or group of related purchasers, for example, when a
pattern of frequent purchases and sales or exchanges of Administration Shares
of a Fund is evident, or if the purchase and sale or exchange orders are, or a
subsequent abrupt redemption might be, of a size that would disrupt management
of a Fund.
EXCHANGE PRIVILEGE
Administration Shares of the Fund may be exchanged by a Service Organization
for (i) Administration Shares of any other mutual fund sponsored by Goldman
Sachs and designated as an eligible fund for this purpose and (ii) the rele-
vant class of any portfolio of Goldman Sachs Money Market Trust at the net as-
set value next determined either by writing to Goldman Sachs, Attention:
Goldman Sachs Equity Portfolios, Inc.--[Goldman Sachs Select Equity Fund]
[Goldman Sachs Mid-Cap Equity Fund], c/o GSAM Shareholder Services, 4900 Sears
Tower, Chicago, Illinois 60606 or, if previously elected in the Fund's Account
Information Form, by telephone at 800-621-2550 (7:00 a.m. to 3:00 p.m. Chicago
time). A Shareholder should obtain and read the prospectus relating to any
other Fund and its shares or units and consider its investment objective, pol-
icies and applicable fees before making an exchange. Under the telephone ex-
change privilege, Administration Shares may be exchanged among account
37
<PAGE>
with different names, addresses and social security or other taxpayer identi-
fication numbers only if the exchange request is in writing and is received in
accordance with the procedures set forth under "Redemptions of Administration
Shares."
In times of drastic economic or market changes the telephone exchange privi-
lege may be difficult to implement. In an effort to prevent unauthorized or
fraudulent exchanges by telephone, Goldman Sachs employs reasonable procedures
as set forth under "Redemption of Administration Shares" to confirm that such
instructions are genuine. For federal income tax purposes, an exchange is
treated as a sale of the shares surrendered in the exchange on which an in-
vestor may realize a gain or loss, followed by a purchase of Administration
Shares or units received in the exchange. Exchanges are available only in
states where exchanges may legally be made. The exchange privilege may be mod-
ified or withdrawn at any time on sixty (60) days' written notice to Adminis-
tration Shareholders and is subject to certain limitations. See "Purchase of
Administration Shares."
REDEMPTION OF ADMINISTRATION SHARES
Each Fund will redeem its Administration Shares upon request of the
recordholder on any Business Day at the net asset value next determined after
the receipt by the Transfer Agent of such request in proper form. See "Net As-
set Value." If Administration Shares to be redeemed were recently purchased by
check, a Fund may delay transmittal of redemption proceeds until such time as
it has assured itself that good funds have been collected for the purchase of
such Administration Shares. This may take up to fifteen (15) days.
A Service Organization may request redemptions by telephone if the optional
telephone redemption privilege is elected on the Account Information Form. It
may be difficult to implement redemptions by telephone in times of drastic
economic or market changes. In an effort to prevent unauthorized or fraudulent
redemption or exchange requests by telephone, Goldman Sachs employs reasonable
procedures specified by the Company to confirm that such instructions are gen-
uine. Among other things, any redemption request in excess of a certain mini-
mum size that requires money to go to an account or address other than that
designated on the Account Information Form must be in writing and signed by an
authorized person designated on the Account Information Form. Any such written
request is also confirmed by telephone with both the requesting party and the
designated bank account to verify instructions. Exchanges among accounts with
different names, addresses and social security or other taxpayer identifica-
tion numbers must be in writing and signed by an authorized person designated
on the Account Information Form. Other procedures may be implemented from time
to time. If reasonable procedures are not implemented, the Company may be lia-
ble for any loss due to unauthorized or fraudulent transactions. In all other
cases, neither the Funds, the Company nor Goldman Sachs will be responsible
for the authenticity of redemption or exchange instructions received by tele-
phone. If Goldman Sachs receives a redemption request by 3:00 p.m. Chicago
time, the Administration Shares to be redeemed earn dividends with respect to
the day the request is received.
Each Fund will arrange for the proceeds of redemptions effected by any means
to be wired to the recordholder of Administration Shares or if the
recordholder so elects in writing, by check. Redemption
38
<PAGE>
proceeds will normally be wired on the next Business Day in Federal Funds (for
a total one-day delay), but may be paid up to seven (7) days after receipt of
a properly executed redemption request. Wiring of redemption proceeds may be
delayed one ad ditional Business Day if the Federal Reserve Bank is closed on
the day redemption proceeds would ordinarily be wired. Once wire transfer in-
structions have been given by Goldman Sachs, neither a Fund, the Company nor
Goldman Sachs assumes any further responsibility for the performance of inter-
mediaries or the customer's Service Organization in the transfer process. If a
problem with such performance arises, the customer should deal directly with
such intermediaries or Service Organization. With respect to redemption pro-
ceeds paid by check, a check for the redemption proceeds will normally be
mailed to the address of record within 5 Business Days of receipt of a prop-
erly executed redemption request.
Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The re-
quest for such redemption will not be considered to have been received in
proper form until such additional documentation has been submitted to the
Transfer Agent by the recordholder of Administration Shares.
The Service Organizations are responsible for the timely transmittal of re-
demption requests by their customers to the Transfer Agent. In order to facil-
itate timely transmittal of redemption requests, Service Organizations have
established times by which redemption requests must be received by them. Addi-
tional documentation may be required when deemed appropriate by a Service Or-
ganization.
Except with respect to Service Organizations whose account balances are less
than $100, Administration Shares of a Fund are not redeemable at the option of
a Fund unless the Board of Directors of the Company determines in its sole
discretion that failure to so redeem may have material adverse consequences to
the shareholders of a Fund. Each Fund, however, assumes no responsibility to
compel redemptions.
39
<PAGE>
APPENDIX A
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON ACCOUNT INFORMATION FORM
You are required by law to provide the Fund with your correct Social
Security or Other Taxpayer Identification Number (TIN), regardless of whether
you file tax returns. Failure to do so may subject you to penalties. Failure
to provide your correct TIN, to check the appropriate boxes in, and to sign
your name in the Social Security Number or Other Taxpayer Identification
Number Certification section (the "Certification Section") of the Account
Information Form could result in withholding of 31% by the Fund for the
federal backup withholding tax on distributions, redemptions, exchanges and
other payments relating to your account. The Fund reserves the right to refuse
to open an account for, or to close the account of, any investor who fails to
(1) provide a TIN or (2) certify that such TIN is correct (if required to do
so under applicable law) in establishing an account.
Any tax withheld may be credited against taxes owed on your federal income
tax return.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished.
If you do not have a TIN, you should apply for one immediately by contacting
your local office of the Social Security Administration or the Internal
Revenue Service (IRS). If you do not have a TIN but have applied for or intend
to apply for one, you should check the first box in the Certification Section.
In this event, you should provide your TIN and required certifications within
60 days. Backup withholding could also apply to payments relating to your
account prior to the Fund's receipt of your TIN and required certifications.
If you have been notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and/or dividend
income on your tax return and you have not been notified by the IRS that such
withholding should cease, you must cross out item (2) in the Certification
Section.
If you are an exempt recipient, you should furnish your TIN and check the
second box in the Certification Section. Exempt recipients include:
corporations, tax-exempt pension plans and IRA's, governmental agencies,
financial institutions, registered securities and commodities dealers and
others.
If you are a nonresident alien or foreign entity, check the third box in the
Certification Section and provide a completed Form W-8 to the Fund in order to
avoid backup withholding on certain payments. Other payments to you may be
subject to nonresident alien withholding of up to 30%.
For further information regarding backup and nonresident alien withholding,
see Sections 3406, 1441 and 1442 of the Internal Revenue Code and consult your
tax adviser.
A-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THE FUNDS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................... 3
Financial Highlights....................................................... 11
Investment Objective and Policies.......................................... 12
Investment Advisers and Administrator...................................... 16
Special Investment Methods and Risk Factors................................ 17
Investment Restrictions.................................................... 26
Portfolio Turnover......................................................... 26
Management................................................................. 27
Net Asset Value............................................................ 30
Performance Information.................................................... 30
Shares of the Company...................................................... 31
Taxation................................................................... 32
Additional Information..................................................... 34
Administration Plans....................................................... 35
Reports to Shareholders.................................................... 35
Dividends.................................................................. 35
Purchase of Administration Shares.......................................... 36
Exchange Privilege......................................................... 37
Redemption of Administration Shares........................................ 38
Appendix A................................................................. A-1
Account Information Form
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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GOLDMAN SACHS SELECT
EQUITY FUND
ADMINISTRATION SHARES
MANAGED BY
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.,
AN AFFILIATE OF
GOLDMAN SACHS & CO.
GOLDMAN SACHS MID-CAP
EQUITY FUND
ADMINISTRATION SHARES
MANAGED BY
GOLDMAN SACHS ASSET
MANAGEMENT
A SEPARATE OPERATING DIVISION OF
GOLDMAN, SACHS & CO.
-------------
PROSPECTUS
-------------
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
INSTITUTIONAL SHARES
(PORTFOLIOS OF GOLDMAN SACHS EQUITY PORTFOLIOS, INC.)
One New York Plaza
New York, New York 10004
This Statement of Additional Information (the "Additional Statement") is
not a Prospectus. This Additional Statement should be read in conjunction with
the Prospectus for the Institutional Shares of Goldman Sachs Mid-Cap Equity Fund
and Goldman Sachs Select Equity Fund, dated May 31, 1995, as revised or
supplemented from time to time (the "Prospectus"), which may be obtained without
charge from Goldman, Sachs & Co. by calling the telephone number, or writing to
one of the addresses, listed below.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
====
<S> <C>
Introduction......................................................... B-2
Investment Objectives and Policies................................... B-2
Investment Restrictions.............................................. B-15
Management........................................................... B-19
Portfolio Transactions and Brokerage................................. B-27
Shares of the Company................................................ B-28
Net Asset Value...................................................... B-29
Taxation............................................................. B-31
Performance Information.............................................. B-36
Other Information.................................................... B-37
Appendix A: Description of Bond Ratings.............................. 1-A
</TABLE>
The date of this Additional Statement is May 31, 1995.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS
PORTFOLIOS, INC. MANAGEMENT, L.P.
One New York Plaza Investment Adviser to
New York, New York 10004 Goldman Sachs Select Equity Fund
One New York Plaza
GOLDMAN, SACHS & CO New York, New York 10004
Distributor
85 Broad Street GOLDMAN SACHS ASSET
New York, New York 10004 MANAGEMENT
Investment Adviser to
GOLDMAN, SACHS & CO. Goldman Sachs Mid-Cap Equity Fund
Transfer Agent One New York Plaza
4900 Sears Tower New York, NY 10004
Chicago, Illinois 60606
Toll free (in U.S.)......800-XXX-XXXX
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS MID-CAP EQUITY FUND
ADMINISTRATION SHARES
(PORTFOLIOS OF GOLDMAN SACHS EQUITY PORTFOLIOS, INC.)
One New York Plaza
New York, New York 10005
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 Administration Shares of Goldman Sachs Mid-Cap Equity
Fund and Goldman Sachs Select Equity Fund, dated May 31, 1995, as revised or
supplemented from time to time (the "Prospectus"), which may be obtained without
charge from institutions ("Service Organizations") that hold Administration
Shares for the benefit of their customers, or by calling Goldman, Sachs & Co. at
the telephone number, or writing to one of the addresses, listed below.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
====
Introduction........................................... B-2
Investment Objectives and Policies..................... B-2
Investment Restrictions................................ B-15
Management............................................. B-19
Portfolio Transactions and Brokerage................... B-27
Shares of the Company.................................. B-28
Net Asset Value........................................ B-29
Taxation............................................... B-31
Performance Information................................ B-36
Other Information...................................... B-37
Administration Plan.................................... B-38
Appendix A: Description of Bond Ratings............... 1-A
</TABLE>
The date of this Additional Statement is May 31, 1995.
GOLDMAN SACHS EQUITY GOLDMAN SACHS FUNDS
PORTFOLIOS, INC. MANAGEMENT, L.P.
One New York Plaza Investment Adviser to
New York, New York 10004 Goldman Sachs Select Equity Fund
One New York Plaza
GOLDMAN, SACHS & CO. New York, New York 10004
Distributor
85 Broad Street GOLDMAN SACHS ASSET MANAGEMENT
New York, New York 10004 MANAGEMENT
Investment Adviser to
GOLDMAN, SACHS & CO. Goldman Sachs Mid-Cap Equity Fund
Transfer Agent One New York Plaza
4900 Sears Tower New York, New York 10004
Chicago, Illinois 60606
Toll free (in U.S)......800-XXX-XXXX
<PAGE>
INTRODUCTION
Goldman Sachs Select Equity Fund ("Select Equity Fund") and Goldman Sachs
Mid-Cap Equity Fund ("Mid-Cap Equity Fund") (individually, a "Fund," or
collectively, the "Funds") are part of a family of funds advised by Goldman
Sachs Asset Management or its affiliates, Goldman Sachs Funds Management, L.P.
and Goldman Sachs Asset Management International. Each Fund is organized as a
separate, diversified portfolio of Goldman Sachs Equity Portfolios, Inc. (the
"Company"), an open-end management investment company.
The Company was organized under the laws of the State of Maryland on
September 27, 1989. The Company assumed its current name on May 14, 1991. The
Directors of the Company have authority under the Company's Charter to create
and classify shares into separate series without further action by shareholders.
Pursuant thereto, the Directors have created the Funds and seven additional
series of the Company. Additional series may be added in the future from time
to time. The Directors of the Company also have authority to classify and
reclassify any series or portfolio of shares into one or more classes. Pursuant
thereto, the Board of Directors has authorized the issuance of two classes of
shares of Mid-Cap Equity Fund: Institutional Shares and Administration Shares.
The Board of Directors has authorized the issuance of three classes of shares of
Select Equity Fund: Institutional Shares, Administration Shares and Class A
Shares. See "Shares of the Company."
Goldman Sachs Funds Management, L.P., an affiliate of Goldman, Sachs & Co.
("Goldman Sachs"), serves as investment adviser to Select Equity Fund and
Goldman Sachs Asset Management, a separate operating division of Goldman Sachs,
serves as investment adviser to Mid-Cap Equity Fund. Goldman Sachs Funds
Management, L.P. and Goldman Sachs Asset Management are each sometimes referred
to individually as an "Investment Adviser" and collectively, as the "Investment
Advisers." Goldman Sachs Asset Management also serves as the administrator to
each Fund. Goldman Sachs serves as each Fund's distributor and transfer agent.
Each Fund's custodian is State Street Bank and Trust Company ("State Street").
Select Equity Fund is designed for investors seeking total return. Mid-
Cap Equity Fund is designed for investors seeking long-term capital growth.
However, investing in the Funds involves certain risks and there can be no
assurance that the Funds will achieve their investment objectives.
