<PAGE>
1933 Act Registration No. 33-33316
1940 Act Registration No. 811-6036
As filed with the Securities and Exchange Commission on March 1, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Post-Effective Amendment No. 20 ( X )
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 ( 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)
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
( ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( X ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) 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. IT IS ANTICIPATED THAT ON OR ABOUT MARCH 31,
1996, REGISTRANT WILL FILE A RULE 24F-2 NOTICE FOR THE FISCAL YEAR ENDING
JANUARY 31, 1996.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 495(a)*)
N-1A ITEM NO. LOCATION
- ------------- --------
PART A CAPTION
- ------ -------
Goldman Sachs Balanced Fund, Goldman Sachs Select Equity Fund, Goldman Sachs
- -----------------------------------------------------------------------------
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Small
- -------------------------------------------------------------------------------
Cap Fund, Goldman Sachs International Equity Fund and Goldman Sachs Asia Growth
- --------------------------------------------------------------------------------
Fund-Class A Shares and Class B Shares
- --------------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Fund Highlights; Fees and Expenses
Item 3. Condensed Financial Not Applicable
Information
Item 4. General Description Cover Page; Fund Highlights;
of Registrant Fees and Expenses; Investment
Objectives and Policies; Special
Investment Methods and Risk Factors;
Distribution and Authorized Dealer
Service Plan; Reports to Shareholders;
Shares of the Company; Additional
Information
Item 5. Management of Fund Management
Item 6. Capital Stock and Dividends; Taxation; Shares of
Other Securities the Company; Additional Information
Item 7. Purchase of Securities How to Invest; Net Asset
Being Offered Value; Additional Information
Item 8. Redemption or How to Sell Shares of the
Repurchase Funds; Additional Information
Item 9. Pending Legal Not Applicable
Proceedings
PART B
Goldman Sachs Balanced Fund, Goldman Sachs Select Equity Fund, Goldman Sachs
- ----------------------------------------------------------------------------
Growth and Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Small
- ------------------------------------------------------------------------------
Cap Fund, Goldman Sachs
- -----------------------
<PAGE>
International Equity Fund and Goldman Sachs Asia Growth Fund-Class A Shares and
- -------------------------------------------------------------------------------
Class B 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
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; Other Information
Securities Being Regarding Purchases,
Offered Redemptions, Exchanges and
Dividends
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
<PAGE>
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 REGISTER THE OFFERING
OF CLASS B SHARES OF GOLDMAN SACHS BALANCED FUND,GOLDMAN SACHS SELECT EQUITY
FUND, GOLDMAN SACHS GROWTH AND INCOME FUND, GOLDMAN SACHS CAPITAL GROWTH FUND,
GOLDMAN SACHS SMALL CAP EQUITY FUND, GOLDMAN SACHS INTERNATIONAL EQUITY FUND
AND GOLDMAN SACHS ASIA GROWTH FUND. EACH OF THE FUNDS ARE AN EXISTING SERIES OF
GOLDMAN SACHS EQUITY PORTFOLIOS,INC.
<PAGE>
PROSPECTUS
May 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund Highlights........................ 3
Fees and Expenses...................... 7
Financial Highlights................... 10
Investment Objectives and Policies..... 14
Special Investment Methods and Risk
Factors............................... 19
Investment Restrictions................ 31
Portfolio Turnover..................... 31
Management............................. 32
Reports to Shareholders................ 36
How to Invest.......................... 36
Shareholder Services Available to Class
A and Class B Shareholders............ 42
Distribution and Authorized Dealer
Service Plans......................... 44
How to Sell Shares of the Funds........ 46
Dividends.............................. 47
Net Asset Value........................ 48
Performance Information................ 48
Shares of the Company.................. 49
Taxation............................... 50
Additional Information................. 51
Appendix .............................. A-1
Account Application
</TABLE>
THE GOLDMAN SACHS
EQUITY PORTFOLIOS
CLASS A AND B SHARES
GOLDMAN SACHS BALANCED FUND
Seeks current income and long-term capi-
tal growth through investments in equity
and fixed income securities.
GOLDMAN SACHS SELECT EQUITY FUND
Seeks total return through investments
in equity securities consisting of capi-
tal appreciation plus dividend income
that, net of Fund expenses, exceeds the
total return realized on the Standard
and Poor's Index of 500 Common Stocks.
GOLDMAN SACHS GROWTH AND INCOME FUND
Seeks long-term growth of capital and
growth of income through investments in
equity securities that the Fund's In-
vestment Adviser considers to have fa-
vorable prospects for capital apprecia-
tion and/or dividend paying ability.
GOLDMAN SACHS CAPITAL GROWTH FUND
Seeks long-term growth of capital
through investments in equity securities
of companies that the Fund's Investment
Adviser considers to have long-term cap-
ital appreciation potential.
GOLDMAN SACHS SMALL CAP EQUITY FUND
Seeks long-term capital growth through
investments in equity securities of com-
panies with public stock market capital-
izations of $1 billion or less at the
time of investment.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies that are organized outside
the U.S. or whose securities are princi-
pally traded outside the U.S.
GOLDMAN SACHS ASIA GROWTH FUND
Seeks long-term capital appreciation
through investments in equity securities
of companies related (in the manner de-
scribed herein) to Asian countries.
(continued on next page)
----------
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER INSURED DEPOSITORY INSTITUTION, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
(cover continued)
A FUND'S INVESTMENTS IN SECURITIES OF EMERGING MARKETS AND OTHER FOREIGN
ISSUERS AND OF COMPANIES WHOSE SECURITIES ARE PRINCIPALLY TRADED OUTSIDE THE
UNITED STATES, AND INVESTMENTS QUOTED OR DENOMINATED IN FOREIGN CURRENCIES, AS
WELL AS THE MANAGEMENT TECHNIQUES EMPLOYED BY THE FUNDS, ENTAIL CERTAIN RISKS
NOT CUSTOMARILY ASSOCIATED WITH INVESTING IN SECURITIES OF U.S. ISSUERS. IN
PARTICULAR, THE SECURITIES MARKETS OF ASIAN AND OTHER EMERGING MARKET
COUNTRIES IN WHICH THE ASIA GROWTH AND INTERNATIONAL EQUITY FUNDS WILL INVEST
ARE LESS LIQUID, SUBJECT TO GREATER PRICE VOLATILITY, HAVE SMALLER MARKET
CAPITALIZATIONS, HAVE LESS GOVERNMENT REGULATION AND ARE NOT SUBJECT TO AS
EXTENSIVE AND FREQUENT ACCOUNTING, FINANCIAL AND OTHER REPORTING REQUIREMENTS
AS THE SECURITIES MARKETS OF MORE DEVELOPED COUNTRIES. THE FUNDS ARE INTENDED
FOR INVESTORS WHO CAN ACCEPT THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND
MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE "SPECIAL INVESTMENT METHODS AND
RISK FACTORS."
Goldman Sachs Asset Management ("GSAM"), New York, New York, a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as
investment adviser to the Balanced, Growth and Income, Small Cap Equity and
International Equity Funds. Goldman Sachs Funds Management, L.P. ("GSFM"), an
affiliate of Goldman Sachs, serves as investment adviser to the Capital Growth
and Select Equity Funds. Goldman Sachs Asset Management International
("GSAMI"), London, England, an affiliate of Goldman Sachs, serves as
investment adviser to the Asia Growth Fund and subadviser to the International
Equity Fund. GSAM, GSFM and GSAMI are referred to in this Prospectus as the
"Investment Adviser." GSAM serves as each Fund's administrator and Goldman
Sachs serves as each Fund's distributor and transfer agent.