INVESTMENT OBJECTIVE AND POLICIES
CORPORATE DEBT OBLIGATIONS
LOWER QUALITY DEBT SECURITIES. As described in the Prospectus, Mid-Cap
Equity Fund may make a variety of investments, including corporate debt
obligations which may be rated at the time of investment B or better by Standard
& Poor's Ratings Group ("Standard & Poor's") or by Moody's Investors Service,
Inc. ("Moody's") or, if unrated by such rating organizations or determined by
the Investment Adviser to be of comparable credit quality. Bonds rated B or
below (or comparable unrated securities) are commonly referred to as "junk
bonds" and are considered speculative and may be questionable as to principal
and interest payments. In some cases, such bonds may be highly speculative,
have poor prospects for reaching investment standing and be in default. As a
result, investment in such bonds will entail greater speculative risks than
those associated with investment in investment-grade bonds (i.e., bonds rated
AAA, AA, A or BBB by Standard & Poor's or Aaa, Aa, A or Baa by Moody's). See
Appendix A for a description of the ratings issued by such investment rating
organizations. Mid-Cap Equity Fund will limit to less than 10% of its total
assets its investments in corporate debt obligations rated, at the time of
investment, BB or below by Standard & Poor's or Ba or below by Moody's or, if
unrated, determined by the Investment Adviser to be of comparable credit
quality.
An economic downturn could severely affect the ability of highly leveraged
issuers of junk bond securities to service their debt obligations or to repay
their obligations upon maturity. Factors having an adverse impact on
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the market value of junk bond securities will have an adverse effect on Mid-Cap
Equity Fund's net asset value to the extent it invests in such securities. In
addition, Mid-Cap Equity Fund may incur additional expenses to the extent it is
required to seek recovery upon a default in payment of principal or interest on
its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on Mid-
Cap Equity Fund's ability to dispose of a particular security when necessary to
meet its liquidity needs. Under adverse market or economic conditions, the
secondary market for junk bond securities could contract further, independent of
any specific adverse changes in the condition of a particular issuer. As a
result, the Investment Adviser for Mid-Cap Equity Fund could find it more
difficult to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating Mid-Cap Equity Fund's net asset
value.
Federal legislation is proposed from time to time which is designed to
limit the use, or tax and other advantages, of junk bond securities. If
enacted, such proposals could adversely affect Mid-Cap Equity Fund's net asset
value and investment practices. Federal laws have been adopted which require
divestiture by federally insured savings and loan associations of their
investments in junk bonds. Such proposals could also adversely affect the
secondary market for junk bond securities, the financial condition of issuers of
these securities and the value of outstanding junk bond securities. The form of
any such proposed legislation and the probability of such legislation being
passed are uncertain.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Mid-Cap Equity
Fund may invest, the yields and prices of such securities may tend to fluctuate
more than those for higher rated securities. In the lower quality segments of
the fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities market
resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In
addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in Mid-Cap Equity Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer
higher yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. Since medium to lower rated securities
generally involve greater risks of loss of income and principal than higher
rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable non-rated securities. In addition to the risk of default, there
are the related costs of recovery on defaulted issues. The Investment Adviser
will attempt to reduce these risks through diversification of Mid-Cap Equity
Fund's portfolio and by analysis of each issuer and its ability to make timely
payments of income and principal, as well as broad economic trends in corporate
developments.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed securities represent direct or indirect participations in,
or are collateralized by and payable from, mortgage loans secured by real
property. Asset-backed securities represent participations 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
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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.
Mortgage-backed and asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans which may
increase the volatility of such investments relative to similarly rated debt
securities. A Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in mortgage-backed and asset-backed securities, the
values of such Fund's portfolio securities will vary with changes in market
interest rates generally and the differentials in yields among various kinds of
U.S. Government securities and other mortgage-backed and asset-backed
securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owned 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.
CUSTODIAL RECEIPTS
A Fund may acquire custodial receipts in respect of securities issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
instrumentalities, political subdivisions or authorities. Such custodial
receipts evidence ownership of future interest payments, principal payments or
both on certain notes or bonds issued by the U.S. Government, its agencies,
instrumentalities, political subdivisions or authorities. These custodial
receipts are known by various names, including "Treasury Receipts," "Treasury
Investors Growth Receipts" ("TIGRs") and "Certificates of Accrual on Treasury
Securities" ("CATs"). For certain securities law purposes, custodial receipts
are not considered U.S. Government securities.
ZERO COUPON BONDS
Each Fund may invest in zero coupon bonds, which are debt obligations
issued or purchased at a significant discount from face value. The discount
approximates the total amount of interest the bonds would have accrued and
compounded over the period until maturity. Zero coupon bonds do not require the
periodic payment of interest. Such investments benefit the issuer by mitigating
its need for cash to meet debt service, but some also require a higher rate of
return to attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value than debt
obligations which provide for regular payments of interest. Each Fund will
accrue income on such investments for tax and accounting purposes, as required,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy a Fund's distribution obligations. See "Taxation."
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Warrants and Stock Purchase Rights
Each Fund may invest up to 5% of its total assets, calculated at the time
of purchase, in warrants or stock purchase rights (other than those acquired in
units or attached to other securities) which entitle the holder to buy equity
securities at a specific price for a specific period of time but will do so only
if such equity securities are deemed appropriate by an Investment Adviser for
investment by the Fund[, although Select Equity Fund. Neither Fund will invest
more than 2% of its total assets, calculated at the time of purchase, in
warrants or stock purchase rights which are not listed on the New York or
American Stock Exchanges. Warrants and stock purchase rights have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer.
REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund may invest up to 15% of its total assets (determined at the time
of purchase) in shares of REITs that are non-self-administered and non-self-
managed. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are
generally classified as equity REITs, mortgage REITs or a combination of equity
and mortgage REITs. Equity REITs invest the majority of their assets directly
in real property and derive income primarily from the collection of rents.
Equity REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in real
estate mortgages and derive income from the collection of interest payments.
Like regulated investment companies such as the Funds, REITs are not taxed on
income distributed to shareholders provided they comply with several
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
Each Fund will indirectly bear its proportionate share of any expenses paid by
REITs in which it invests in addition to the expenses paid by the Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers, self-
liquidation, and the possibilities of failing to qualify for the exemption from
tax for distributed income under the Code and failing to maintain their
exemptions from the Investment Company Act of 1940, as amended (the "Act").
REITs (especially mortgage REITs) are also subject to interest rate risks.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Select Equity Fund may only purchase and sell futures contracts on the S&P
500 Index. Mid-Cap Equity Fund may purchase and sell various kinds of futures
contracts, and purchase and write (sell) call and put options on any of such
futures contracts. Each Fund will engage in futures and, in the case of Mid-Cap
Equity Fund, related options transactions, only for bona fide hedging purposes
as defined below or for purposes of seeking to increase total return to the
extent permitted by regulations of the Commodity Futures Trading Commission
("CFTC"). All futures contracts entered into by each Fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the CFTC or on
certain foreign exchanges.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).
When interest rates are rising or securities prices are falling, a Fund can
seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
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securities prices are rising, a Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases. Similarly, Mid-Cap Equity
Fund can sell futures contracts on a specified currency to protect against a
decline in the value of such currency and its portfolio securities which are
quoted or denominated in such currency. Mid-Cap Equity Fund can purchase
futures contracts on foreign currency to fix the price in U.S. dollars of a
security quoted or denominated in such currency that the Fund has acquired or
expects to acquire.
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 or currency will
usually be liquidated in this manner, Mid-Cap Equity Fund may instead make or
take delivery of the underlying securities or currency 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 the effective price, rate of return or currency
exchange rate on portfolio securities and securities that a Fund owns or
proposes to acquire. A Fund may, for example, take a "short" position in the
futures market by selling futures contracts in order to hedge against an
anticipated rise in interest rates or a decline in market prices or foreign
currency rates that would adversely affect the dollar value of such Fund's
portfolio securities. 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. Similarly,
Mid-Cap Equity Fund may sell futures contracts in currency in which its
portfolio securities are quoted or denominated or in one currency to hedge
against fluctuations in the value of securities quoted or denominated in a
different currency if there is an established historical pattern of correlation
between the two currencies. If, in the opinion of its Investment Adviser, there
is a sufficient degree of correlation between price trends for Mid-Cap Equity
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 a 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 difference in volatility 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 such Fund's
securities portfolio. When hedging of this character is successful, any
depreciation in the value of portfolio securities will be substantially offset
by appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing such
futures contracts. This would be done, for example, when the Fund anticipates
the subsequent purchase of particular securities when it has the necessary cash,
but expects the prices or currency exchange rates then available in the
applicable market to be less favorable than prices or rates that are currently
available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give a Fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, Mid-Cap Equity 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 Mid-Cap Equity Fund's
assets. By writing a call option, Mid-Cap Equity Fund becomes obligated, in
exchange for the premium, to sell a futures contract, 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 Mid-Cap Equity Fund intends to purchase. However,
Mid-Cap Equity Fund
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becomes obligated to purchase a futures contract which may have a value lower
than the exercise price. Thus, the loss incurred by Mid-Cap Equity Fund in
writing options on futures is potentially unlimited and may exceed the amount of
the premium received. Mid-Cap Equity 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 series.
There is no guarantee that such closing transactions can be effected. Mid-Cap
Equity Fund's ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid market.
OTHER CONSIDERATIONS. Each Fund will engage in futures (and Mid-Cap Equity
Fund will engage in related options transactions) only for bona fide hedging as
defined in the regulations of the CFTC or to seek to increase total return to
the extent permitted by such regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, each Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities (or the currency in which they are denominated) that the Fund
owns, or futures contracts will be purchased to protect the Fund against an
increase in the price of securities (or the currency in which they are
denominated) it intends to purchase. As evidence of this hedging intent, each
Fund expects that on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities or assets denominated or quoted in the related
currency in the cash market at the time when the futures or option position is
closed out. However, in particular cases, when it is economically advantageous
for a Fund to do so, a long futures position may be terminated or an option may
expire without the corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits each Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish positions in futures contracts and options on futures to seek to
increase total return will 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. Each Fund will engage in transactions in futures
contracts (and Mid-Cap will engage in related options transactions) only to the
extent such transactions are consistent with the requirements of the Code for
maintaining its qualification as a regulated investment company for federal
income tax purposes. See "Taxation."
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
segregate with its custodian liquid, high grade debt securities in an amount
equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates, securities prices or currency exchange
rates may result in a poorer overall performance for a Fund than if it had not
entered into any futures contracts or options transactions. In the event of an
imperfect correlation between a futures position and portfolio position which is
intended to be protected, the desired protection may not be obtained and a Fund
may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions may be difficult to achieve because no futures contracts based on
individual equity securities are currently available. The only futures
contracts
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available to hedge a Fund's portfolio are various futures on U.S. Government
securities, securities indices and foreign currencies. In addition, it is not
possible for Mid-Cap Equity Fund to hedge fully or perfectly against currency
fluctuations affecting the value of securities quoted or denominated in foreign
currencies because the value of such securities is likely to fluctuate as a
result of independent factors not related to currency fluctuations.
OPTIONS ON SECURITIES AND SECURITIES INDICES
WRITING COVERED OPTIONS. Each Fund may write (sell) covered call and put
options, and purchase call and put options, on any securities in which it may
invest, although Select Equity Fund has no present intention of doing so. A
Fund will write such options on any securities index composed of securities in
which it may invest. A call option written by a Fund obligates such Fund to
sell specified securities to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. All call
options written by a Fund are covered, which means that such Fund will own the
securities subject to the option as long as the option is outstanding or use
the other methods described below. The purpose in writing covered call options
is to realize greater income than would be realized on portfolio securities
transactions alone. However, in writing covered call options for additional
income, a Fund may forego the opportunity to profit from an increase in the
market price of the underlying security.
A put option written by a Fund would obligate such Fund to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written by
a Fund would be covered, which means that the Fund would have deposited with its
custodian cash or liquid, high grade debt securities with a value at least equal
to the exercise price of the put option. The purpose of writing such options is
to generate additional income for a Fund. However, in return for the option
premium, each Fund accepts the risk that it will be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
In addition, a written call option or put option may be covered by
maintaining cash or liquid, high grade debt securities (either of which may be
quoted or denominated in any currency) in a segregated account, by entering into
an offsetting forward contract and/or by purchasing an offsetting option or any
other option which, by virtue of its exercise price or otherwise, reduces a
Fund's net exposure on its written option position.
A Fund may also write (sell) covered call and put options on any securities
index composed of securities in which it may invest. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
A Fund may cover call options on a securities index by owning securities
whose price changes are expected to be similar to those of the underlying index,
or by having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio. A Fund may cover call and put options on a
securities index by maintaining cash or liquid, high grade debt securities with
a value equal to the exercise price in a segregated account with its custodian
or by using other methods described below.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counter party to such option. Such purchases
are referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each Fund may purchase put and call options on any
securities in which it may invest or options on any securities index based on
securities in which it may invest, although Select Equity Fund
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has no present intention of doing so. A Fund will purchase such options on
securities that are listed on domestic or foreign securities exchanges or traded
in the over-the-counter market. A Fund would also be able to enter into closing
sale transactions in order to realize gains or minimize losses on options it has
purchased.
A Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which it may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise a Fund would realize either no gain or a loss on
the purchase of the call option.
A Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle a
Fund, in exchange for the premium paid, to sell specified securities at a
specified price during the option period. The purchase of protective puts is
designed to offset or hedge against a decline in the market value of a Fund's
securities. Put options may also be purchased by a Fund for the purpose of
affirmatively benefiting from a decline in the price of securities which it does
not own. 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 more than cover the premium and transaction costs. Otherwise
the Fund would realize no gain or a loss on the purchase of the put option.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of the underlying portfolio
securities.
Each Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on securities. For a description of
options on securities indices, see "Writing Covered Options" above.
RISKS ASSOCIATED WITH OPTIONS TRANSACTIONS. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If a Fund is unable to effect
a closing purchase transaction with respect to covered options it has written,
the Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options in order to
realize any profit and will incur transaction costs upon the purchase or sale of
underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange, if any, that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
Each Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter
options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill
their obligations. Until such time as the staff of the
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Securities and Exchange Commission (the "Commission") changes its position, each
Fund will treat purchased over-the-counter options and all assets used to cover
written over-the-counter options as illiquid securities, except that with
respect to options written with primary dealers in U.S. Government securities
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount of illiquid securities may be calculated with reference to the
formula.
Transactions by each Fund in options on securities and stock indices will
be subject to limitations established by each of the exchanges, boards of trade
or other trading facilities governing the maximum number of options in each
class which may be written or purchased by a single investor or group of
investors acting in concert 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 or more
brokers. Thus, the number of options which a Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Investment Advisers. An exchange, board of trade or other trading facility
may order the liquidations of positions found to be in excess of these limits,
and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on an Investment Adviser's ability to
predict future price fluctuations and the degree of correlation between the
options and securities markets.
FOREIGN SECURITIES
Mid-Cap Equity Fund may invest up to 25% of its total assets, calculated at
the time of purchase, in foreign equity and fixed-income securities, including
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and
Global Depository Receipts ("GDRs"). Select Equity Fund may invest in the
equity securities traded in the United States, including ADRs, of foreign
issuers that comply with U.S. accounting standards.
ADRs represent the right to receive securities of foreign issuers deposited
in a U.S. bank or a correspondent bank. ADRs are traded in the United States on
exchanges or over-the-counter and are sponsored and issued by U.S. banks.
Prices of ADRs are quoted in U.S. dollars. ADRs do not eliminate all the risk
inherent in investing in the securities of non-U.S. issuers. To the extent that
a Fund acquires ADRs through banks which do not have a contractual relationship
with the foreign issuer of the security underlying the ADR to issue and service
such ADRs, there may be an increased possibility that the Fund would not become
aware of and be able to respond to corporate actions such as stock splits or
rights offerings involving the foreign issuer in a timely manner. In addition,
the lack of information may result in inefficiencies in the valuation of such
instruments. However, by investing in ADRs rather than directly in the stock of
non-U.S. issuers, a Fund will avoid currency risks during the settlement period
for either purchases or sales. In general, there is a large, liquid market in
the United States for ADRs quoted on a national securities exchange or the
NASD's national market system. The information available for certain ADRs is
subject to the accounting, auditing and financial reporting standards of the
U.S. market or exchange on which they are traded, which standards are more
uniform and more exacting then those to which many non-U.S. issuers may be
subject.
Mid-Cap Equity Fund may also invest in EDRs and GDRs, which are receipts
evidencing an arrangement with a non-U.S. bank similar to that for ADRs and are
designed for use in the non-U.S. securities markets. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security.
Investments in foreign securities may offer potential benefits not
available from investments solely in securities of domestic issuers. Such
benefits may include the opportunity to invest in foreign issuers that appear,
in the opinion of the applicable Investment Adviser, to offer better opportunity
for long-term growth of capital and income than investments in domestic
securities, the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the United States and the
opportunity to reduce fluctuations in portfolio
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<PAGE>
value by taking advantage of foreign stock markets that do not necessarily move
in a manner parallel to U.S. markets.
Investing in foreign securities involves certain special considerations,
including those set forth below, which are not typically associated with
investing in securities of U.S. issuers. Since investments in foreign
securities may involve currencies of foreign countries and since Mid-Cap Equity
Fund may temporarily hold funds in bank deposits in foreign currencies during
completion of investment programs and may be subject to currency exposure
independent of its securities positions, Mid-Cap Equity Fund may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations and may incur costs in connection with conversions between various
currencies.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies; however, Select Equity Fund will only invest
in equity securities of foreign issuers that comply with U.S. accounting
standards. Some foreign securities markets in which Mid-Cap Equity Fund may
invest may have substantially less volume than U.S. securities markets and
securities of some foreign companies may be less liquid than securities of
comparable U.S. companies. Also, commissions on transactions in foreign
securities markets may be higher than those for similar transactions on U.S.
stock markets. There is generally less government supervision and regulation of
foreign securities exchanges, brokers, dealers and listed and unlisted companies
than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of Mid-Cap Equity Fund's assets are uninvested and no
return is earned on such assets. The inability of Mid-Cap Equity 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 Mid-Cap
Equity Fund due to subsequent declines in value of the portfolio securities or,
if the Fund has entered into a contract to sell the securities, could result in
possible liability to the purchaser. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could affect 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, resource self-sufficiency and balance of payments position.
Mid-Cap Equity Fund may also invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of Mid-Cap Equity Fund's investments in those countries and
the availability to Mid-Cap Equity Fund of additional investments in those
countries. The small size and inexperience of the securities markets in certain
of such countries and the limited volume of trading in securities in those
countries may make Mid-Cap Equity Fund's investments in such countries illiquid
and more volatile than investments in more developed countries, and Mid-Cap
Equity Fund may be required to establish special custodial or other arrangements
before making certain investments in those countries. There may be little
financial or accounting information available with respect to issuers located in
certain of such countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers.
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<PAGE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Mid-Cap Equity Fund may enter
into forward foreign currency exchange contracts for hedging purposes. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.
At the maturity of a forward contract, Mid-Cap Equity Fund may either
accept or make delivery of the currency specified in the contract or, at or
prior to maturity, enter into a closing purchase transaction involving the
purchase or sale of an offsetting contract. Closing purchase transactions with
respect to forward contracts are usually effected with the currency trader who
is a party to the original forward contract.
Mid-Cap Equity Fund may enter into forward foreign currency exchange
contracts in several circumstances. First, when Mid-Cap Equity Fund enters into
a contract for the purchase or sale of a security denominated or quoted in a
foreign currency, or when Mid-Cap Equity Fund anticipates the receipt in a
foreign currency of dividend or interest payments on such a security which it
holds, the Fund may desire to "lock in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such dividend or interest payment, as the case
maybe. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of foreign currency involved in the
underlying transactions, the Fund will attempt to protect itself against an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is declared, and
the date on which such payments are made or received.
Mid-Cap Equity Fund's custodian will place cash or liquid, high grade debt
securities into a segregated account with the Fund's custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
forward foreign currency exchange contracts requiring the Fund to purchase
foreign currencies. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of Mid-Cap
Equity Fund's commitments with respect to such contracts. The segregated
account will be marked-to-market on a daily basis. Although the contracts are
not presently regulated by the CFTC, the CFTC may in the future assert authority
to regulate these contracts. In such event, Mid-Cap Equity Fund's ability to
utilize forward foreign currency exchange contracts may be restricted.
While Mid-Cap Equity Fund will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while the Fund may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Fund than if it had not engaged in any such transactions.
Moreover, there may be imperfect correlation between Mid-Cap Equity Fund's
portfolio holdings of securities quoted or denominated in a particular currency
and forward contracts entered into by such Fund. Such imperfect correlation may
cause the Fund to sustain losses which will prevent the Fund from achieving a
complete hedge or expose the Fund to risk of foreign exchange loss.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. Mid-Cap Equity Fund
may write (sell) covered put and call options and purchase put and call options
on foreign currencies for the purpose of protecting against declines in the
dollar value of portfolio securities and against increases in the dollar cost of
securities to be acquired.
A call option written by Mid-Cap Equity Fund obligates Mid-Cap Equity Fund
to sell specified currency to the holder of the option at a specified price if
the option is exercised at any time before the expiration date. A put option
written by Mid-Cap Equity Fund would obligate Mid-Cap Equity Fund to purchase
specified currency from the option holder at a specified price if the option is
exercised at any time before the expiration date. The
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<PAGE>
writing of currency options involves a risk that Mid-Cap Equity Fund will, upon
exercise of the option, be required to sell currency subject to a call at a
price that is less than the currency's market value or be required to purchase
currency subject to a put at a price that exceeds the currency's market value.
Mid-Cap Equity Fund may terminate its obligations under an exchange traded
call or put option by purchasing an option identical to the one it has written.
Such purchases are referred to as "closing purchase transactions." Mid-Cap
Equity Fund also is able to enter into closing sale transactions in order to
realize gains or minimize losses on options purchased by the Fund.
Mid-Cap Equity Fund would normally purchase call options on foreign
currency in anticipation of an increase in the U.S. dollar value of currency in
which securities to be acquired by Mid-Cap Equity Fund are quoted or
denominated. The purchase of a call option would entitle Mid-Cap Equity Fund,
in return for the premium paid, to purchase specified currency at a specified
price during the option period. Mid-Cap Equity Fund would ordinarily realize a
gain if, during the option period, the value of such currency exceeded the sum
of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.
Mid-Cap Equity Fund would normally purchase put options in anticipation of
a decline in the dollar value of currency in which securities in its portfolio
are quoted or denominated ("protective puts"). The purchase of a put option
would entitle Mid-Cap Equity Fund, in exchange for the premium paid, to sell
specified currency at a specified price during the option period. The purchase
of protective puts is designed merely to offset or hedge against a decline in
the dollar value of Mid-Cap Equity Fund's portfolio securities due to currency
exchange rate fluctuations. Mid-Cap Equity Fund would ordinarily realize a gain
if, during the option period, the value of the underlying currency decreased
below the exercise price sufficiently to more than cover the premium and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the put option. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
underlying portfolio securities.
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON CURRENCY. An exchange traded
options position may be closed out only on an options exchange which provides a
secondary market for an option of the same series. Although Mid-Cap Equity Fund
will generally purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option, or at any particular
time. For some options no secondary market on an exchange may exist. In such
event, it might not be possible to effect closing transactions in particular
options, with the result that Mid-Cap Equity Fund would have to exercise its
options in order to realize any profit and would incur transaction costs upon
the sale of underlying securities pursuant to the exercise of put options. If
Mid-Cap Equity Fund as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying currency (or security quoted or denominated in that currency)
until the option expires or it delivers the underlying currency upon exercise.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the Options Clearing Corporation inadequate, and thereby result in the
institution by an exchange of special procedures which may interfere with the
timely execution of customers' orders.
Mid-Cap Equity Fund may purchase and write over-the-counter options to the
extent consistent with its limitation on investments in illiquid securities.
Trading in over-the-counter options is subject to the risk that the other party
will be unable or unwilling to close out options purchased or written by Mid-Cap
Equity Fund.
The amount of the premiums which Mid-Cap Equity Fund may pay or receive may
be adversely affected
B-13
<PAGE>
as new or existing institutions, including other investment companies, engage in
or increase their option purchasing and writing activities.
LENDING OF PORTFOLIO SECURITIES
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund
would be required to have the right to call a loan and obtain the securities
loaned at any time on five days' notice. For the duration of a loan, 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. A 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 an 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 an Investment Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed one-third of the value of the total assets of a Fund.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Funds may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. A Fund will purchase
securities on a when-issued basis or purchase or sell securities on a forward
commitment basis only with the intention of completing the transaction and
actually purchasing or selling the securities. If deemed advisable as a matter
of investment strategy, however, a Fund may dispose of or negotiate a commitment
after entering into it. A Fund may realize a capital gain or loss in connection
with these transactions. For purposes of determining a Fund's average duration,
the maturity of when-issued or forward commitment securities will be calculated
from the commitment date. A Fund is required to hold and maintain in a
segregated account with the Fund's custodian until the settlement date, cash and
liquid, high grade debt securities in an amount sufficient to meet the purchase
price. Alternatively, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns. Securities purchased or sold on
a when-issued or forward commitment basis involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date or if the
value of the security to be sold increases prior to the settlement date.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
arrangement under which a Fund purchases securities and the seller agrees to
repurchase the securities within a particular time and at a specified price.
Custody of the securities is maintained by 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.
For purposes of the Act and for federal tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not clear whether a court would consider the security
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<PAGE>
purchased by a 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,
a Fund may encounter delay and incur costs before being able to sell the
security. Such a delay may involve loss of interest or a decline in price of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, 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, a Fund would be at risk of
losing some or all of the principal and interest involved in the transaction.
As with any unsecured debt instrument purchased for a Fund, the 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), a Fund will direct
the seller of the security to deliver additional securities so that the market
value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price. Certain repurchase agreements which provide for
settlement in more than seven days can be liquidated before the nominal fixed
term on seven days or less notice. Such repurchase agreements will be regarded
as liquid instruments.
In addition, a Fund, together with other registered investment companies
having advisory agreements with the Fund's Investment Adviser or the Investment
Adviser's affiliates, may transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which will be invested in one or more
repurchase agreements.
INVESTMENT IN UNSEASONED COMPANIES
Each Fund may invest up to 5% of its net assets, calculated at the time of
purchase, in companies which (including predecessors) have operated less than
three years. The securities of such companies may have limited liquidity, which
can result in their being priced lower than might otherwise be the case. In
addition, investments in unseasoned companies are more speculative and entail
greater risk than do investments in companies with an established operating
record.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Company with
respect to each Fund as fundamental policies that cannot be changed without the
affirmative vote of the holders of a majority (as defined in the Act) of the
outstanding voting securities of the affected Fund. The investment objective of
each Fund and all other investment policies or practices of each Fund are
considered by the Company not to be fundamental and accordingly may be changed
without shareholder approval. See "Investment Objective and Policies" in the
Prospectus. For purposes of the Act, "majority" means the lesser of (a) 67% or
more of the shares of the Company or a Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Company or a Fund are present
or represented by proxy, or (b) more than 50% of the shares of the Company or a
Fund. For purposes of the following limitations, any limitation which involves
a maximum percentage shall not be considered violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, a Fund. With respect
to each Fund's fundamental investment restriction no. 1, asset coverage of at
least 300% (as defined in the Act), inclusive of any amounts borrowed, must be
maintained.
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<PAGE>
Select Equity Fund
Select Equity Fund may not:
1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding 10% of the applicable Fund's
total assets (in the case of the Capital Growth Fund not including the amount
borrowed); while such borrowings exceed 5% of such Fund's assets, the Fund will
not make any additional investments; and (b) in connection with the redemption
of Fund shares, but only if after each such borrowing there is asset coverage of
at least 300% as defined in the Act. For purposes of this investment
restriction, short sales, the entry into currency transactions, options, futures
contracts, including those relating to indexes, options on futures contracts or
indexes and forward commitment transactions shall not constitute borrowing.
2. Purchase the securities of any one issuer, other than the United
States Government or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of its total assets would be
invested in such issuer or that Fund would own more than 10% of the outstanding
voting securities of such issuer, except that (a) up to 25% of the value of the
Fund's total assets may be invested without regard to such 5% and 10%
limitations and (b) such 5% limitation shall not apply to repurchase agreements
collateralized by obligations of the United States Government, its agencies or
instrumentalities. (As a matter of non-fundamental policy, under normal
conditions, the securities of any one issuer may not exceed 5% of Select Equity
Fund's net assets at the time of purchase.)
3. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry. This limitation does not apply to investments or
obligations of the U.S. Government or any of its agencies or instrumentalities.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indexes, and options on futures contracts or indexes.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Fund may make margin
deposits in connection with transactions in currencies, options, futures and
options on futures.
6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by a Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although a Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for a Fund as a result of the ownership of securities.
9. Invest in commodities except that a Fund may purchase and sell futures
contracts, including those relating to securities, currencies, indexes, and
options on futures contracts or indexes and currencies underlying or related to
any such future contracts, and purchase and sell currencies (and options
thereon) or securities on a forward commitment or delayed-delivery basis as
described in the Prospectuses.
10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, a Fund may lend its portfolio securities in an
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<PAGE>
amount not to exceed 33-1/3% of the value of its total assets. Any loans of
portfolio securities will be made according to guidelines established by the
Securities and Exchange Commission and the Company's Board of Directors.
11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in Investment Restriction Nos. 1, 4, 5 and 9.