This Prospectus provides information about Goldman Sachs Equity Portfolios,
Inc. (the "Company") and the Funds that a prospective investor should
understand before investing. This Prospectus should be retained for future
reference. A Statement of Additional Information (the "Additional Statement"),
dated May 1, 1996, 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 by calling the
telephone number, or writing to one of the addresses, listed on the back cover
of this Prospectus.
<PAGE>
FUND HIGHLIGHTS
The following is intended to highlight certain information contained in
this Prospectus and is qualified in its entirety by the more detailed
information contained herein.
WHAT IS GOLDMAN SACHS EQUITY PORTFOLIOS, INC.?
Goldman Sachs Equity Portfolios, Inc. is an open-end management investment
company that offers its shares in several investment funds (mutual funds).
Each Fund pools the monies of investors by selling its shares to the public
and investing these monies in a portfolio of securities designed to achieve
that Fund's stated investment objective.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS?
Each Fund has distinct investment objectives and policies. There can be no
assurance that a Fund's objectives will be achieved. For a complete
description of each Fund's investment objectives and policies, see
"Investment Objectives and Policies" and "Special Investment Methods and
Risk Factors."
GOLDMAN SACHS BALANCED FUND--The Fund's investment objective is to provide
shareholders with current income and long-term capital growth. The Fund
seeks to achieve its objective by investing in a diversified portfolio of
equity and fixed income securities. Under normal market conditions, the Fund
will invest at least 25% of its total assets in fixed income senior
securities and the remainder of its assets in equity securities, other fixed
income securities and cash. Under normal market conditions, the Investment
Adviser expects that the Fund generally will invest between 50% and 70% of
its total assets in equity securities.
GOLDMAN SACHS SELECT EQUITY FUND--The investment objective of the Fund is
to provide investors with a total return through investments in equity
securities 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"). Under normal
circumstances, the Fund will invest at least 90% of its total assets in
equity securities. The Fund seeks to achieve its investment objective by
investing in a portfolio of equity securities selected using both
fundamental research and a variety of quantitative techniques which seek to
maximize the Fund's risk to reward ratio. The Fund's portfolio is designed
to have risk, capitalization and industry characteristics similar to the S&P
500 Index.
GOLDMAN SACHS GROWTH AND INCOME FUND--The Fund's investment objectives are
to provide its shareholders with long-term growth of capital and growth of
income. The Fund seeks to achieve its investment objectives by investing,
under normal market conditions, at least 65% of its total assets in equity
securities that the Investment Adviser considers to have favorable prospects
for capital appreciation and/or dividend paying ability. Equity securities
in which the Fund may invest consist of common stocks, preferred stocks,
convertible securities, warrants and stock purchase rights, and interests in
real estate investment trusts. These securities may or may not pay a current
dividend. The Fund may invest up to 35% of its total assets in fixed income
securities.
3
<PAGE>
GOLDMAN SACHS CAPITAL GROWTH FUND--The Fund's investment objective is
long-term capital growth. The Fund seeks to achieve its objective by
investing primarily in securities that are considered by the Investment
Adviser to have long-term capital appreciation potential. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities, including common stocks, convertible securities,
preferred stocks, warrants and stock purchase rights, and interests in real
estate investment trusts. The Fund may also invest up to 25% of its total
assets in fixed income securities.
GOLDMAN SACHS SMALL CAP EQUITY FUND--The Fund's investment objective is
long-term capital growth. Dividend income, if any, is an incidental
consideration. The Fund seeks to achieve its investment objective by
investing, under normal conditions, at least 65% of its total assets in
equity securities of companies with public stock market capitalizations of
$1 billion or less at the time of investment. However, the Fund currently
emphasizes investments in companies with public stock market capitalizations
of $500 million or less at the time of investment. The Fund may invest up to
35% of its total assets in the equity securities of companies with public
stock market capitalizations in excess of $1 billion and in fixed income
securities.
GOLDMAN SACHS INTERNATIONAL EQUITY FUND--The Fund's investment objective
is long-term capital appreciation. Under normal market conditions, the Fund
will invest substantially all, and at least 65%, of its total assets in
equity securities of companies organized outside the United States or whose
securities are principally traded outside the United States. Many of the
countries in which the Fund may invest have emerging economies or securities
markets which involve certain risks. The Fund may employ certain currency
management techniques to seek to hedge against currency exchange rate
fluctuations or to seek to increase total return. When used to enhance
return, these management techniques are considered speculative. See "Special
Investment Methods and Risk Factors--Foreign Transactions." The Fund may
also invest up to 35% of its total assets in fixed income securities of
foreign and domestic corporations, mortgage- and asset-backed issuers and
the U.S. Government, foreign governments and their respective agencies,
instrumentalities, political subdivisions and authorities and fixed income
securities issued or guaranteed by international or supranational entities
that, in the opinion of the Investment Adviser, offer the potential to
enhance total return.
GOLDMAN SACHS ASIA GROWTH FUND--The Fund's investment objective is long-
term capital appreciation. Under normal market conditions, the Fund will
invest substantially all, and at least 65%, of its total assets in equity
securities of companies in China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand which are considered by the Investment Adviser to have long-term
capital appreciation potential. Concentration of the Fund's assets in one or
a few of the Asian countries will subject the Fund, to a greater extent than
if the Fund's assets were less geographically concentrated, to the risks of
adverse changes in the securities and foreign exchange markets of such
countries and social, political or economic events which may occur in those
countries. The Fund may also invest up to 35% of its total assets in equity
securities of issuers in other countries, including Japan, and fixed income
securities. The Fund may employ certain currency techniques to hedge against
currency exchange rate fluctuations or to seek to increase total return.
When used to enhance return, these management techniques are considered
speculative. See "Special Investment Methods and Risk Factors--Foreign
Transactions."
4
<PAGE>
WHAT ARE THE RISK FACTORS AND SPECIAL CHARACTERISTICS THAT I SHOULD
CONSIDER BEFORE INVESTING?
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions so that an investment in any
of the Funds may be worth more or less when redeemed than when purchased.
None of the Funds should be relied upon as a complete investment program.
There can be no assurance that a Fund's investment objective will be
achieved.
There are certain risks associated with the investment policies of each of
the Funds. For instance, to the extent that a Fund invests in the securities
and related financial instruments of small to medium sized market
capitalization companies, a Fund may be exposed to a higher degree of risk
and price volatility because such securities may lack sufficient liquidity
to enable a Fund to effect sales at an advantageous time or without a
substantial drop in price. A Fund's use of certain investment techniques,
including derivatives, forward contracts and options and futures
transactions, will subject a Fund to greater risk than funds that do not
employ such techniques. To the extent that a Fund invests in securities of
non-U.S. issuers and foreign currencies, the Fund may face risks that are
different from those associated with investment in domestic securities. The
risks of foreign investments and currencies include changes in relative
currency exchange rates, political and economic developments and the
imposition of exchange controls or other governmental confiscation or
restrictions. Generally, there is less availability of data on foreign
companies and securities markets as well as less regulation of foreign stock
exchanges, brokers and issuers. A Fund's investments in emerging markets and
countries will involve greater risks than investments in the developed
countries of Western Europe, the U.S. and Japan. In addition, because the
International Equity and Asia Growth Funds will invest primarily outside the
U.S., these Funds may involve greater risks, since the securities markets of
foreign countries are generally less liquid and subject to greater price
volatility. In particular, the securities markets of the developing
countries of Asia are marked by high concentration of market capitalization
and trading volume in a small number of issuers representing a limited
number of industries, as well as a high concentration of ownership of such
securities by a limited number of investors.
WHO MANAGES THE FUNDS?