In addition to the investment restrictions mentioned above, the Directors
of the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment policies in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, Select Equity Fund may not:
1. Purchase or retain the securities of any issuers if the officers,
directors or partners of the Company, its advisers or managers owning
beneficially more than one-half of 1% of the securities of such issuer, together
own beneficially more than 5% of such securities.
2. Purchase the securities of any issuer if by such purchase a Fund would
own more than 10% of the voting securities of such issuer.
3. Invest more than 10% of its total assets in the securities of other
investment companies or more than 5% of its total assets in the securities of
any one investment company, in each case calculated at the time of purchase, or
acquire more than 3% of the voting securities of any other investment company.
4. Write covered calls or put options with respect to more than 25% of
the value of its net assets, invest more than 25% of its net assets in puts,
calls, spreads or straddles, other than protective put options. The aggregate
value of premiums paid on all options held by Select Equity Fund at any time
will not exceed 20% of the Fund's total net assets.
5. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act");
or (b) more than 15% of its net assets in restricted securities (including those
eligible for resale under Rule 144A).
MID-CAP EQUITY FUND
Mid-Cap Equity Fund may not:
1. Borrow money, except (a) for temporary or emergency purposes or for
clearance of transactions in amounts not exceeding one-third of the value of the
Fund's total assets, including the amount borrowed; (b) in connection with the
redemption of shares of such Fund or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets; and
(c) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (d)
transactions in mortgage dollar rolls which are accounted for as financings, but
only if after each such borrowing there is asset coverage of at least 300% as
defined in the Act. For purposes of this investment restriction, short sales,
currency transactions, forward contracts, currency, mortgage, index and interest
rate swaps, interest rate caps, floors and collars, options, futures contracts,
options on futures contracts or indices and forward commitment transactions
shall not constitute borrowing.
2. Purchase the securities of any one issuer, other than the U.S.
Government or any of its agencies
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<PAGE>
or instrumentalities, if immediately after such purchase more than 5% of the
value of its total assets would be invested in such issuer or the Fund would own
more than 10% of the outstanding voting securities of such issuer, except that
(a) up to 25% of the value of the Fund's total assets may be invested without
regard to such 5% and 10% limitations and (b) such 5% limitation shall not apply
to repurchase agreements collateralized by obligations of the United States
Government, its agencies or instrumentalities.
3. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry. This limitation does not apply to investments or
obligations of the U.S. Government or any of its agencies or instrumentalities.
4. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
deposit of assets in escrow in connection with the writing of covered put and
call options and the purchase of securities on a forward commitment or delayed-
delivery basis and collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts, including those
relating to indices, and options on futures contracts or indices.
5. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Fund may make margin
deposits in connection with transactions in currencies, options, futures
contracts and options on futures.
6. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
7. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
underwriting.
8. Purchase, hold or deal in real estate (including real estate limited
partnerships) or oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell real estate acquired
for the Fund as a result of the ownership of securities.
9. Invest in commodities, except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies and
indices, and options on futures contracts, securities, currencies or indices,
and purchase and sell currencies or securities on a forward commitment or
delayed-delivery basis.
10. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which it may
invest; however, the Fund may enter into repurchase agreements and may lend its
portfolio securities in an amount not to exceed 33-1/3% of the value of its
total assets.
11. Issue any senior security (as such term is defined in Section 18(f) of
the Act) except as permitted in fundamental investment restrictions 1, 4, 5 and
9.
In addition to the investment restrictions mentioned above, the Directors
of the Company have voluntarily adopted the following policies and restrictions
which are observed in the conduct of its affairs. These represent intentions of
the Directors based upon current circumstances. They differ from fundamental
investment restrictions in that they may be changed or amended by action of the
Directors of the Company without prior notice to or approval of shareholders.
Accordingly, the Fund may not:
1. Purchase the securities of any issuers if the officers, directors or
partners of the Company, its advisers or managers owning beneficially more than
one-half of 1% of the securities of such issuer, together own beneficially more
than 5% of such securities.
2. Write covered calls or put options with respect to more than 25% of
the value of its net assets or
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invest more than 5% of its net assets in puts, calls, spreads or straddles,
other than protective put options. The aggregate value of premiums paid on all
options, other than protective puts, held by the Fund at any time will not
exceed 5% of the Fund's total net assets.
3. Invest (a) more than 15% of its net assets in illiquid investments,
including repurchase agreements maturing in more than seven days, securities
that are not readily marketable and restricted securities not eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act");
or (b) more than 15% of its net assets in restricted securities (including those
eligible for resale under Rule 144A).
4. Purchase additional securities if the Fund's borrowings exceed 5% of
its assets.
5. Purchase equity REITs that are non-self-administered and non self-
managed if more than 15% of the Fund's total assets would be invested in such
REITs.
MANAGEMENT
DIRECTORS AND OFFICERS
======================
The Directors and officers of the Company are listed below together with
their respective positions and a brief statement of their principal occupations
during the past five years.
Name and Address Age; Position with the Company, Principal Occupations and
================ =========================================================
Other Affiliations
==================
Paul C. Nagel, Jr. 72; Director of the Company; Retired Vice Chairman of the
19223 Riverside Board and Chief Financial Officer, Household Finance
Drive Corporation prior to January, 1976; Director and Chairman,
Tequesta, FL 33469 Audit and Finance Committees, Great Atlantic & Pacific Tea
Co., Inc.; Director, United Conveyor Corporation
Ashok N. Bakhru 52; Director of the Company; Retired Senior Vice President,
14 Dogwood Lane Scott Paper Company; Director, Arkwright Mutual Insurance
Glen Mills, Company; Trustee, International House of Philadelphia and
PA 19342 Walnut Street Theater; Member, Cornell University Council
*David B. Ford 49; Director of the Company; General Partner, Goldman
One New York Plaza Sachs, since 1986; Chairman and Chief Executive Officer,
New York, NY 10004 Goldman Sachs Asset Management since December 1994
*Alan A. Shuch 45; Director of the Company; Director and Vice President,
One New York Plaza Goldman Sachs Funds Management, Inc. from April 1990 to
New York, NY 10004 November 1994; President and Chief Operating Officer,
Goldman Sachs Asset Management, from September 1988 to
November 1994; Limited Partner, Goldman Sachs since
December 1994
Jackson W. Smart, Jr.
55 West Monroe 64; Director of the Company; Chairman and Chief Executive
Street Officer, MSP Communications Inc. since November 1988
Chicago, IL 60603 (radio broadcasting); Consultant, Thomas Industries, Inc.
from August 1987 to November 1988 (a manufacturer of
lighting fixtures, home decorations and hardware items);
Director, Federal Express Corporation and North American
Private Equity Group (a venture capital fund)
B-19
<PAGE>
Name and Address Age; Position with the Company, Principal Occupations and
================ =========================================================
Other Affiliations
==================
William H. Springer 65; Director of the Company; Vice Chairman, Ameritech (a
701 Morningside telecommunications holding company) from February 1987
Drive until retirement in August 1992; Vice Chairman, Chief
Lake Forest, IL Financial Officer and Administrative Officer of Ameritech
60045 prior thereto; Director of Baker, Fentress & Co. (a closed-
end non-diversified investment company) since April 1992;
Director, Walgreen Co. (a retail drugstore business)
Richard P. Strubel 55; Director of the Company; Managing Director, Tandem
Three First Partners, Inc. since 1990; President and Chief Executive
National Plaza Officer, Microdot, Inc. from January 1984 to October 1994
70 West Madison (a diversified manufacturer of fastening systems and
Street connectors)
Suite 1400
Chicago, IL 60602
*Marcia L. Beck 39; Director and President of the Company; Director,
One New York Plaza Institutional Funds Group of Goldman Sachs Asset
New York, NY 10004 Management since September 1992; Vice President and Senior
Portfolio Manager from June 1988 to Present; Vice
President, Funds Group from May 1985 to June 1988
*Scott M. Gilman 35; Treasurer of the Company; Director, Mutual Fund
One New York Plaza Administration, Goldman Sachs Asset Management from
New York, NY 10004 April 1994; Assistant Treasurer of Goldman Sachs Funds
Management, Inc. from 1993; Vice President, Goldman Sachs
since March 1990; Assistant Treasurer of the Company from
April 1990 until October 1991; Manager, Arthur Andersen LLP
prior to March 1990
*Pauline Taylor 48; Vice President of the Company; Vice President, Goldman
4900 Sears Tower Sachs since June 1992; Consultant from 1989 to June 1992;
Chicago, IL 60606 Senior Vice President, Fidelity Investments prior to 1989
*John W. Mosior 56; Vice President of the Company; Vice President, Goldman
4900 Sears Tower Sachs; Co-Manager of Shareholder Services for Goldman
Chicago, IL 60606 Sachs Asset Management
*Nancy L. Mucker 45; Vice President of the Company; Vice President, Goldman
4900 Sears Tower Sachs; Co-Manager of Shareholder Services for Goldman
Chicago, IL 60606 Sachs Asset Management
*Michael J. Richman 34; Secretary of the Company; Vice President and
85 Broad Street Assistant General Counsel, Goldman Sachs since June 1992;
New York, NY 10004 Associate General Counsel to Goldman Sachs Asset
Management since February 1994; Counsel to the Funds Group,
Goldman Sachs Asset Management since June 1992; Partner,
Hale and Dorr from September 1991 until June 1992;
Attorney-at-Law, Gaston & Snow from September 1985 until
September 1991
*Howard B. Surloff 29; Assistant Secretary of the Company; Vice President and
85 Broad Street Counsel, Goldman Sachs since November 1993 and May 1994,
New York, NY 10004 respectively; Counsel to the Funds Group and Goldman Sachs
Asset Management since November 1993; Associate of Shereff
Friedman, Hoffman & Goodman prior thereto.
B-20
<PAGE>
Name and Address Age; Position with the Company, Principal Occupations and
================ =========================================================
Other Affiliations
==================
Steven E. Hartstein*,
85 Broad Street 31; Assistant Secretary of the Company. Legal Products
New York, NY 10004 Analyst, Goldman Sachs June 1993 to present); Funds
Compliance Officer, Citibank Global Asset Management
(August 1991 to June 1993); Legal Assistant, Brown & Wood
(prior thereto).
Gail M. Shanley*, 26; Assistant Secretary of the Company. Legal Product
85 Broad Street Analyst, Goldman Sachs since June 1994. Formerly Blue Sky
New York, NY 10004 Legal Assistant at Smith Barney Shearson.
* "Interested person" of the Company for purposes of the Act.
The Company's Directors and officers hold comparable positions with certain
other investment companies of which the Investment Adviser, Goldman Sachs or an
affiliate thereof is the investment adviser, administrator, and/or distributor.
As of December 31, 1995, the Directors and officers of the Company as a group
owned less than 1% of the outstanding shares of common stock of the Fund.
DIRECTOR COMPENSATION
The following table sets forth certain information with respect to the
compensation of each Director of the Company:
<TABLE>
<CAPTION>
PENSION OF
RETIREMENT TOTAL
BENEFITS COMPENSATION
AGGREGATE ACCRUED AS FROM
COMPENSATION PART OF GS FAMILY
NAME OF TRUSTEE FROM THE COMPANY* COMPANY'S EXPENSE OF FUNDS**
=============== ================= ================= ============
<S> <C> <C> <C>
Paul C. Nagel, Jr. -0-
Ashok N. Bakhru -0-
David B. Ford -0- -0- -0-
Alan A. Shuch -0- -0- -0-
Jackson W. Smart, Jr. -0-
William H. Springer -0-
Richard D. Strubel -0-
Marcia L. Beck -0- -0- -0-
</TABLE>
* As of Company's fiscal year end.
** As of January 31, 1995.
INVESTMENT ADVISER AND ADMINISTRATOR
As stated in the Prospectus, Goldman Sachs Asset Management, One New York
Plaza, New York, New York, a separate operating division of Goldman Sachs serves
as investment adviser and administrator to Mid-Cap Equity Fund. Goldman Sachs
Funds Management, L.P., One New York Plaza, New York, New York, a Delaware
limited partnership, which is an affiliate of Goldman Sachs, serves as
investment adviser to Select Equity Fund. See "Management -- Investment Adviser
and Administrator" in the Prospectus for a description of Goldman Sachs
B-21
<PAGE>
Asset Management's duties as Mid-Cap Equity Fund's investment adviser and
Goldman Sachs Asset Management's duties as the Funds' administrator, and Goldman
Sachs Funds Management, L.P.'s duties as Select Equity Fund's investment
adviser.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is 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, Milan, Montreal,
Osaka, Paris, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto,
Vancouver and Zurich. It has trading professionals throughout the United
States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The Investment Advisers are able to draw on the substantial research and
market expertise of Goldman Sachs, whose investment research effort is one of
the largest in the industry. With an annual equity research budget approaching
$120 million, Goldman Sachs' Investment Research Department covers approximately
1,700 companies, including approximately 1000 U.S. corporations in 60
industries. The in-depth information and analyses generated by Goldman Sachs'
research analysts are available to the Investment Advisers. For more than a
decade, Goldman Sachs has been among the top-ranked firms in Institutional
Investor's annual "All-America Research Team" survey. In addition, many of
Goldman Sachs' economists, securities analysts, portfolio strategists and credit
analysts have consistently been highly ranked in respected industry surveys
conducted in the U.S. and abroad. Goldman Sachs is also among the leading
investment firms using quantitative analytics (now used by a growing number of
investors) to structure and evaluate portfolios.
Each Investment Adviser has access to Goldman Sachs' economics research.
The Economics Research Department, based in London, conducts economic, financial
and currency markets research which analyzes economic trends and interest and
exchange rate movement worldwide. The Economics Research Department tracks
factors such as inflation and money supply figures, balance of trade figures,
economic growth, commodity prices, monetary and fiscal policies, and political
events that can influence interest rates and currency trends. The success of
Goldman Sachs' international research team has brought wide recognition to its
members. The team has earned top rankings in the Institutional Investor's
annual "All British Research Team Survey" in the following categories:
Economics (U.K.) 1986-1993; Economics/International 1989-1993; and currency
forecasting 1986-1993. In addition, the team has also earned top rankings in
the annual "Extel Financial Survey" of U.K. Economy 1989-1994; International
Economies 1986, 1988-1994; and Currency Movements 1986-1993.
Each Fund's investment advisory agreement and administration agreement
provides that Goldman Sachs Asset Management and Goldman Sachs Fund Management,
L.P., as the case may be, may render similar services to others so long as the
services provided thereunder are not impaired thereby.
The investment advisory agreement with respect to Mid-Cap Equity Fund was
approved and the investment advisory agreement with respect to Select Equity
Fund was most recently approved (1) by the Directors of the Company, including a
majority of the Directors of the Company who are not parties to the investment
advisory agreements or "interested persons" (as such term is defined in the Act)
of any party thereto (the "non-interested Directors"), on April __, 1995 and (2)
by the sole initial shareholder of Mid-Cap Equity Fund on April __, 1995 and the
shareholders of Select Equity Fund at a shareholder meeting held on November 27,
1991. Each Fund's agreement will remain in effect until June 30, 1996 and from
year to year thereafter provided such continuance is specifically approved at
least annually by (a) the vote of a majority of the outstanding voting
securities of such Fund or a majority of the Directors of the Company, and (b)
the vote of a majority of the non-interested Directors of the Company, cast in
person at a meeting called for the purpose of voting on such approval. Each
advisory agreement will terminate automatically if assigned (as defined in the
Act) and is terminable at any time without penalty by the
B-22
<PAGE>
Directors of the Company or by vote of a majority of the outstanding voting
securities of each Fund on 60 days' written notice to the relevant Investment
Adviser and by the relevant Investment Adviser on 60 days' written notice to the
Company.
Pursuant to Mid-Cap Equity Fund's investment advisory agreement, Goldman
Sachs Asset Management is entitled to receive a fee payable monthly by Mid-Cap
Equity Fund equal on an annual basis to ____% of the Fund's average daily net
assets. Pursuant to Select Equity Fund's investment advisory agreement, Goldman
Sachs Fund Management, L.P. is entitled to receive a fee payable monthly by the
Fund equal on an annual basis to ____% of the Fund's average daily net assets.
For the fiscal years ending January 31, 1995, 1994 and 1993, the amounts of
the investment advisory fees incurred by Select Equity Fund were $_________,
$475,941 and $662,844, respectively.
Goldman Sachs Asset Management's administrative obligations, pursuant to
each administration agreement with the Company, include, subject to the general
supervision of the Directors of the Company, (a) providing supervision of all
aspects of the Company's non-investment operations (the parties giving due
recognition to the fact that certain of such operations are performed by others
pursuant to agreements with a Fund), (b) providing the Company, to the extent
not provided pursuant to its custodian and transfer agency agreements 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 Company, (c) arranging, to the extent not
provided pursuant to such agreements, for the preparation, at the Company's
expense, of its tax returns, reports to shareholders, periodic updating of the
Prospectuses and reports filed with the Commission and other regulatory
authorities, (d) providing the Company, 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 Company's records other than those
maintained pursuant to such agreements.
For its services under the administration agreement, Mid-Cap Equity Fund
and Select Equity Fund pay Goldman Sachs Asset Management a monthly fee equal to
____% and ____%, respectively, of the Funds' average daily net assets on an
annual basis. For the fiscal years ending January 31, 1995, 1994 and 1993, the
amounts of the administration fees paid by Select Equity Fund were $______,
$237,970 and $331,422, respectively.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED
BY GOLDMAN SACHS. The involvement of the Investment Advisers and Goldman Sachs
and their affiliates in the management of, or their interests in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Funds or impede the Funds' investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Advisers and their advisory affiliates, GSI and J. Aron & Co.
("Aron"), have proprietary interests in, and may manage or advise with respect
to, accounts or funds (including separate accounts and other funds and
collective investment vehicles) which have investment objectives similar to
those of the Funds and/or which engage in transactions in the same types of
securities, currencies and instruments as the Funds. Goldman Sachs and its
affiliates are major participants in the global currency, equities, swap and
fixed income markets, in each case on a proprietary basis and for the accounts
of customers. As such, Goldman Sachs and its affiliates are actively engaged in
transactions in the same securities, currencies and instruments in which the
Funds invest. Such activities could affect the prices and availability of the
securities, currencies and instruments in which the Funds will invest, which
could have an adverse impact on the Funds' performance. Such transactions,
particularly in respect to proprietary accounts or customer accounts other than
those included in the Investment Advisers' and their advisory affiliates' asset
management activities, will be executed independently of the Funds' transactions
and thus at prices or rates that may be more or less favorable. When the
Investment Advisers and their advisory affiliates seek to purchase or sell the
same assets for their
B-23
<PAGE>
managed accounts, including the Funds, the assets actually purchased or sold may
be allocated among the accounts on a basis determined in the good faith
discretion of such entities to be equitable. In some cases, this system may
adversely affect the size or the price of the assets purchased or sold for the
Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Investment Advisers will not
initiate or recommend certain types of transactions in certain securities or
instruments with respect to which the Investment Advisers and/or their
affiliates are performing services or when position limits have been reached.
In connection with their management of the Funds, the Investment Advisers
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs, Aron and other affiliates. An Investment Adviser
will not be under any obligation, however, to effect transactions on behalf of a
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 Funds and it is not anticipated that the
Investment Advisers will have access to such information for the purpose of
managing the Funds. The proprietary activities or portfolio strategies of
Goldman Sachs and its affiliates or the activities or strategies used for
accounts managed by them or other customer accounts, could conflict with the
transactions and strategies employed by the Investment Advisers in managing the
Funds.
The results of a Fund's investment activities may differ significantly from
the results achieved by an 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 result
which are substantially more or less favorable than the results achieved by a
Fund. Moreover, it is possible that a Fund will sustain losses during periods
in which Goldman Sachs and its affiliates achieve significant profits on their
trading for proprietary or other accounts. The opposite result is also
possible.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities,
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding a
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any
such member of an investment policy committee will have direct or indirect
interests in the activities of Goldman Sachs and its affiliates in securities,
currencies and investments similar to those in which a Fund invests.
In addition, certain principals and certain of the employees of the
Investment Advisers are also principals or employees of Goldman Sachs, Aron
and/or their affiliated entities. As a result, the performance by these
principals and employees of their obligations to such other entities may be a
consideration of which investors in the Funds should be aware.
An Investment Adviser may enter into transactions and invest in currencies
or other instruments on behalf of a Fund in which customers of Goldman Sachs
serve as the counterparty, principal or issuer. In such cases, such party's
interests in the transaction will be adverse to the interests of a Fund, and
such party may not have an incentive to assure that a 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,
currencies or instruments of which may be those in which a Fund invests or which
may be based on the performance of the Fund. The Funds may, subject to
applicable law, purchase investments which are the subject of an underwriting or
other distribution by Goldman Sachs or its affiliates and may also enter into
transactions with other clients of Goldman Sachs or its affiliates where such
other clients have interests adverse to those of the Funds. The Funds will deal
with Goldman Sachs and its affiliates on
B-24
<PAGE>
an arm's-length basis.
A Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required, to purchase and hold shares of the Funds in order to increase the
assets of the Funds. Increasing a Fund's assets may enhance investment
flexibility and diversification and may contribute to economies of scale that
tend to reduce the Fund's expense ratio. Goldman Sachs reserves the right to
redeem at any time some or all of the Fund shares acquired for its own account.
A large redemption of Fund shares by Goldman Sachs could significantly reduce
the asset size of a Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs will serve as the exclusive distributor of shares of the
Funds pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Company dated February 1, 1993. Pursuant to the distribution
agreement, after the Prospectus and periodic reports have been prepared, set in
type and mailed to shareholders, Goldman Sachs will pay for the printing and
distribution of copies thereof used in connection with the offering to
prospective investors. Goldman Sachs will also pay for other supplementary
sales literature and advertising costs.
For the fiscal years ending January 31, 1995, 1994 and 1993, the amounts of
sales load retained by Goldman Sachs for the Class A Shares of Select Equity
Fund were $______, $37,000 and $111,000, respectively.
Goldman Sachs serves as the Company's transfer agent. Under its transfer
agency agreement with the Company, Goldman Sachs has undertaken with the Company
to (i) record the issuance, transfer and redemption of shares, (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements, (iii) provide certain information to the Company's
custodian and the relevant sub-custodian in connection with redemptions, (iv)
provide dividend crediting and certain disbursing agent services, (v) maintain
shareholder accounts, (vi) provide certain state Blue Sky and other information,
(vii) provide shareholders and certain regulatory authorities with tax related
information, (viii) respond to shareholder inquiries and (ix) render certain
other miscellaneous services. As compensation for the services rendered to the
Company by Goldman Sachs as transfer agent and the assumption by Goldman Sachs
of the expenses related thereto, Goldman Sachs is entitled to receive a fee (i)
with respect to Class A Shares of Select Equity Fund equal to $12,000 per year
plus $3.50 per account, together with out-of-pocket and transaction-related
expenses (including those out-of-pocket expenses payable to servicing agents)
and (ii) with respect to the Institutional and Administration Shares of each
Fund equal to 0.04% of the net assets of a Fund attributable to such classes of
shares.
For the fiscal years ending January 31, 1995, 1994 and 1993, the amounts
incurred by Select Equity Fund for transfer agency services performed were
$_________, $111,104 and $115,697.
The foregoing distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services
Goldman Sachs provides thereunder are not impaired thereby. Such agreements
also provide that the Company will indemnify Goldman Sachs against certain
liabilities.
B-25
<PAGE>
EXPENSES
Except as set forth in the Prospectus under "Management -- Investment
Adviser and Administrator," the Company is responsible for the payment of its
expenses. The expenses borne by a Fund include, without limitation, the fees
payable to its Investment Adviser and Goldman Sachs, including transfer agent
fees, the fees and expenses of the Fund's custodian and subcustodians, brokerage
fees and commissions, filing fees for the registration or qualification of the
Fund's shares under federal or state securities laws, expenses of the
organization of the Fund, a portion of the fees and expenses incurred by the
Company 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 Company 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 the Investment
Adviser and Goldman Sachs with respect to the Company), expenses of preparing
and setting in type prospectuses, statements of additional information, proxy
material, reports and notices and the printing and distributing of the same to a
Fund's shareholders and regulatory authorities, any expenses assumed by a Fund
pursuant to a distribution and/or administration plan and a Fund's allocable
share of the compensation and expenses of the Company's "non-interested"
Directors and extraordinary expenses, if any, incurred by the Company.
Each Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Funds (excluding advisory, transfer agency,
administration fees payable under Administration and Distribution Plans, taxes,
interest and brokerage and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed ____% and ____% per annum of the
average daily net assets of Select Equity Fund and Mid-Cap Equity Fund,
respectively. Each Investment Adviser may discontinue or modify such expense
limitations at any time.
Each Investment Adviser has also agreed that if, in any fiscal year, the
sum of a Fund's expenses (including the advisory and administration fees, but
excluding taxes, interest, brokerage, fees under Administration and Distribution
Plans and, where permitted, extraordinary expenses such as for litigation)
exceeds the expense limitations applicable to such Fund imposed by state
securities administrators, as such limitations may be lowered or raised from
time to time, each Investment Adviser will reduce its fees (to the extent of its
fees) or make other arrangements to limit Fund expenses to the extent required
by such expense limitations. Currently, the most restrictive expense limitation
of state securities commissions of which the Company is aware is 2-1/2% of a
Fund's average daily net assets up to $30 million, 2% of the next $70 million of
such assets and 1-1/2% of such assets in excess of $100 million. Fees and
expenses of legal counsel, registering shares of a Fund, holding meetings and
communicating with shareholders may include an allocable portion of the cost of
maintaining an internal legal and compliance department. Each Fund may also
bear an allocable portion of Goldman Sachs Asset Management's costs of
performing certain accounting services not being provided by the Fund's
custodian.
CUSTODIAN AND SUB-CUSTODIANS
State Street Bank and Trust Company ("State Street"), P.O. Box 1713,
Boston, Massachusetts 02105, is the custodian of the Company's portfolio
securities and cash. State Street also maintains the Company's accounting
records. State Street may appoint sub-custodians from time to time to hold
certain securities purchased by the Company and to hold cash for the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, One International
Place, 100 Oliver Street, Boston, Massachusetts 02110, have been selected as
auditors of the Company. In addition to audit services, Arthur Andersen LLP
prepares the Company's federal and state tax returns, and provides consultation
and assistance on accounting, internal control and related matters.
B-26
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Investment Adviser is responsible for decisions to buy and sell
securities for the Funds, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a securities exchange are effected through brokers
who charge a negotiated commission for their services. Orders may be directed
to any broker including, to the extent and in the manner permitted by applicable
law, Goldman Sachs.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of a security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. A Fund will not deal with Goldman Sachs in
any transaction in which Goldman Sachs acts as principal.
In placing orders for portfolio securities of a Fund, an Investment Adviser
is required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that the Investment Adviser will seek to
execute each transaction at a price and commission, if any, which provide the
most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Investment Adviser generally seeks reasonably
competitive spreads or commissions, a Fund will not necessarily be paying the
lowest spread or commission available. Within the framework of this policy, an
Investment Adviser will consider research and investment services provided by
brokers or dealers who effect or are parties to portfolio transactions of a
Fund, its Investment Adviser and its affiliates, or their other clients. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by an Investment Adviser in connection with all of its investment activities,
and some of such services obtained in connection with the execution of
transactions for a Fund may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than those of a Fund, and the services furnished by such brokers may be used by
an Investment Adviser in providing investment advisory services for the Company.
On occasions when an Investment Adviser deems the purchase or sale of a security
to be in the best interest of a Fund as well as its other customers (including
any other fund or other investment company or advisory account for which such
Investment Adviser or an affiliate acts as investment adviser), the Investment
Adviser, to the extent permitted by applicable laws and regulations, may
aggregate the securities to be sold or purchased for a 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 an Investment Adviser in the manner it considers to be most equitable
and consistent with its fiduciary obligations to such Fund and such other
customers. In some instances, this procedure may adversely affect the price and
size of the position obtainable for a Fund.
Commission rates are established pursuant to negotiations with the broker
based on the quality and quantity of execution services provided by the broker
in the light of generally prevailing rates. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Directors
of the Company.
Subject to the above considerations, an Investment Adviser may use Goldman
Sachs as a broker for a Fund. In order for Goldman Sachs to effect any
portfolio transactions for a Fund, the commissions, fees or other remuneration
received by Goldman Sachs must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time. This standard would
allow Goldman Sachs to receive no more than the remuneration which would be
expected to be received by an unaffiliated
B-27
<PAGE>
broker in a commensurate arm's-length transaction. Furthermore, the Directors of
the Company, including a majority of the non-interested Directors, 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.
In addition, Goldman Sachs, as a member firm of the New York Stock
Exchange, may effect exchange transactions and receive compensation therefor if
expressly so authorized in a written contract with the Company. The Company on
behalf of each Fund has entered into such a contract with Goldman Sachs.
Goldman Sachs will provide the Company at least annually with a statement
setting forth the total amount of all compensation retained by Goldman Sachs in
connection with effecting transactions for the accounts of the Funds. The
Directors of the Company will review and approve all the Fund's portfolio
transactions with Goldman Sachs and the compensation received by Goldman Sachs
in connection therewith. The Company, of course, will effect its portfolio
transactions in a manner consistent with all applicable laws.