Goldman Sachs Asset Management, acts as administrator to each Fund and
serves as the Investment Adviser to the Balanced, Growth and Income, Small
Cap Equity and International Equity Funds. Goldman Sachs Funds Management,
L.P. serves as Investment Adviser to the Capital Growth and Select Equity
Funds. Goldman Sachs Asset Management International, London, England serves
as Investment Adviser to the Asia Growth Fund and sub-adviser to the
International Equity Fund. As of January 31, 1996, the Investment Advisers,
together with their affiliates, acted as investment adviser, administrator
or distributor for assets in excess of $57 billion.
WHO DISTRIBUTES THE FUND'S SHARES?
Goldman Sachs acts as distributor of each Fund's shares.
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for purchases of shares of a Fund is
$1,500. The minimum initial investment for tax sheltered retirement plans is
$250. The minimum investment is $50 for purchases made through the Automatic
Investment Plan. The minimum subsequent investment is $50. See "How to
Invest--How to Buy Shares of the Funds."
5
<PAGE>
HOW DO I PURCHASE SHARES?
You may purchase shares of the Funds through Goldman Sachs and certain
investment dealers, including members of the National Association of
Securities Dealers, Inc. (the "NASD") and certain other financial service
firms that have sales agreements with Goldman Sachs ("Authorized Dealers").
See "How to Invest--Offering Price."
WHAT ARE MY PURCHASE ALTERNATIVES?
The Funds offer two classes of shares through this Prospectus which may be
purchased at the next determined Net Asset Value ("NAV") plus a sales charge
which, depending on the class of shares you chose for investment, may either
be imposed at the time of purchase (Class A shares) or on a contingent
deferred basis at the time of redemption (Class B shares). Class A share
accounts over $1 million may also be subject to a contingent deferred sales
charge at the time of certain redemptions.
<TABLE>
<CAPTION>
MAXIMUM FRONT MAXIMUM CONTINGENT
ALL FUNDS END SALES CHARGE DEFERRED SALES CHARGE
--------- ---------------- ---------------------
<S> <C> <C>
Class A.................. 5.5% N/A
Class B.................. N/A 5% declining to 0% after six years
</TABLE>
Over time, the deferred sales charge and distribution fees attributable to
Class B shares will exceed the initial sales charge and the distribution
fees attributable to Class A shares. See "How to Invest--Alternative
Purchase Arrangements."
HOW DO I SELL MY SHARES?
You may redeem shares upon request on any Business Day, as defined under
"Additional Information," at the net asset value next determined after
receipt of such request in proper form, subject to any applicable contingent
deferred sales charge with respect to Class B shares. See "How to Invest--
How to Sell Shares of the Funds."
HOW DO I RECEIVE DIVIDENDS AND DISTRIBUTIONS?
Each Fund intends that all or substantially all of its net investment
income and net realized long-term and short-term capital gains for each
taxable year, after reduction by available capital losses, including any
capital losses carried forward from prior years, will be declared as
dividends. The Balanced and Growth and Income Funds will pay dividends in
respect of net investment income quarterly. Each other Fund will pay
dividends in respect of net investment income at least annually. All of the
Funds will pay dividends in respect of net realized long-term and short-term
capital gains at least annually.
You may receive dividends in additional shares of the same class of the
Fund in which you have invested or you may elect to receive cash, shares of
the same class of other mutual funds sponsored by Goldman Sachs (the
"Goldman Sachs Portfolios") or ILA Service Units of the Prime Obligations
Portfolio or the Tax-Exempt Diversified Portfolio of Goldman Sachs Money
Market Trust, if you hold Class A shares of a Fund, or ILA Class B Units of
the Prime Obligations Portfolio, if you hold Class B shares of a Fund (the
"ILA Portfolios"). For further information concerning dividends, see
"Dividends."
6
<PAGE>
FEES AND EXPENSES
<TABLE>
<CAPTION>
GROWTH SMALL
SELECT AND CAPITAL CAP
BALANCED EQUITY INCOME GROWTH EQUITY
FUND FUND FUND FUND FUND
------------------ ------------------ ------------------ ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none 5.5%/1/ none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none none none none none none none
Maximum Deferred
Sales Charge... none/1/ 5% none/1/ 5% none/1/ 5% none/1/ 5% none/1/ 5%
Redemption
Fees/2/........ none none none none none none none none none none
Exchange
Fees/2/........ none none none none none none none none none none
ANNUAL FUND
OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees
(including,
after
applicable
limitations,
advisory and
administration
fees).......... 0.65% 0.65% 0.59% 0.59% 0.70% 0.70% 1.00% 1.00% 1.00% 1.00%
Distribution
(Rule 12b-1)
Fees/3/ (after
applicable
limitations)... 0.00% 0.75% 0.21% 0.75% 0.00% 0.75% 0.00% 0.75% 0.00% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)... 0.10%/4/ 0.10% 0.21%/6/ 0.21% 0.26%/6/ 0.26% 0.13% 0.13% 0.28% 0.28%
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATION)..... 1.00%/5/ 1.75% 1.26%/6/ 1.80% 1.21%/6/ 1.96% 1.38%/5/ 2.13% 1.53%/5/ 2.28%
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
<CAPTION>
INT'L ASIA
EQUITY GROWTH
FUND FUND
--------------------- ------------------
CLASS A CLASS B CLASS A CLASS B
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES:
Maximum Sales
Charge Imposed
on Purchases... 5.5%/1/ none 5.5%/1/ none
Maximum Sales
Charge Imposed
on Reinvested
Dividends...... none none none none
Maximum Deferred
Sales Charge... none/1/ 5% none/1/ 5%
Redemption
Fees/2/........ none none none none
Exchange
Fees/2/........ none none none none
ANNUAL FUND
OPERATING EXPENSES:
(as a percentage of average daily net assets)
Management Fees
(including,
after
applicable
limitations,
advisory and
administration
fees).......... 1.00% 1.00% 1.00% 1.00%
Distribution
(Rule 12b-1)
Fees/3/ (after
applicable
limitations)... 0.21% 0.75% 0.21% 0.75%
Other Expenses:
Authorized
Dealer Service
Fees........... 0.25% 0.25% 0.25% 0.25%
Other Expenses
(after
applicable
limitations)... 0.35% 0.35%/6/ 0.39%/6/ 0.39%
---------- ---------- ---------- -------
TOTAL FUND
OPERATING
EXPENSES (AFTER
FEE AND EXPENSE
LIMITATION)..... 1.67%/6/ 2.25% 1.71%/6/ 2.39%
========== ========== ========== =======
</TABLE>
7
<PAGE>
EXAMPLE
You would pay the following expenses on a hypothetical $1,000 investment
(including the maximum sales charge) assuming (i) a 5% annual return and (ii)
redemption at the end of each time period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Fund
Class A shares................................ $65 $ 85 $N/A $N/A
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
Select Equity Fund
Class A shares................................ 67 93 120 199
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
Growth and Income Fund
Class A shares................................ 67 92 118 194
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
Capital Growth Fund
Class A shares................................ 68 96 126 212
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
Small Cap Equity Fund
Class A shares................................ 70 101 134 227
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
International Equity Fund
Class A shares................................ 71 105 141 242
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
Asia Growth Fund
Class A shares................................ 71 106 143 246
Class B shares
--Assuming complete redemption at end of peri-
od...........................................
--Assuming no redemption......................
</TABLE>
The hypothetical example assumes that a contingent deferred sales charge will
not apply to redemptions of Class A shares within the first 18 months. Class B
shares convert to Class A shares eight years after purchase. Therefore, Class
A expenses are used in the hypothetical example after year eight.
- --------
/1/As a percentage of the offering price. No sales charge is imposed on
purchases of Class A shares by certain classes of investors. A contingent
deferred sales charge of 1.00% is imposed on certain redemptions of Class A
shares sold without an initial sales charge as part of an investment of $1
million or more. See "How to Invest--Offering Price."
/2/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Portfolios or units of the ILA Portfolios and
free automatic exchanges pursuant to the Automatic Exchange Program, six
free exchanges are permitted in each twelve month period. A fee of $12.50
may be charged for each subsequent exchange during such period. See "How to
Invest--Exchange Privilege."
/3/Goldman Sachs voluntarily has agreed to waive the entire distribution fee
attributable to Class A Shares of the Balanced, Growth and Income, Capital
Growth and Small Cap Equity Funds. In addition, Goldman Sachs voluntarily
has agreed to waive a portion of the distribution fee attributable to Class
A Shares of the Select Equity, International Equity and Asia Growth Funds.
Goldman Sachs has no current intention of modifying or discontinuing such
limitations but may do so in the future at its discretion. Without this
waiver, the distribution fees payable by these Funds would be 0.25% annually
of average daily net assets and the Funds' Total Operating Expenses would be
correspondingly higher. During the fiscal year, February 1, 1995 through May
31, 1995, the Authorized Dealer Service Plan was not in existence and the
Distribution (Rule 12b-1) Fees with respect to all the Funds (including
those referred to above) were
8
<PAGE>
contractually set at 0.50%. However, during that period, Goldman Sachs agreed
to limit the amount of the fees payable by the Funds under their distribution
plan to 0.25%. Because of the Distribution Plans, long-term Class A
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted by the National Association of Securities Dealers,
Inc.'s rules regarding investment companies.
/4/The Investment Adviser has voluntarily agreed to reduce or limit certain
"Other Expenses" of the Balanced Fund (excluding advisory, administration,
distribution and authorized dealer service fees, taxes, interest, brokerage
fees and litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed 0.10% of the average daily net assets of the
Balanced Fund. The Investment Adviser to the Fund has no current intention of
modifying or discontinuing such limitation but may do so in the future at its
discretion.
/5/Based on estimated amounts for the current fiscal year. If Goldman Sachs and
the Investment Advisers had not agreed to the limits described above, the
"Other Expenses" and "Total Operating Expenses," respectively, of the Funds
would be (as a percentage of average daily net assets): Balanced--0.55% and
1.70%, in the case of Class A Shares and % and % in the case of Class B
Shares, Capital Growth--0.13% and 1.63%, in the case of Class A Shares and %
and % in the case of Class B Shares and Small Cap Equity--0.28% and 1.78%,
in the case of Class A Shares and % and % in the case of Class B Shares.
The annual "Management Fees," "Distribution Fees," "Other Expenses" and
"Total Operating Expenses," respectively, incurred by each Fund during the
fiscal year ended January 31, 1996 (expressed as a percentage of average
daily net assets after fee adjustments and expense limitations) were as
follows: Balanced--0.65%, 0.25%, 0.10% and 1.00%, Capital Growth--1.00%,
0.25%, 0.13% and 1.38% and Small Cap Equity--1.00%, 0.25%, 0.28% and 1.53%.
See "Management--Investment Advisers, Subadviser and Administrator" and
"Distribution and Authorized Dealer Service Plan."
/6/Based on estimated amounts for the current fiscal year. The Investment
Advisers and GSAM have voluntarily agreed to limit their advisory and
administration fees to the following, respectively, (as a percentage of
average daily net assets): Select Equity Fund--0.44% and 0.15%, International
Equity Fund--0.71% and 0.15% and Asia Growth Fund--0.71% and 0.15%. In
addition, the Investment Advisers and GSAM have voluntarily agreed to reduce
or limit certain "Other Expenses" of the Select Equity, Growth and Income,
International Equity and Asia Growth Funds (excluding transfer agency fees
estimated to be 0.15%, 0.15%, 0.11% and 0.15%, respectively, of average daily
net assets, advisory, administration, distribution and authorized dealer
service fees, taxes, interest, brokerage fees and litigation, indemnification
and other extraordinary expenses) to 0.06%, 0.11%, 0.24% and 0.24%,
respectively, of the Select Equity, Growth and Income, International Equity
and Asia Growth Fund's average daily net assets. The Investment Advisers and
GSAM have no current intention of modifying or discontinuing any of such
limitations but may do so in the future at their discretion. Without such
limitations, "Management Fees," "Other Expenses" and "Total Operating
Expenses," respectively, estimated to be incurred by each Fund would be as
follows: Select Equity--0.75%, 0.38% and 1.63%, Growth and Income--0.70%,
0.26% and 1.46%, International Equity--1.00%, 0.45% and 1.95% and Asia
Growth--1.00%, 0.50% and 2.00%. The annual "Management Fees," "Distribution
Fees," "Other Expenses" and "Total Operating Expenses," respectively,
incurred by the Select Equity, Growth and Income, International Equity and
Asia Growth Funds during the fiscal year ended January 31, 1996 (expressed as
a percentage of average daily net assets after fee adjustments) were as
follows: Select Equity--0.75%, 0.25%, 0.38% and 1.38%, Growth and Income--
0.70%, 0.25%, 0.30% and 1.25%, International Equity--1.00%, 0.25%, 0.48% and
1.73% and Asia Growth--1.00%, 0.25%, 0.65% and 1.90%.
The information with respect to the Funds set forth in the foregoing table
and hypothetical example relates only to Class A Shares. The Select Equity,
Growth and Income, International Equity and Asia Growth Funds, but not the
other Funds, also offers Institutional and Service Shares, which are subject to
different fees and expenses (which affect performance), have different minimum
investment requirements and are entitled to different services than Class A
Shares and Class B Shares. Information regarding Institutional and Service
Shares may be obtained from your sales representative or from Goldman Sachs by
calling the number on the back cover page of this Prospectus. Class B Shares
convert to Class A Shares seven years after purchase; therefore; Class A
expenses are used in the hypothetical example after year seven.
The purpose of the foregoing table is to assist investors in understanding
the various fees and expenses of a Fund that an investor will bear directly or
indirectly. The information on the fees and expenses included in the table and
hypothetical example above are based on estimated fees and expenses for the
current fiscal year and should not be considered as representative of past or
future expenses. Actual fees and expenses may be greater or less than those
indicated. Moreover, while the example assumes a 5% annual return, a Fund's
actual performance will vary and may result in an actual return greater or less
than 5%. See "Management--Investment Advisers, Subadviser and Administrator."
9
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following data with respect to a share (of the class specified) of the
Funds outstanding during the period(s) indicated has been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
incorporated by reference into the Additional Statement from the Annual Report
to shareholders for the Funds for the year ended January 31, 1996 (the "Annual
Report"). This information should be read in conjunction with the financial
statements and related notes incorporated by reference and attached to the
Additional Statement. The Annual Report also contains performance information
and is available upon request and without charge by calling the telephone
number or writing to one of the addresses on the back cover of this
Prospectus.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED FUND FOR THE YEAR FOR THE PERIOD
ENDED ENDED
JANUARY 31, JANUARY 31,
1996 1995(A)
------------ --------------
<S> <C> <C>
Net asset value, beginning of period............. $ $ 14.18
------ -------
Income from investment operations:
Net investment income........................... 0.10
Net realized and unrealized gain on investment
transactions................................... 0.02
------ -------
Total income from investment operations......... 0.12
------ -------
Distributions to shareholders:
From net investment income...................... (0.08)
------ -------
Total distributions to shareholders............. (0.08)
------ -------
Net increase in net asset value.................. 0.04
------ -------
Net asset value, end of period................... $ 14.22
====== =======
Total return(b).................................. 0.87 %(d)
Ratio of net expenses to average net assets...... 1.00 %(c)
Ratio of net investment income to average net as-
sets............................................ 3.39 %(c)
Portfolio turnover rate.......................... 14.71 %
Net assets at end of period (in thousands)....... $ 7,510
Ratios assuming no voluntary waiver of distribu-
tion fees or expense limitations:
Ratio of expenses to average net assets......... 8.29 %(c)
Ratio of net investment loss to average net as-
sets........................................... (3.90)%(c)
</TABLE>
- --------
(a) For the period from October 12, 1994 (commencement of operations) to
January 31, 1995.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not Annualized.