For the past three fiscal years, Select Equity Fund paid brokerage
commissions as follows:
<TABLE>
<CAPTION>
Total Brokerage Total Amount of Brokerage
Total Commissions Transactions Commissions Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Fiscal Year Ended Paid Persons Paid Research
=========== =============== =============== ================
<S> <C> <C> <C> <C>
January 31, 1995 $________ $________ $___________ -0-
January 31, 1994 187,041 3,857(2%)/(1)/ 306,043,566(1%)/(2)/ -0-
January 31, 1993 466,732 99,522(21%)/(1)/ 83,349,921(21%)/(2)/ -0-
</TABLE>
/(1)/ Percentage of total commissions paid.
/(2)/ Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
/(3)/ Select Equity Fund commenced operations on May 24, 1991.
[During fiscal year ended January 31, 1995, the Company acquired and sold
securities issued by Kidder Peabody & Co. America, State Street, Lehman Brothers
Inc., UBS Securities, Deutsche Bank, Sanwa BGK, Barclays de Zoete Wedd, Inc., MH
LeBlang Inc., Morgan Guaranty Trust Co. and First Boston. As of January 31,
1995, Select Equity Fund held $_______ (in thousands) of securities of its
regular broker/dealers.]
SHARES OF THE COMPANY
The Funds are a series of the Company, which is a Maryland corporation
authorized to issue 1,000,000,000 shares of common stock. The Company assumed
its present name in May 1991. Prior thereto, the name of the Company was GS
Capital Growth Fund, Inc. The Directors of the Company have authority under the
Company's Charter to create and classify shares of capital stock in separate
series without further action by shareholders. As of the date of this
Additional Statement, the Directors of the Company have authorized shares of the
Funds and six additional series. Additional series may be added in the future.
The Directors also have authority to classify and reclassify any series or
portfolio of shares into one or more classes. 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. When issued, shares are fully paid and non-
assessable. All shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. In the
event of liquidation, shareholders are entitled to share pro rata in the net
assets of the
B-28
<PAGE>
Fund available for distribution to such shareholders.
The Board of Directors has authorized the issuance of two classes of shares
of Mid-Cap Equity Fund: Institutional Shares and Administration Shares. The
Board of Directors has authorized the issuance of three classes of Select Equity
Fund: Institutional Shares, Administration Shares and Class A Shares. Each
Institutional Share, Administration Share and Class A Share of a Fund represents
an equal proportionate interest in the assets belonging to the Fund. All
expenses of a Fund are based on a percentage of the Fund's aggregate average net
assets, except that the respective fees under an Administration Plan or
Distribution Plan relating to a particular class will be borne exclusively by
that class. Institutional Shares may be purchased for accounts in the name of
an investor or institution that is not compensated by a Fund for services
provided to the institution's customers. It is contemplated that most
Administration Shares will be held in accounts of which the record owner is a
bank or other institution acting, directly or through an agent, as nominee for
its customers who are the beneficial owners of the shares or another
organization designated by such bank or institution. Administration Shares will
be each marketed only to such institutional investors at net asset value with no
sales load. Administration Shares may be purchased 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 or 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. Class A Shares of a
Fund may be bought through Goldman Sachs and Authorized Dealers at net asset
value plus a sales charge of up to 5.50% of the purchase price. Authorized
Dealers include investment dealers that are members of the NASD and certain
other financial service firms. To become an Authorized Dealer, a dealer or
financial service firm must enter into a sales agreement with Goldman Sachs.
The minimum investment requirements, services, program and purchase and
redemption options for shares purchased through a particular Authorized Dealer
may be different from those available to investors purchasing through other
Authorized Dealers. Class A Shares bear the cost of distribution and service
fees at the annual rate of up to 0.50% of the average daily net asset of such
Class A Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Administration and Class A Shares) to
its customers and thus receive different compensation with respect to different
classes of shares of a Fund. Administration Shares and Class A Shares may each
have certain exclusive voting rights on matters relating to their respective
plans. Currently, shares of each class may be exchanged only for shares of the
same or equivalent class in another fund and certain money market funds
sponsored by Goldman Sachs. The Funds may amend such policy in the future.
Dividends paid by a Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences caused by the fact that the
respective fees relating to a particular class under Administration Plans and
Distribution Plans will be borne exclusively by that class. Similarly, the net
asset value per share will vary depending on the class of shares purchased.
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act, applicable state law or otherwise to the holders
of the outstanding voting securities of an investment company such as the
Company 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 directors from the separate voting requirements of
Rule 18f-2.
NET ASSET VALUE
Under the Act, the Directors of the Company are responsible for determining
in good faith the fair value
B-29
<PAGE>
of securities of each Fund. In accordance with procedures adopted by the
Directors of the Company, the net asset value per share is calculated by
determining the net assets attributable to each Fund (assets, including
securities at value, minus liabilities) divided by the number of shares
outstanding of that Fund. All securities are valued as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. New York time) on
each Business Day (as defined in the Prospectus).
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Directors of the Company will
reconsider the time at which net asset value is computed. In addition, each
Fund may compute its net asset value as of any time permitted pursuant to any
exemption, order or statement of the Commission or its staff.
Portfolio securities of a Fund are valued as follows: (a) securities
listed on any U.S. or foreign stock exchange or the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") will be valued at the
last sale price on the exchange or system in which they are principally traded,
on the valuation date. If there is no sale on the valuation day, securities
traded principally: (i) on a U.S. exchange or NASDAQ will be valued at the mean
between the closing bid and asked prices; and (ii) on a foreign exchange will be
valued at the last sale price (also referred to as the close price). The last
sale price for securities traded principally on a foreign exchange will be
determine as of the close of the London Stock Exchange or, for securities traded
on exchanges located in the Asia Pacific region, noon London time; (b) over-the-
counter securities not quoted on NASDAQ will be valued at the last sale price on
the valuation day or, if no sale occurs, at the mean between the last bid and
asked prices; (c) exchange traded options and futures contracts will be valued
at the last sale price in the market where such contracts are principally
traded; (d) forward foreign currency exchange contracts will be valued using a
pricing service or at the mean between the last bid and asked quotations
supplied by an independent dealer in such contracts; (e) debt securities, other
than money market instruments, will be valued using a pricing service approved
by the Board of Directors if such prices are believed by the Investment Advisers
to accurately represent market value. Money market instruments, which are
defined as those debt securities with a remaining maturity of 60 days or less,
will be valued at amortized costs; (f) overnight repurchase agreements will be
valued at cost and term repurchase agreements will be valued at the average of
bid quotations obtained daily from at least two recognized dealers; (g) OTC
options will be valued by an independent unaffiliated broker identified by the
portfolio manager/trader and contacted by the custodian bank, and (h) 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 in accordance with procedures
established by the Board of Directors of the Company.
Portfolio securities traded on more than one U.S. national securities
exchange or foreign securities exchange are valued at the last sale price on the
exchange representing the principal market for such securities. The value of
all assets and liabilities expressed in foreign currencies will be converted
into U.S. dollar values at the mean between the buying and selling rates of such
currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Directors.
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 value is not calculated. Such
calculation does not take place contemporaneously with the determination of the
prices of the majority of the portfolio securities used in such calculation.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of regular trading on the New York
Stock Exchange will not be reflected in the Fund's calculation of net asset
value unless the Directors deem that the particular event would materially
affect net asset value, in which case an adjustment may be made.
B-30
<PAGE>
The proceeds received by the existing Funds and each additional series of
the Company established by the Directors of the Company for each issue or sale
of its shares, and all net investment income, realized and unrealized gain and
proceeds thereof, subject only to the rights of creditors, will be specifically
allocated to such series and constitute the underlying assets of that series.
The underlying assets of each series will be segregated on the books of account,
and will be charged with the liabilities in respect of such series and with a
share of the general liabilities of the Company. Expenses of the Company are
generally allocated in proportion to the net asset values of the respective
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 shares in each Fund. The summary does not address special
tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of investing in each Fund.
The summary is based on the laws in effect on the date of this Additional
Statement, which are subject to change.
GENERAL
Each Fund is a separate taxable entity and intends to elect to be treated,
and to qualify for each taxable year, as a regulated investment company under
Subchapter M of the Code. Qualification as a regulated investment company under
the Code requires, among other things, that (a) a Fund derive at least 90% of
its annual gross income 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"); (b) such Fund derive less than 30% of its annual gross income
from the sale or other disposition of any of the following which was held for
less than three months: (i) stock or securities; (ii) options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies); and (iii) foreign currencies and foreign currency options, futures
and forward contracts that are not directly related to the Fund's principal
business of investing in stock or securities or options and futures with respect
to stocks or securities (the "short-short test"); and (c) such Fund diversify
its holdings so that, at the close of each quarter of its taxable year, (i) at
least 50% of the market value of its total (gross) assets is comprised of cash,
cash items, United States Government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the value of such Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than United States 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. Gains from the sale or other disposition of foreign
currencies (or options, futures or forward contracts on foreign currencies) that
are not directly related to a Fund's principal business of investing in stock or
securities or options and futures with respect to stock or securities will be
treated as gains from the sale of investments held for less than three months
under the short-short test (even though characterized as ordinary income for
some purposes) if such currencies or instruments were held for less than three
months. In addition, future Treasury could expected to provide that qualifying
income under the 90% gross income test will not include gains from foreign
currency transactions that are not directly related to a Fund's principal
business of investing in stock or securities or options and futures with respect
to stock or securities. Using foreign currency positions or entering into
foreign currency options, futures and forward contracts for purposes other than
hedging currency risk with respect to securities in a Fund's portfolio or
anticipated to be acquired may not qualify as "directly-related" under these
tests.
B-31
<PAGE>
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in accordance with the Code's timing 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, any net short-term capital gain in
excess of net long-term capital loss and certain net realized foreign exchange
gains and is reduced by deductible expenses) and at least 90% of the excess of
its gross tax-exempt interest income, if any, over certain disallowed
deductions, such Fund (but not its shareholders) will be relieved of federal
income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or net capital gain (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares
owned by a shareholder of the Fund will be increased by an amount equal under
current law to 65% of the amount of undistributed net capital gain included in
the shareholder's gross income. Each Fund intends to distribute at least
annually to its shareholders all or substantially all of its investment company
taxable income and net capital gain. If for any taxable year a Fund does not
qualify as a regulated investment company it will be taxed on all of its
investment company taxable income and net capital gain at corporate rates, and
its distributions to shareholders will be taxable as ordinary dividends to the
extent of its current and accumulated earnings and profits.
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. Select Equity Fund has $_____,
of capital loss carryforwards, which expire in ____, available to offset future
capital gains.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed in such year and on which the Fund did not pay federal
income tax. The Funds anticipate that they will generally make timely
distributions of income and capital gains in compliance with these requirements
so that they will generally not be required to pay the excise tax. For federal
income tax purposes, dividends declared by a Fund in October, November or
December to shareholders of record on a specified date in such a month and paid
during January of the following year are treated as if they were paid by the
Fund and received by such 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
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gain and losses. Certain futures contracts,
forward contracts and options 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 applicable Fund's taxable year. Any gain or
loss recognized on actual or deemed sales of these futures 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 a Fund, a Fund may be required to defer the recognition of
losses on futures contracts (and, for Mid-Cap Equity Fund, options) or
underlying securities or foreign currencies to the extent of any unrecognized
gains on related positions held by a Fund and the characterization of gains or
losses as long-term or short-term may be changed. The short-short test
described above may limit Mid-Cap Equity Fund's ability to use options, futures
and forward transactions (and Select Equity Fund's ability to use futures
transactions) as well as its ability to engage in short sales. The tax
provisions described above applicable to options, futures and forward contracts
may affect the amount, timing and character of the applicable Fund's
distributions to shareholders. Certain tax elections may be available to a Fund
to mitigate some of the
B-32
<PAGE>
unfavorable consequences described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions that may affect the amount, timing and character
of income, gain or loss recognized by a Fund. Under these rules, foreign
exchange gain or loss realized with respect to foreign currencies and certain
futures and options thereon, foreign currency-denominated debt instruments,
foreign currency forward contracts, and foreign currency-denominated payables
and receivables will generally be treated as ordinary income or loss, although
in some cases elections may be available that would alter this treatment. These
rules are less likely to have a significant effect on Select Equity Fund,
because it may engage in fewer of the foregoing investments or investment
techniques than Mid-Cap Equity Fund. If a net foreign exchange loss treated as
ordinary loss under Section 988 of the Code were to exceed a Fund's investment
company taxable income (computed without regard to such loss) for a taxable
year, the resulting loss would not be deductible by the Fund or its shareholders
in future years. Net loss, if any, from certain foreign currency transactions
or instruments could exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of the Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
Each Fund may be subject to foreign taxes on its income (possibly
including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Because more than 50% of a Fund's total assets at the close of any
taxable year will not consist of stock or securities of foreign corporations,
neither Fund will qualify to file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund would be required to (i) include in
ordinary gross income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even though not
actually received, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them. Each Fund will, however, be entitled to deduct such
taxes in computing its investment company taxable income.
If a Fund acquires stock in certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies") the Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of 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. Each
Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.
A Fund's investments 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, will generally cause it to realize income
prior to the receipt of cash payments with respect to these securities. The
mark to market rules applicable to certain options, futures and forward
contracts, as described above, may also require that income or gain be
recognized without a concurrent receipt of cash. In order 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.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout
B-33
<PAGE>
context are taxable. These and other issues will be addressed by a Fund, in the
event it invests in such securities, in order to eliminate or minimize any
adverse tax consequences.
TAXABLE U.S. SHAREHOLDERS - DISTRIBUTIONS
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash and will have a cost
basis in each share received equal to such amount divided by the number of
shares received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income that would be eligible for the dividends received deduction if
such Fund were not a regulated investment company will be eligible, subject to
certain holding period and debt-financing restrictions, for the 70% dividends
received deduction for corporations. The entire dividend, including the
deducted amount, is considered in determining the excess, if any, of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its liability for the federal alternative minimum
tax, and the dividend may, if it is treated as an "extraordinary dividend" under
the Code, reduce such shareholder's tax basis in its shares of a Fund. Capital
gain dividends (i.e., dividends from net capital gain) if designated as such in
a written notice to shareholders mailed not later than 60 days after a Fund's
taxable year closes, will be taxed to shareholders as long-term capital gain
regardless of how long shares have been held by shareholders, but are not
eligible for the dividends received deduction for corporations. Distributions
in excess of a Fund's current and accumulated earnings and profits, as computed
for federal income tax purposes, will first reduce a shareholder's tax basis in
his or her shares and, after such basis is reduced to zero, will constitute
capital gains to a shareholder who holds his or her shares as capital assets.
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.