10
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECT EQUITY FUND FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
----------------------------------- JANUARY 31,
1996 1995 1994 1993 1992(a)
------ ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 15.93 $ 15.46 $ 15.05 $ 14.17
------ ------- ------- -------- --------
Income (loss) from
investment operations:
Net investment income... 0.20 0.17 0.22 0.11
Net realized and
unrealized gain (loss)
on investments, options
and futures............ (0.38) 2.08 0.41 0.88
------ ------- ------- -------- --------
Total income (loss) from
investment operations.. (0.18) 2.25 0.63 0.99
------ ------- ------- -------- --------
Distributions to
shareholders:
From net investment
income................. (0.20) (0.17) (0.22) (0.11)
From net realized gain
on investment and
futures transactions... (0.94) (1.61) -- --
------ ------- ------- -------- --------
Total distributions to
shareholders........... (1.14) (1.78) (0.22) (0.11)
------ ------- ------- -------- --------
Net increase (decrease)
in net asset value...... (1.32) 0.47 0.41 0.88
------ ------- ------- -------- --------
Net asset value, end of
period.................. $ 14.61 $ 15.93 $ 15.46 $ 15.05
====== ======= ======= ======== ========
Total return(b).......... (1.10)% 15.12 % 4.30 % 7.01 %(d)
Ratio of net expenses to
average net assets...... 1.38 % 1.42 % 1.28 % 1.57 %(c)
Ratio of net investment
income to average net
assets.................. 1.33 % 0.92 % 1.30 % 1.24 %(c)
Portfolio turnover rate.. 56.18 % 87.73 % 144.93 % 135.02 %(c)
Net assets at end of
period (in thousands)... $94,968 $92,769 $117,757 $151,142
Ratios assuming no
voluntary waiver of
distribution fees:
Ratio of expenses to
average net assets..... 1.63 % 1.67 % 1.53 % 1.82 %(c)
Ratio of net investment
income to average net
assets................. 1.08 % 0.67 % 1.05 % 0.99 %(c)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
------------------ JANUARY 31,
------------
1996 1995 1994(f)
------------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 15.79 $ 14.18
-------- --------- -------
Income from investment operations:
Net investment income.................. 0.20 (e) 0.15
Net realized and unrealized gain on
investments and options............... 0.30 (e) 1.68
-------- --------- -------
Total income from investment
operations............................ 0.50 1.83
-------- --------- -------
Distributions to shareholders:
From net investment income............. (0.20) (0.15)
From net realized gain on investment
and option transactions............... (0.33) (0.06)
In excess of net investment income..... (0.07) (0.01)
-------- --------- -------
Total distributions to shareholders.... (0.60) (0.22)
-------- --------- -------
Additional paid-in capital.............. 0.11 (e) --
-------- --------- -------
Net increase in net asset value......... 0.01 1.61
-------- --------- -------
Net asset value, end of period.......... $ 15.80 $ 15.79
======== ========= =======
Total return(b)......................... 3.97 % 13.08 %(d)
Ratio of net expenses to average net
assets................................. 1.25 % 1.25 %(c)
Ratio of net investment income to
average net assets..................... 1.28 % 1.23 %(c)
Portfolio turnover rate................. 71.80 % 102.23 %(d)
Net assets at end of period (in
thousands)............................. $ 193,772 $41,528
Ratios assuming no voluntary waiver of
distribution fees or expense
limitations:
Ratio of expenses to average net
assets................................ 1.58 % 3.24 %(c)
Ratio of net investment income (loss)
to average net assets................. 0.95 % (0.76)%(c)
</TABLE>
- --------
(a) For the period from May 24, 1991 (commencement of operations) to January
31, 1992.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account. For the year ended January 31, 1995, total return for the
Growth and Income Fund, excluding additional paid in capital, would be
3.34%.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) For the period from February 5, 1993 (commencement of operations) to
January 31, 1994.
11
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL GROWTH FOR THE YEAR ENDED FOR THE
FUND JANUARY 31, PERIOD ENDED
------------------------------------------------ JANUARY 31,
1996 1995 1994 1993 1992 1991(a)
------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, $ 15.96 $ 14.64 $ 13.65 $ 11.10 $ 11.34
beginning of period.... ------- -------- -------- -------- -------- --------
Income (loss) from
investment operations:
Net investment income.. 0.03 0.02 0.06 0.28 0.34
Net realized and
unrealized gain (loss)
on investments, (0.69) 2.40 2.28 2.90 (0.27)
options and futures... ------- -------- -------- -------- -------- --------
Total income (loss)
from investment (0.66) 2.42 2.34 3.18 0.07
operations............ ------- -------- -------- -------- -------- --------
Distributions to
shareholders:
From net investment
income................ (0.01) (0.01) (0.07) (0.31) (0.31)
From net realized gain
on investment, options
and futures
transactions.......... (1.62) (1.07) (1.28) (0.32) --
In excess of net -- (0.02) -- -- --
investment income..... ------- -------- -------- -------- -------- --------
Total distributions to (1.63) (1.10) (1.35) (0.63) (0.31)
shareholders.......... ------- -------- -------- -------- -------- --------
Net increase (decrease) (2.29) 1.32 0.99 2.55 (0.24)
in net asset value..... ------- -------- -------- -------- -------- --------
Net asset value, end of $ 13.67 $ 15.96 $ 14.64 $ 13.65 $ 11.10
period................. ======= ======== ======== ======== ======== ========
Total return(b)......... (4.38)% 16.89 % 18.01% 29.31% 0.84%(d)
Ratio of net expenses to
average net assets..... 1.38 % 1.38 % 1.41% 1.53% 1.27%(d)
Ratio of net investment
income to average net
assets................. 0.16 % 0.13 % 0.42% 2.09% 3.24%(d)
Portfolio turnover rate. 38.36 % 36.12 % 58.93% 48.93% 35.63%(d)
Net assets at end of
period (in thousands).. $862,105 $833,682 $665,976 $500,307 $437,533
Ratios assuming no
voluntary waiver of
distribution fees:
Ratio of expenses to
average net assets.... 1.63 % 1.63 % 1.66% 1.78% 1.47%(d)
Ratio of net investment
income (loss) to
average net assets.... (0.09)% (0.12)% 0.17% 1.84% 3.04%(d)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP EQUITY FUND FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
--------------------------- JANUARY 31,
1996 1995 1994 1993(e)
------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of $ 20.67 $ 16.68 $ 14.18
period.......................... ------- -------- -------- -------
Income (loss) from investment
operations:
Net investment income (loss).... (0.07) (0.04) 0.03
Net realized and unrealized gain
(loss) on investments, options (3.53) 5.03 2.50
and futures.................... ------- -------- -------- -------
Total income (loss) from (3.60) 4.99 2.53
investment operations.......... ------- -------- -------- -------
Distributions to shareholders:
From net investment income...... -- -- (0.03)
From net realized gain on
investment, option and futures
transactions................... (0.69) (1.00) --
In excess of realized gains on
investment, option and futures (0.24) -- --
transactions................... ------- -------- -------- -------
Total distributions to (0.93) (1.00) (0.03)
shareholders................... ------- -------- -------- -------
Net increase (decrease) in net (4.53) 3.99 2.50
asset value..................... ------- -------- -------- -------
Net asset value, end of period... $ 16.14 $ 20.67 $ 16.68
======= ======== ======== =======
Total return(b).................. (17.53)% 30.13% 17.86%(d)
Ratio of net expenses to average
net assets...................... 1.53 % 1.60% 1.65%(c)
Ratio of net investment income
(loss) to average net assets.... (0.53)% (0.45)% 0.62%(c)
Portfolio turnover rate.......... 43.67 % 56.81% 7.12%(c)
Net assets at end of period (in
thousands)...................... $319,487 $261,074 $59,339
Ratios assuming no voluntary
waiver of distribution fees or
expense limitations:
Ratio of expenses to average net
assets......................... 1.78 % 1.85 % 2.70 %(c)
Ratio of net investment loss to
average net assets............. (0.78)% (0.70)% (0.43)%(c)
</TABLE>
- -------
(a) For the period from April 20, 1990 (commencement of operations) to January
31, 1991.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) For the period from October 22, 1992 (commencement of operations) to
January 31, 1993.
12
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND FOR THE YEAR ENDED FOR THE
JANUARY 31, PERIOD ENDED
---------------------------- JANUARY 31,
1996 1995 1994 1993(a)
------- --------- -------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 18.10 $ 14.35 $ 14.18
------- --------- -------- -------
Income (loss) from investment
operations:
Net investment income (loss)... 0.06 0.05 (0.01)
Net realized and unrealized
gain (loss) on investments,
options and futures........... (3.04) 4.08 0.29
Net realized and unrealized
loss on foreign currency
related transactions.......... (0.01) (0.38) (0.11)
------- --------- -------- -------
Total income (loss) from
investment operations......... (2.99) 3.75 0.17
------- --------- -------- -------
Distributions to shareholders:
From net investment income..... -- -- --
From net realized gain on
investment, option and futures
transactions.................. (0.59) -- --
------- --------- -------- -------
Total distributions to
shareholders.................. (0.59) -- --
------- --------- -------- -------
Net increase (decrease) in net
asset value.................... (3.58) 3.75 0.17
------- --------- -------- -------
Net asset value, end of period.. $ 14.52 $ 18.10 $ 14.35
======= ========= ======== =======
Total return(b)................. (16.65)% 26.13% 1.23 %(d)
Ratio of net expenses to average
net assets..................... 1.73 % 1.76% 1.80 %(c)
Ratio of net investment income
(loss) to average net assets... 0.40 % 0.51% (0.42)%(c)
Portfolio turnover rate......... 85.54 % 60.04% 0.00 %
Net assets at end of period (in
thousands)...................... $ 275,086 $269,091 $66,063
Ratios assuming no voluntary
waiver of distribution fees or
expense limitations:
Ratio of expenses to average
net assets.................... 1.98 % 2.01% 2.58 %(c)
Ratio of net investment income
(loss) to average net assets.. 0.15 % 0.26% (1.20)%(c)
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASIA GROWTH FUND FOR THE FOR THE
YEAR ENDED PERIOD
JANUARY 31, ENDED
1996 JANUARY 31,
----------- 1995(e)
-----------
<S> <C> <C>
Net asset value, beginning of period............... $ $ 14.18
-------- --------
Income (loss) from investment operations:
Net investment income............................. 0.11
Net unrealized loss on investments................ (0.89)
Net realized and unrealized gain on foreign
currency related transactions.................... 0.01
-------- --------
Total loss from investment operations............. (0.77)
-------- --------
Distributions to shareholders:
From net investment income........................ (0.10)
-------- --------
Total distributions to shareholders............... (0.10)
-------- --------
Net decrease in net asset value.................... (0.87)
-------- --------
Net asset value, end of period..................... $ 13.31
======== ========
Total return(b).................................... (5.46)%(d)
Ratio of net expenses to average net assets........ 1.90 %(c)
Ratio of net investment income to average net
assets............................................ 1.83 %(c)
Portfolio turnover rate............................ 36.08 %
Net assets at end of period (in thousands)......... $124,298
Ratios assuming no voluntary waiver of distribution
fees or expense limitations:
Ratio of expenses to average net assets........... 2.38% (c)
Ratio of net investment loss to average net
assets........................................... 1.35% (c)
</TABLE>
- --------
(a) For the period from December 1, 1992 (commencement of operations) to
January 31, 1993.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) For the period from July 8, 1994 (commencement of operations) to January
31, 1995.
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Potential equity investments for each Fund (other than the Select Equity
Fund which evaluates securities using both fundamental research and a variety
of quantitative techniques as described below under "Select Equity Fund")
generally are evaluated using fundamental analysis, including criteria such as
earnings, cash flow, asset values and/or dividend-paying ability. In choosing
a Fund's securities, the Investment Adviser utilizes first-hand fundamental
research, including visiting company facilities to assess operations and meet
decision-makers. The Investment Advisers may also use a macro analysis of
numerous economic and valuation variables to determine and anticipate changes
in company earnings and the overall investment climate. Each Investment
Adviser is able to draw on the research and market expertise of the Goldman
Sachs Research Department and other affiliates of the Investment Adviser as
well as information provided by other securities dealers.
The Investment Advisers intend to purchase equity securities of companies
that are, in their view, underpriced relative to a combination of such
companies' long-term earnings prospects, growth rate, free cash flow and/or
dividend-paying ability. The Funds may also purchase securities of companies
that have experienced difficulties and that, in the opinion of an Investment
Adviser, are available at attractive prices. Consideration will be given to
the business quality of the issuer. Factors positively affecting an Investment
Adviser's view of that quality include the competitiveness and degree of
regulation in the markets in which the company operates, the existence of a
management team with a record of success, the market position of the company
in the markets in which it operates, the level of the company's financial
leverage and the sustainable return on capital invested in the business.
Equity securities in a Fund's portfolio will generally be sold when the
Investment Adviser believes that the market price fully reflects or exceeds
the securities' fundamental valuation or when other more attractive
investments are identified.
The investment objectives and principal investment policies of each Fund are
described below. Certain other investment practices and management techniques,
which involve certain risks, as well as the minimum rating criteria with
respect to a Fund's investments in fixed income securities, are described
under "Special Investment Methods and Risk Factors."
BALANCED FUND
The Balanced Fund's investment objective is to provide its shareholders with
current income and long-term capital growth. The Fund seeks to achieve its
objective by investing in a diversified portfolio of equity and fixed income
securities. Under normal market conditions, the Fund will invest at least 25%
of its total assets in fixed income senior securities and the remainder of its
assets in equity and equity-related securities, other fixed income securities
and cash. Under normal market conditions, the Investment Adviser expects that
the Fund generally will invest between 50% and 70% of its total assets in
equity securities. The Fund will invest in fixed income securities primarily
to provide income for regular quarterly dividends while seeking capital
appreciation primarily through the equity component of its portfolio. The
percentage of the portfolio invested in equity and fixed income securities
will vary from time to time as the Investment Adviser evaluates their relative
attractiveness based on market valuations, economic growth and inflation
prospects. This is subject to the Fund's intention to pay regular quarterly
dividends. The amount of quarterly dividends can also be expected to fluctuate
in accordance with factors such as prevailing interest rates and the
percentage of the Fund's assets invested in fixed-income securities.
14
<PAGE>
The equity securities in which the Fund will invest consist of common
stocks, preferred stocks, interests in real estate investment trusts,
convertible debt obligations, convertible preferred stocks, equity interests
in trusts, partnerships, joint ventures and similar enterprises, warrants and
stock purchase rights and other rights to acquire stock that the Investment
Adviser believes offer the potential for capital appreciation. Although the
Fund's equity investments will consist primarily of publicly traded U.S.
securities, the Fund may invest up to 10% of its total assets in the equity
securities of foreign issuers, including issuers in countries with emerging
markets and economies, and equity securities quoted in a foreign currency. A
portion of the Fund's portfolio of equity securities may be selected primarily
to provide current income. Equity securities selected to provide current
income include interests in real estate investment trusts, convertible
securities, preferred stocks, utility stocks and interests in limited
partnerships.