U.S. SHAREHOLDERS - SALE OF SHARES
When a shareholder's shares are sold, redeemed or otherwise disposed of,
the shareholder will generally recognize gain or loss equal to the difference
between the shareholder's adjusted tax basis in the shares and the cash, or fair
market value of any property, received. Assuming the shareholder holds the
shares as a capital asset at the time of such sale or other disposition, 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. If, however, a shareholder receives a capital gain dividend with respect
to shares and such shares have a tax holding period of six months or less at the
time of 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. All or a portion of the sales load paid upon the
purchase of shares of a Fund will not be taken into account in determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of that Fund or another fund are subsequently
acquired without payment of a sales charge pursuant to the reinvestment or
exchange privilege. The load not taken into account will be added to the tax
basis of the newly-acquired shares. Additionally, any loss realized on a sale
or redemption of shares of a Fund will be disallowed under "wash sale" rules to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
B-34
<PAGE>
BACKUP WITHHOLDING
Each Fund will be required to report to the Internal Revenue Service all
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
the Code Section 3406 and applicable Treasury regulations, all such reportable
distributions and proceeds may be subject to back up withholding of federal
income tax at the rate of 31% in the case of nonexempt shareholders who fail to
furnish the Funds with their correct taxpayer identification number and with
certain required certifications or if the Internal Revenue Service or a broker
notifies the Funds that the number furnished by the shareholder is incorrect or
that the shareholder is subject to back up withholding as a result of failure to
report interest or dividend income. A 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. 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 or residents and U.S. domestic
corporations, partnerships, trust or estates) subject to tax under such law.
Dividends of investment company taxable income distributed by a Fund to a
shareholder who is not a U.S. persons 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 non-U.S.
shareholder will not be subject to U.S. 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 gain realized by a shareholder who is not a U.S. person upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholder's
trade or business in the 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 a 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. Investors
who are not U.S. persons should consult their tax advisers about the U.S. and
non-U.S. tax consequences of ownership of shares of, and receipt of
distributions from, a Fund.
STATE AND LOCAL TAXES
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those states or
localities which have income tax laws, the treatment of such Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
B-35
<PAGE>
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return
information in advertisements, shareholder reports or sales literature. Average
annual total return values are computed pursuant to formulas specified by the
Commission.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price at the beginning of the
period, and then calculating the annual compounded rate of return which would
produce that amount, assuming a redemption at the end of the period. This
calculation assumes a complete redemption of the investment. It also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period.
Any performance data quoted for a Fund will represent historical
performance and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost.
From time to time, the Company may publish an indication of a Fund's past
performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Inc., Weisenberger Investment Companies Service,
Donoghue's Money Fund Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Money, Personal Investor, Sylvia Porter's Personal
Finance and The Wall Street Journal. The Company may also advertise information
which has been provided to the NASD for publication in regional and local
newspapers. In addition, the Company may from time to time advertise a Fund's
performance relative to certain indices and benchmark investments, including:
(a) the Lipper Analytical Services, Inc. Mutual Fund Performance Analysis, Fixed
Income Analysis and Mutual Fund Indices (which measure total return and average
current yield for the mutual fund industry and rank mutual fund performance);
(b) the CDA Mutual Fund Report published by CDA Investment Technologies, Inc.
(which analyzes price, risk and various measures of return for the mutual fund
industry); (c) the Consumer Price Index published by the U.S. Bureau of Labor
Statistics (which measures changes in the price of goods and services); (d)
Stocks, Bonds, Bills and Inflation published by Ibbotson Associates (which
provides historical performance figures for stocks, government securities and
inflation); (e) the Salomon Brothers' World Bond Index (which measure the total
return in U.S. dollar terms of government bonds, Eurobonds and foreign bonds of
ten countries, with all such bonds having a minimum maturity of five years); (f)
the Lehman Brothers Aggregate Bond Index or its component indices; (g) the
Standard & Poor's Bond Indices (which measure yield and price of corporate,
municipal and U.S. Government bonds); (h) the J.P. Morgan Global Government Bond
Index; (i) other taxable investments including certificates of deposit (CDs),
money market deposit account (MMDAs), checking accounts, saving accounts, money
market mutual funds and repurchase agreements; (j) Donoghues' Money Fund Report
(which provides industry averages for 7-day annualized and compounded yields of
taxable, tax-free and U.S. Government money funds); (k) the Hambrecht & Quist
Growth Stock Index; (l) the NASDAQ OTC Composite Prime Return; (m) the Russell
Mid-Cap Index; (n) the Russell 2000 Index - Total Return; (o) the Value-Line
Composite-Price Return; (p) the Wilshire 4500 Index; (q) the FT-Actuaries Europe
and Pacific Index, and (r) historical investment data supplied by the research
departments of Goldman Sachs, Lehman Brothers, First Boston Corporation, Morgan
Stanley (including EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin and
Jenrette or other providers of such data. The composition of the investments in
such indices and the characteristics of such benchmark investments are not
identical to, and in some cases are very different from, those of a Fund's
portfolio. These indices and averages are generally unmanaged and the items
included in the calculations of such indices and averages may not be identical
to the formulas used by a Fund to calculate its performance figures.
B-36
<PAGE>
<TABLE>
<CAPTION>
Net Asset
Value of
Investment
Investment Investment Amount at
Fund Date Period Invested Period End Cumulative Annualized
==== ========== ========== ======== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C>
Select 5/24/91 ended $1,000
Equity Fund 1/31/95
Class A Shares
-Assumes 5.5% sales charge $_________ $_________ $_________
-Assumes no sales charge $_________ $_________ $_________
2/1/94 one year $1,000
ended
1/31/95
-Assumes 5.5% sales charge $_________ $_________ $_________
-Assumes no sales charge $_________ $_________ $_________
</TABLE>
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived from an investment in a Fund. Such
advertisements or information may include symbols, headlines or other material
which highlight or summarize the information discussed in more detail in the
communication.
The Company may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Investment
Adviser's views as to markets, the rationale for a Fund's investments and
discussions of a Fund's current asset allocation.
A Fund's performance data will be based on historical results and will not be
intended to indicate future performance. A Fund's total return will vary based
on market conditions, portfolio expenses, portfolio investments and other
factors. The value of a Fund's shares will fluctuate and an investor's shares
may be worth more or less than their original cost upon redemption. The Company
may also, at its discretion, from time to time make a list of a Fund's holdings
available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares may be subject to different expenses,
total return calculations with respect to each class of shares of a Fund for the
same period will differ. Due to the fees payable under the Administration Plan
and the Distribution Plan, the investment performance, for any period, of the
Institutional Shares will always be higher than that of Administration Shares
and, in the case of Select Equity Fund, Class A Shares.
OTHER INFORMATION
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions
exceeding $250,000 or 1% of the net asset value of the Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating the
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities
B-37
<PAGE>
received in the redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
Commission; or during any emergency, as determined by the Commission, as a
result of which it is not reasonably practicable for such Fund to dispose of
securities owned by it or fairly to determine the value of its net assets; or
for such other period as the Commission may by order permit for the protection
of shareholders of the Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the Commission
under the 1933 Act with respect to the securities offered by the Prospectus.
Certain portions of the Registration Statement have been omitted from the
Prospectus and this Additional Statement pursuant to the rules and regulations
of the Commission. The Registration Statement including the exhibits filed
therewith may be examined at the office of the Commission in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as to
the contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which the
Prospectus and this Additional Statement form a part, each such statement being
qualified in all respects by such reference.
B-38
<PAGE>
ADMINISTRATION PLAN
Each Fund has adopted an administration plan (the "Plans") with respect to
its Administration Shares which will authorize it to compensate Service
Organizations for providing certain account administration services to their
customers who are beneficial owners of such Shares. Pursuant to the Plans, each
Fund will enter into agreements with Service Organizations which purchase
Administration Shares on behalf of their customers ("Service Agreements").
Under such Service Agreements the Service Organizations may perform some or all
of the following services: (a) act as the sole shareholder of record and
nominee for all customers, (b) maintain account records for each customer who
beneficially owns Administration Shares of the Fund, (c) answer questions and
handle correspondence from customers regarding their accounts, (d) process
customer orders to purchase, redeem and exchange Administration Shares of the
Fund and handle the transmission of funds representing the customers' purchase
price or redemption proceeds, and (e) issue confirmations for transactions in
shares by customers. As compensation for such services, each Fund will pay the
Service Organizations an account administration fee in an amount up to 0.25% (on
an annualized basis) of the average daily net asset value of the Administration
Shares of the Fund attributable to or held in the name of such Service
Organization.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by a Fund in connection with the investment of fiduciary
assets in Administration Shares of a Fund. Service Organizations, including
banks regulated by the Comptroller of the Currency, the Federal Reserve Board or
the Federal Deposit Insurance Corporation, and investment advisers and other
money managers subject to the jurisdiction of the Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in Administration Shares of a Fund. In
addition, under some state securities laws, banks and other financial
institutions purchasing Administration Shares on behalf of their customers may
be required to register as dealers.
The Board of Directors, including a majority of the Directors who are not
interested persons of the Company and who have no direct or indirect financial
interest in the operation of the Plans or the related Service Agreements, voted
to approve each Plan and related Service Agreements at a meeting called for the
purpose of voting on such Plans and Service Agreements on ________, 1995. Each
Plan was approved by the sole shareholder of Administration Shares of each Fund,
on _____________, 1995. The Plans and Service Agreements will remain in effect
until ________, 1995 and will continue in effect thereafter only if such
continuance is specifically approved annually by a vote of the Board of
Directors in the manner described above. The Plans may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the Administration Shareholders of the affected Fund and all
material amendments of the Plan must also be approved by the Board of Directors
in the manner described above. The Plan may be terminated at any time by a
majority of the Board of Directors as described above or by a vote of a majority
of the outstanding Administration Shares of the affected Fund. The Service
Agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Board of Directors as described above or by a vote of
a majority of the outstanding Administration Shares of the affected Fund on not
more than sixty (60) days' written notice to any other party to the Service
Agreements. The Service Agreements will terminate automatically if assigned.
So long as the Plans are in effect, the selection and nomination of those
Directors who are not interested persons will be committed to the discretion of
the Company's Nominating Committee, which consists of all of the non-interested
members of the Board of Directors. The Board of Directors has determined that,
in its judgment, there is a reasonable likelihood that the Plans will benefit
the Funds and the holders of Administration Shares of the Funds. In the Board
of Directors' quarterly review of the Plans and Service Agreements, the Board
will consider their continued appropriateness and the level of compensation
provided therein.
B-39
<PAGE>
Appendix A
DESCRIPTION OF BOND RATINGS/1/
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
- ----------
/1/ THE RATING SYSTEMS DESCRIBED HEREIN ARE BELIEVED TO BE THE MOST RECENT
RATINGS SYSTEMS AVAILABLE FROM MOODY'S INVESTORS SERVICE, INC. AND STANDARD &
POOR'S RATINGS GROUP AT THE DATE OF THIS ADDITIONAL STATEMENT FOR THE SECURITIES
LISTED. RATINGS ARE GENERALLY GIVEN TO SECURITIES AT THE TIME OF ISSUANCE.
WHILE THE RATING AGENCIES MAY FROM TIME TO TIME REVISE SUCH RATINGS, THEY
UNDERTAKE NO OBLIGATION TO DO SO, AND THE RATINGS INDICATED DO NOT NECESSARILY
REPRESENT RATINGS WHICH WILL BE GIVEN TO THESE SECURITIES ON THE DATE OF THE
FUND'S FISCAL YEAR END.
1-A
<PAGE>
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1 and B1.
2-A
<PAGE>
STANDARD & POOR'S RATINGS GROUP/2/
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a very strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties of major risk
exposures to adverse conditions.
D: Bonds rated D are in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Unrated: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligations as a matter of policy.
- ----------
/2/ RATES ALL GOVERNMENTAL BODIES HAVING $1,000,000 OR MORE OF DEBT
OUTSTANDING, UNLESS ADEQUATE INFORMATION IS NOT AVAILABLE.
3-A
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not Applicable
(b) Exhibits
The following exhibits are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A as initially filed on October 5, 1989
(Reference A), to Pre-Effective Amendment No. 3 to such Registration
Statement filed on April 6, 1990 (Reference B), to Post-Effective Amendment
No. 1 to such Registration Statement filed on September 28, 1990 (Reference
C), to Post-Effective Amendment No. 4 to such Registration Statement filed
on October 22, 1991 (Reference D), to Post-Effective Amendment No. 7 to
such Registration Statement filed on July 31, 1992 (Reference E), to Post-
Effective Amendment No. 8 to such Registration Statement filed on December
1, 1992 (Reference F), to Post-Effective Amendment No. 9 to such
Registration Statement filed on April 1, 1993 (Reference G), to Post-
Effective Amendment No. 10 to such Registration Statement filed on July 30,
1993 (Reference H), to Post-Effective Amendment No. 11 to such Registration
Statement filed on March 31, 1994 (Reference I), to Post-Effective
Amendment No. 12 to such Registration Statement filed on May 26, 1994
(Reference J), to Post-Effective Amendment No. 13 to such Registration
Statement filed on August 4, 1994 (Reference K), and to Post-Effective
Amendment No. 14 to such Registration Statement filed on November 30, 1995
(Reference L):
1.(a) Articles of Incorporation of the Registrant.
(Reference A)
1.(c) Form of Articles Supplementary. (Reference E)
1.(d) Form of Articles Supplementary. (Reference F)
1.(e) Form of Articles Supplementary for Goldman Sachs.
(Reference I)
1(f). Articles Supplementary for Goldman Sachs
Balanced Fund. (Reference L)
2. Bylaws of the Registrant. (Reference A)
2.(b) Form of Articles of Amendment. (Reference D)
<PAGE>
3. Not applicable.
4. Not applicable.
5.(a) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Capital Growth Fund and Goldman Sachs Asset
Management. (Reference C)
5.(b) Administration Agreement between Registrant on behalf of Goldman
Sachs Capital Growth Fund and Goldman Sachs Asset Management.
(Reference C)
5.(c) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Select Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(d) Administration Agreement between Registrant on behalf of Goldman
Sachs Select Equity Fund and Goldman Sachs Asset Management.
(Reference G)
5.(e) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(f) Administration Agreement between Registrant on behalf of Goldman
Sachs Small Cap Equity Fund and Goldman Sachs Asset Management.
(Reference G)
5.(g) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs International Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(h) Investment Subadvisory Agreement by and among the Registrant on
behalf of Goldman Sachs International Equity Fund and Goldman
Sachs Asset Management and Goldman Sachs Asset Management
International. (Reference G)
5.(i) Administration Agreement between Registrant on behalf of Goldman
Sachs International Equity Fund and Goldman Sachs Asset
Management. (Reference G)
5.(j) Form of Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Growth and Income Fund and Goldman Sachs
Asset Management. (Reference F)
5.(k) Form of Administration Agreement between Registrant on behalf of
Goldman Sachs Growth and
C-2
<PAGE>
Income Fund and Goldman Sachs Asset Management. (Reference F)
5.(l) Form of Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Asia Growth Fund and Goldman Sachs Asset
Management International. (Reference I)
5.(m) Form of Administration Agreement between Registrant on behalf of
Goldman Sachs Asia Growth Fund and Goldman Sachs Asset
Management. (Reference I)
5(n). Investment Advisory Agreement between the Registrant on behalf of
Goldman Sachs Balanced Fund and Goldman Sachs Asset Management.