A number of investment strategies will be used in selecting fixed income
securities for the Fund's portfolio. GSAM's fixed income investment philosophy
is to actively manage the portfolio within a risk-controlled framework. The
Investment Adviser de-emphasizes interest rate anticipation by monitoring the
duration of the portfolio within a narrow range of the Investment Adviser's
duration of a target, and instead focuses on seeking to add value through
sector selection, security selection and yield curve strategies.
The Fund's fixed income securities will primarily include securities issued
by the U.S. Government, its agencies, instrumentalities or sponsored
enterprises, corporations or other entities, mortgage-backed and asset-backed
securities, municipal securities and custodial receipts. The Fund may also
invest in debt obligations (dollar and non-dollar denominated) issued or
guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities and foreign corporations or other
entities. The Fund's investments in fixed income securities that are issued by
foreign issuers, including issuers in countries with emerging markets may not
exceed 10% of the Fund's total assets.
SELECT EQUITY FUND
The Select Equity Fund's investment objective is to provide its shareholders
with a total return through investments in equity securities consisting of
capital appreciation plus dividend income that, net of Fund expenses, exceeds
the total return realized on the S&P 500 Index. Under normal circumstances,
the Fund will invest at least 90% of its total assets in equity securities.
The Fund may invest in equity securities of foreign issuers that are traded in
the United States and that comply with U.S. accounting standards. The Fund
seeks to achieve its investment objective by investing in a portfolio of
equity securities selected using both fundamental research and a variety of
quantitative techniques which seek to maximize the Fund's risk to reward
ratio. The Fund's portfolio is designed to have risk, capitalization and
industry characteristics similar to the S&P 500 Index. The Investment Adviser
begins with a universe primarily of large capitalization equity securities.
The Investment Adviser uses a proprietary multifactor model (the "Multifactor
Model") to assign each equity security a rating, and, if the security is
followed by the Goldman Sachs Investment Research Department (the "Research
Department") a second rating will be assigned based upon the Research
Department's evaluation. In selecting securities for the Fund, the Investment
Adviser utilizes optimization models to evaluate the ratings assigned by the
Multifactor Model and the Research Department to build a diversified
portfolio. This portfolio will be primarily comprised of securities rated
highest by the Investment Adviser's Multifactor Model and research analysts
and will have risk characteristics and industry weightings similar to the S&P
500 Index. Under normal conditions, the securities of any one issuer may not
exceed 5% of the Fund's total assets.
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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 (e.g., 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. 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 a number of attractive investment characteristics.
If the equity security is followed by the Research Department, the security
is also assigned a rating based upon the Research Department's evaluation. The
Research Department uses a four category rating system ranging from
"recommended for purchase" to "likely to underperform." With an annual budget
of more than $120 million, the Research Department has a staff of
approximately 150 senior professionals who follow over 1,700 issuers. By
employing both a quantitative (i.e., the Multifactor Model) and a qualitative
(i.e., the analyst's ratings) method of selecting securities, the Fund seeks
to capitalize on the strengths of each discipline.
GROWTH AND INCOME FUND
The Growth and Income Fund's investment objectives are to provide its
shareholders with long-term growth of capital and growth of income. The Fund
seeks to achieve its investment objectives by investing, under normal market
conditions, at least 65% of its total assets in equity securities that the
Investment Adviser considers to have favorable prospects for capital
appreciation and/or dividend-paying ability. Equity securities in which the
Fund may invest consist of common stocks, preferred stocks, convertible
securities, warrants and stock purchase rights and interests in real estate
investment trusts. These securities may or may not pay a current dividend. The
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 Fund's investment objectives. In addition, although the Fund
will invest primarily in publicly traded U.S. securities, it may invest up to
25% of its total assets in foreign securities, including securities of issuers
in countries with emerging markets and economies.
CAPITAL GROWTH FUND
The Capital Growth Fund's investment objective is to provide its
shareholders with long-term growth of capital. This objective is a fundamental
policy that cannot be changed without shareholder approval. The Fund seeks to
achieve its investment objective by investing primarily in securities that are
considered by the Investment Adviser to have long-term capital appreciation
potential. Among such investments, the Fund emphasizes the purchase of common
stocks, but may also purchase convertible debt securities, convertible
preferred stock, warrants, mortgage-backed and asset-backed securities and
lower rated or unrated debt
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obligations that the Investment Adviser believes offer the potential for long-
term capital growth. Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities, including common stocks,
convertible securities, preferred stocks, warrants and stock purchase rights,
and interests in real estate investment trusts. At least 75% of the Fund's
total assets will be invested in securities of U.S. issuers and no more than
25% of the Fund's total assets may be invested in foreign equity or fixed
income securities, including issuers in countries with emerging markets and
economies. Up to 25% of the Fund's total assets may be invested in fixed
income securities issued or guaranteed by corporate issuers (both domestic and
foreign), the U.S. Government, or its agencies, instrumentalities or sponsored
enterprises that in the opinion of the Investment Adviser offer long-term
capital appreciation possibilities.
SMALL CAP EQUITY FUND
The Small Cap Equity Fund's investment objective is to provide its
shareholders with long-term capital growth. Dividend income, if any, is an
incidental consideration. The Fund seeks to achieve its investment objective
by investing, under normal circumstances, at least 65% of its total assets in
equity securities of companies with public stock market capitalizations of $1
billion or less at the time of investment. However, the Fund currently
emphasizes investments in companies with public stock market capitalizations
of $500 million or less at the time of investment. Under normal market
conditions, the Fund's investment horizon for ownership of stocks will be two
to three years. Equity securities in which the Fund may invest include common
stocks, preferred stocks, convertible securities, warrants and interests in
real estate investment trusts. The Fund will invest in companies which the
Investment Adviser believes are well managed niche businesses that have the
potential to achieve high or improving returns on capital and/or above average
sustainable growth. The Fund may invest in securities of small capitalization
companies which may have experienced financial difficulties. Investments may
also be made in companies that are in the early stages of their life and that
the Investment Adviser believes have significant growth potential. The
Investment Adviser believes that the companies in which the Fund may invest
offer greater opportunity for growth of capital than larger, more mature,
better known companies. However, investments in such small capitalization
companies involve special risks. See "Special Investment Methods and Risk
Factors--Investing in Small Capitalization Companies." The number of stocks
owned is intended to provide the Fund with a moderate level of diversification
while at the same time not diluting the impact of any one investment. Although
the Fund will invest primarily in publicly traded U.S. securities, it may
invest up to 25% of its total assets in foreign securities, including issuers
in countries with emerging markets and economies. Up to 35% of its total
assets may be invested in the equity securities of companies with public stock
market capitalizations in excess of $1 billion and in fixed income securities,
which may include notes, bonds, debentures, government securities and zero
coupon bonds.