(Reference L)
5(o). Administration Agreement between Registrant on behalf of Goldman
Sachs Balanced Fund and Goldman Sachs Asset Management.
(Reference L)
6.(a) Distribution Agreement between Registrant on behalf of Goldman
Sachs Capital Growth Fund, Goldman Sachs Select Equity Fund,
Goldman Sachs Small Cap Equity Fund, Goldman Sachs International
Equity Fund, Goldman Sachs Growth and Income Fund and Goldman,
Sachs & Co. (Reference G)
6.(b) Form of Dealer Agreement between Goldman, Sachs & Co. and any
Authorized Dealer. (Reference G)
6(c). Amended Distribution Agreement between Registrant and Goldman,
Sachs & Co. (Reference K).
7. Not applicable.
8. Custodian Agreement between Registrant and State Street Bank and
Trust Company. (Reference C)
8.(a) Custodian Fee Schedule between Registrant on behalf of Goldman
Sachs Small Cap Equity Fund and State Street Bank & Trust
Company. (Reference G)
8.(b) Custodian Fee Schedule between Registrant on behalf of Goldman
Sachs International Equity Fund and State Street Bank & Trust
Company. (Reference G)
9. Transfer Agency Agreement between Registrant and Goldman, Sachs &
Co. (Reference C)
C-3
<PAGE>
10. Not applicable.
12. Not applicable.
13. Form of Subscription Agreement. (Reference B)
14. Not applicable.
15.(a) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Capital
Growth Fund. (Reference C)
15.(b) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Select
Equity Fund. (Reference G)
15.(c) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Small
Cap Equity Fund. (Reference G)
15.(d) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
International Equity Fund. (Reference G)
15.(e) Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs Growth
and Income Fund. (Reference G)
15.(f) Form of Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
Asia Growth Fund. (Reference I)
15(g). Distribution Plan pursuant to Rule 12b-1 of Goldman Sachs
Balanced Fund. (Reference L)
16. Schedule of Computation of Registrant's performance data.
(Reference L)
17. Powers of Attorney from Messrs. Paul C. Nagel, Jr.,Marcia L.
Beck, , Ashok N. Bakhru, David B. Ford, Robert P. Mayo, Alan A.
Shuch, Jackson W. Smart, Jr., William H. Springer, Richard P.
Strubel, Scott M. Gilman and Michael J.Richman. (Reference L)
The following exhibits are filed herewith:
11(a). Consent of Arthur Andersen LLP.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not applicable.
C-4
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF FEBRUARY 28, 1995).
----------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Goldman Sachs Capital Growth Fund Shares 28,197
Goldman Sachs Select Equity Fund Shares 4,208
Goldman Sachs Small Cap Equity Fund Shares 20,692
Goldman Sachs International Equity Fund Shares 14,311
Goldman Sachs Growth and Income Fund Shares 17,939
Goldman Sachs Asia Growth Fund Shares 8,581
Goldman Sachs Balanced Fund Shares 569
</TABLE>
ITEM 27. INDEMNIFICATION.
---------------
Article VII of the Registrant's Bylaws provides for indemnification of the
Registrant's directors and officers under certain circumstances.
Section 9 of the Distribution Agreement between the Registrant and Goldman,
Sachs & Co. provides for indemnification of Goldman, Sachs & Co. under certain
circumstances.
Insofar as indemnification by the Registrant for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
The business and other connections of the officers and general partners who have
direct responsibility for the asset management division of Goldman, Sachs & Co.
are listed on the Uniform Application for Investment Adviser Registration ("Form
ADV") of
C-5
<PAGE>
Goldman, Sachs & Co. (No. 801-16048), Goldman Sachs Funds Management, L.P. (No.
801-37591), and Goldman Sachs Asset Management International (No. 801-38157), as
applicable. These Form ADV's are currently on file with the Securities and
Exchange Commission, the texts of which are hereby incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
----------------------
(a) Goldman, Sachs & Co., or an affiliate or a division thereof, currently
serves as investment adviser and distributor of the units of Goldman Sachs
Money Market Trust, Trust for Credit Unions and for shares of Paragon
Treasury Money Market Fund, Financial Square Trust, Goldman Sachs Trust and
Goldman Sachs Equity Portfolios, Inc. Goldman Sachs & Co. or an affiliate
or a division thereof, currently serves as investment adviser of the shares
of two portfolios (Pilot Short-Term Tax-Exempt Portfolio and Pilot Short-
Term Tax-Exempt Diversified Portfolio) of Pilot Funds. Goldman, Sachs &
Co., or a division thereof, currently serves as administrator and
distributor of the units of The Benchmark Fund and for shares of Paragon
Portfolio.
(b) Set forth below is certain information pertaining to the general partners
of Goldman, Sachs & Co., Registrant's principal underwriter. Each of the
following persons is a general partner of Goldman, Sachs & Co. and, except
for Messrs. Ford and Shuch, does not hold a position with Registrant.
Messrs. Ford and Shuch are Directors of Registrant.
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Jon Corzine, Chairman (1)(2) Hideo Ishihara (10)
Roy J. Zuckerberg (2) Oki Matsumoto Inc. (2)
David M. Silfen (2) Richard M. Hayden (2)
Eugene V. Fife (7) Armen A. Avanessians (2)
Robert J. Hurst (2) Howard C. Katz (2)
Paul M. Achleitner (7) Peter K. Barker (9)
Joel S. Beckman (2) David W. Blood (7)
Eric S. Dobkin (2) Henry M. Paulson, Jr.(8)
Willard J. Overlock, Jr. (2) Zachariah Cobrinik (7)
Jonathan L. Cohen (2) Kevin W. Kennedy (2)
Frederic B. Garonzik (7) Daniel M. Neidich (2)
William C. Landreth (11) Edward Spiegel (2)
Gary D. Cohn (7) Christopher A. Cole (2)
Fischer Black (5) Henry Cornell (13)
Robert F. Cummings, Jr. (2) Robert V. Delaney (2)
Angelo De Caro (7) Joseph DellaRosa (2)
Steven G. Einhorn (2) David B. Ford (2)
C-6
<PAGE>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
J. Michael Evans (7) Lawton W. Fitt (2)
David M. Leuschen (2) Michael D. McCarthy (2)
Michael R. Lynch (2) Joseph D. Gatto (2)
Donald C. Opatrny, Jr. (7) Thomas E. Tuft (2)
Peter C. Gerhard (2) Michael P. Mortara (2)
Robert J. Katz (1) (2) Lloyd C. Blankfein (2)
Nomi P. Ghez (2) John P. Curtin, Jr. (2)
David T. Hamamoto (2) Dexter D. Earle (2)
Gavyn Davies (7) Christopher Flowers (2)
John Ehara (10) Walter H. Haydock (15)
Gary Gensler (2) Thomas J. Healey (2)
Charles T. Harris, III (2) Robert E. Higgins (2)
Stephen Hendel (2) David L. Henle (2)
Ernest S. Liu (2) Charles B. Mayer, Jr. (2)
Eff W. Martin (11) Mark Schwartz (2)
Michael J. O'Brien (7) Robert K. Steel (7)
Stephen M. Semlitz (2) John A. Thain (2)
Francis J. Ingrassia (2) Scott B. Kapnick (7)
John L. Thornton (7) Joseph R. Zimmel (2)
Bracebridge H. Young, Jr. (10) Gary L. Zwerling (2)
Barry L. Zubrow (2) Andrew M. Alper (2)
Jon R. Aisbitt (7) Frank L. Coulson, Jr. (2)
William J. Buckley (2) Richard A. Friedman (2)
Connie Duckworth (8) John H. Gleberman (2)
Alan R. Gillespie (7) Steven M. Heller (2)
Jacob D. Goldfield (2) Robert S. Kaplan (10)
Ann F. Kaplan (2) Kevin M. Kelly (2)
Peter D. Kiernan, III (2) Gaetano J. Muzio (2)
T. Willem Mesdag (7) Timothy J. O'Neill (2)
Robin Neustein (2) John J. Powers (2)
Scott M. Pinkus (2) Arthur J. Reimers,III (7)
Stephen D. Quinn (2) Richard A. Sapp (7)
James P. Riley, Jr. (2) Donald F. Textor (2)
John C. Keinert (2) Patrick J. Ward (10)
Thomas B. Walker, III (2) Jon Winkelried (2)
Jeffrey M. Weingarten (7) Gregory K. Palm (7)
Richard E. Witten (2) John O. Downing (7)
Carlos A. Cordeiro (7) Michael D. Fascitelli (2)
W. Mark Evans (7) Reuben Jeffrey, III (2)
Sylvain M. Hefes (7) Jun Makihara (9)
Lawrence H. Linden (2) Robert B. Morris,III (11)
Masanori Mochida (10) Suzanne M. Johnson (9)
Philip D. Murphy (14) Carl G.E. Palmstierna (7)
Terence M. O'Toole (2) J. David Rogers (10)
Michael G. Rantz (2) Peter Savitz (10)
Joseph Sassoon (7) Ralph F. Severson (11)
Charles B. Seelig, Jr. (2) Gary A. Syman (10)
Gene T. Sykes (9) John L. Townsend, III (2)
Leslie C. Tortora (2) David A. Viniar (2)
C-7
<PAGE>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Lee G. Vance (7) Peter A. Weinberg (2)
John S. Weinberg (2) George W. Wellde, Jr. (2)
Laurence M. Weiss (2) Sharmin Mossavar-
Jaime E. Yordan (2) Rahmani (5)
Jonathan L. Kolatch (2) Robert Litterman (2)
Peter S. Kraus (2) Thomas J. Macirowski (2)
Jonathan M. Lopatin (2) Oki Matsumoto (10)
Peter G. Mallinson (13) Eric M. Mindich (2)
E. Scott Mead (7) Thomas K. Montag (2)
Steven T. Mnuchin (2) Kipp M. Nelson (7)
Edward A. Mule (2) Robert J. O'Shea (2)
Christopher K. Norton (14) Jack L. Salzman (2)
Wiet H. Pot (7) Michael F. Schwerin (2)
Eric S. Schwartz (2) Richard G. Sherlund (2)
Richard S. Sharp (7) Cody J. Smith (2)
Michael S. Sherwood (7) Esta E. Stecher (2)
Daniel W. Stanton (2) Byron D. Trott (8)
Frederic E. Steck (11) Peter S. Wheeler (13)
Barry S. Volpert (2) Gary W. Williams (2)
Anthony G. Williams (7) Danny O. Yee (13)
Tracy R. Wolstencroft (4) Mark A. Zurack (2)
Michael J. Zamkow (2)
__________
(1) Management Committee
(2) 85 Broad Street, New York, NY 10004
(3) Mellon Bank Center, 1735 Market Street, 26th Floor,
Philadelphia, PA 19103
(4) 100 Crescent Court, Suite 1000, Dallas, TX 75201
(5) One New York Plaza, New York, NY 10004
(6) 1000 Louisiana Street, Suite 550, Houston, TX 77002
(7) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(8) 4900 Sears Tower, Chicago, IL 60606
(9) 333 South Grand Avenue, Suite 1900, Los Angeles, CA 90071
(10) ARK Mori Bldg.,10th Floor, 12-32 Akasaka, 1-chome, Minato-
ku, Tokyo 107, Japan
(11) 555 California Street, 31st Floor, San Francisco, CA 94104
(12) Exchange Place, 53 State Street, 13th Floor, Boston, MA
02109
(13) Asia Pacific Finance Tower, 35th Floor, Citibank Plaza, 3
Garden Road, Hong Kong
(14) Finanz GmbH, MesseTurm, 60308 Frankfurt am Main 1, Germany
(15) Munsterhof 4, 8022, Zurich, Switzerland
(c) Not applicable.
C-8
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
The Articles of Incorporation, Bylaws and minute book of the Registrant are in
the physical possession of Goldman Sachs Asset Management, One New York Plaza,
New York, New York 10004. All other accounts, books and other documents
required to be maintained under Section 31(a) of the Investment Company Act of
1940 and the Rules promulgated hereunder are in the physical possession of State
Street Bank and Trust Company, P.O. Box 1713, Boston, Massachusetts 02105,
except transfer agency records which are maintained by Goldman, Sachs & Co.,
4900 Sears Tower, Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES.
--------------------
The Custodian Agreement between State Street Bank and Trust Company and
Registrant provides for State Street Bank and Trust Company to act as custodian
and to maintain certain accounting records for Registrant. Remuneration is
based upon the Fund's average net assets and on the number of portfolio
transactions.
ITEM 32. UNDERTAKINGS.
------------
(a) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended, which relates to the assistance to be
rendered to shareholders by the Directors of the Registrant in calling
a meeting of shareholders for the purpose of voting upon the question
of the removal of a Director.
(b) The Annual Report also contains performance information and is
available to any recipient of the Prospectus upon request and without
charge by writing to Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606.
(c) The Registrant undertakes to file a post-effective amendment, using
financial statements of Goldman Sachs Mid-Cap Equity Fund which need
not be certified, within four to six months from the effective date of
this Post-Effective Amendment.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 15 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and State of New York on the
15th day of March 1995.
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
Michael J. Richman
-------------------------------------
Michael J. Richman, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Name Title Date
- ---- ----- ----
/s/Paul C. Nagel, Jr.* Director March 15, 1995
- ----------------------
Paul C. Nagel, Jr.
/s/Marcia L. Beck* President March 15, 1995
- ------------------ and Director
Marcia L. Beck of the Company
/s/Scott M. Gilman* Treasurer March 15, 1995
- ------------------- and Principal
Scott M. Gilman Financial and
Accounting Officer
/s/Ashok N. Bakhru* Director March 15, 1995
- -------------------
Ashok N. Bakhru
/s/David B. Ford* Director March 15, 1995
- -----------------
David B. Ford
/s/Alan A. Shuch* Director March 15, 1995
- -----------------
Alan A. Shuch
/s/Jackson W. Smart, Jr.* Director March 15, 1995
- -------------------------
Jackson W. Smart, Jr.
/s/William H. Springer* Director March 15, 1995
- -----------------------
William H. Springer
/s/Richard P. Strubel* Director March 15, 1995
- ----------------------
Richard P. Strubel
*By: Michael J. Richman
----------------------
Michael J. Richman
Attorney-in-fact
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Post-Effective Amendment No. 15
to the Registration Statement:
Page Description
---- -----------
11(a). Consent of Arthur Anderson LLP
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Goldman Sachs Equity Portfolios, Inc.:
As independent public accountants, we hereby consent to all references to our
firm included in or made a part of Post-Effective Amendment 15 to Registration
Statement File No. 33-33316 and Amendment No. 17 to Registration File No. 811-
6036.
Arthur Andersen LLP
Boston, Massachusetts
March 13, 1995