INTERNATIONAL EQUITY FUND
The International Equity Fund's investment objective is to provide its
shareholders with long-term capital appreciation. Under normal market
conditions, the Fund will seek to achieve its objective by investing
substantially all, and at least 65%, of its total assets in equity securities
of companies that are organized outside the United States or whose securities
are principally traded outside the United States. The Fund may allocate its
assets among countries as determined by the Investment Adviser from time to
time provided that the Fund's assets are invested in at least three foreign
countries. The equity securities in which the Fund will primarily invest will
consist of common stock, preferred stock, convertible debt obligations,
convertible preferred stock and warrants or other rights to acquire stock that
the Investment Adviser believes offer the potential for long-term capital
appreciation. The Fund expects to invest a substantial portion of its assets
in the securities of companies
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located in the developed countries in Western Europe and in Japan. However,
the Fund may also invest in the securities of issuers located in the following
countries: Argentina, Australia, Bangladesh, Brazil, Canada, Chile, China,
Colombia, Czech Republic, Egypt, Hong Kong, Hungary, India, Indonesia, Israel,
Jamaica, Jordan, Kenya, Kuwait, Malaysia, Mexico, Morocco, New Zealand,
Nigeria, Pakistan, Philippines, Poland, The Republic of Slovakia, Singapore,
South Korea, Sri Lanka, South Africa, Taiwan, Thailand, Turkey, Venezuela and
Zimbabwe. Many of the countries in which the Fund may invest have emerging
markets or economies which involve certain risks as described below under
"Special Investment Methods and Risk Factors--Special Risks of Investments in
the Asian and Other Emerging Markets," which are not present in investments in
more developed countries. The number of stocks in which the Fund will
typically invest is intended to provide the Fund with a moderate level of
diversification while at the same time not diluting the impact of any one
investment.
The Fund may employ certain currency techniques to seek to hedge against
currency exchange rate fluctuations or to seek to increase total return. When
used to enhance return, these management techniques are considered
speculative. Such currency management techniques involve risks different from
those associated with investing solely in dollar-denominated securities of
U.S. issuers. To the extent that the Fund is fully invested in foreign
securities while also maintaining currency positions, it may be exposed to
greater combined risk. The Fund's net currency positions may expose it to
risks independent of its securities positions. See "Special Investment Methods
and Risk Factors."
The Fund may invest in debt obligations (i) issued by foreign and U.S.
corporate, mortgage- and asset-backed issuers, (ii) issued or guaranteed by
the U.S. Government, foreign governments, or their respective agencies,
instrumentalities, political subdivisions and authorities and (iii) issued or
guaranteed by international or supranational organizations. The Fund will not,
under normal conditions, invest more than 35% of its total assets in such debt
obligations.
ASIA GROWTH FUND
The Asia Growth Fund's investment objective is to provide its shareholders
with long-term capital appreciation. The Fund seeks to achieve its objective
by investing primarily in equity securities of Asian companies which are
considered by the Investment Adviser to have long-term capital appreciation
potential. Under normal market conditions, the Fund will invest substantially
all, and at least 65%, of its total assets in equity securities of companies
that satisfy at least one of the following criteria: (i) their securities are
traded principally on stock exchanges in one or more of the Asian countries,
(ii) they derive 50% or more of their total revenue from goods produced, sales
made or services performed in one or more of the Asian countries, (iii) they
maintain 50% or more of their assets in one or more of the Asian countries, or
(iv) they are organized under the laws of one of the Asian countries. For
purposes of the Fund's investment policies, Asian countries are China, Hong
Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South
Korea, Sri Lanka, Taiwan and Thailand as well as any other country in the
Asian region (other than Japan) to the extent that foreign investors are
permitted by applicable law to make such investments. Many of the countries in
which the Fund may invest have emerging markets or economies which involve
certain risks as described below under "Special Investment Methods and Risk
Factors--Special Risks of Investments in the Asian and Other Emerging
Markets," which are not present in investments in more developed countries.
The equity securities in which the Fund will primarily invest will consist of
common stock, preferred stock, convertible debt obligations, convertible
preferred stock, equity interests in trusts, partnerships, joint ventures and
similar enterprises, warrants and stock purchase rights. The Fund may purchase
equity securities of issuers that have not paid dividends on a
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timely basis, securities of companies that have experienced difficulties, and
securities of companies without performance records. The Fund intends to
purchase that number of stocks which it believes will provide the Fund with a
moderate level of diversification while at the same time not diluting the
impact of any one investment.
The Fund may employ certain currency management techniques to seek to hedge
against currency exchange rate fluctuations or to seek to increase total
return. When used to increase total return, these management techniques are
considered speculative. Such currency management techniques involve risks
different from those associated with investing solely in dollar-denominated
securities of U.S. issuers. To the extent that the Fund is fully invested in
foreign securities while also maintaining currency positions, it may be
exposed to greater combined risk. The Fund's net currency positions may expose
it to risks independent of its securities positions. See "Special Investment
Methods and Risk Factors."
The Fund may allocate its assets among the Asian countries as determined
from time to time by the Investment Adviser. Allocation of the Fund's
investments will depend upon the relative attractiveness of the Asian markets
and particular issuers. Concentration of the Fund's assets in one or a few of
the Asian countries and Asian currencies will subject the Fund to greater
risks than if the Fund's assets were not geographically concentrated. See
"Special Investment Methods and Risk Factors--Foreign Transactions." The Fund
may invest up to 35% of its total assets in equity securities of issuers in
other countries, including Japan, and fixed income securities. The Fund may
invest in fixed income securities (i) issued by foreign and U.S. corporate,
mortgage- and asset-backed issuers, (ii) issued or guaranteed by the U.S.
Government, foreign governments, or their respective agencies,
instrumentalities, political subdivisions and authorities and (iii) issued or
guaranteed by international or supranational organizations.
SPECIAL INVESTMENT METHODS AND RISK FACTORS
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities, including debt obligations
and preferred stock of the issuer convertible at a stated exchange rate into
common stock of the issuer. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar
quality. As with all debt securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. However, when the market price of the
common stock underlying a convertible security exceeds the conversion price,
the convertible security tends to reflect the market price of the underlying
common stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus
may not 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. In
evaluating a convertible security, the Investment Adviser will give primary
emphasis to the attractiveness of the underlying common stock. The convertible
debt securities in which the Balanced Fund invests will be rated, at the time
of investment, B or better by Standard & Poor's Ratings Group ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), or if unrated by such rating
organizations, determined to be of comparable quality by the Investment
Adviser. The convertible securities, in which the Select Equity Fund invests,
are not subject to any minimum rating criteria. The convertible debt
securities in which the other Funds may invest are subject to the same rating
criteria as a Fund's investments in non-convertible debt securities.
Convertible debt securities are equity investments for purposes of each Fund's
investment policies.
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WARRANTS AND STOCK PURCHASE RIGHTS
Each Fund may purchase warrants and stock purchase rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, 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 investments. In addition,
the value of warrants and stock purchase rights does 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 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 a Fund's assets as
compared with investing the same amount in the underlying stock.
FOREIGN TRANSACTIONS
FOREIGN SECURITIES. Investments in foreign securities may offer potential
benefits that are not available from investments exclusively in securities of
domestic issuers. Foreign issuers may offer better investment opportunities
than domestic securities. Foreign countries may have economic policies or
business cycles different from those of the United States and securities
markets that do not necessarily move in a manner parallel to U.S. markets.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign
or U.S. laws or restrictions applicable to such investments and in exchange
control regulations (e.g., currency blockage). Some foreign exchanges may have
substantially less volume than, for example, the New York Stock Exchange and
securities of some foreign companies may be less liquid than securities of
comparable domestic companies. Commissions on transactions in foreign
securities may be higher than those for similar transactions on domestic stock
markets. In addition, clearance and settlement procedures may be different in
foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus
making it difficult to conduct such transactions.
Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
company than about a domestic company. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
companies in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of
nationalization, expropriation or confiscatory taxation, imposition of
withholding taxes on dividend or interest payments, limitations on the removal
of funds or other assets of the Funds, political or social instability or
diplomatic developments which could affect investments in those countries.
INVESTMENTS IN ADRS, EDRS AND GDRS. Each Fund may invest in foreign
securities which take the form of sponsored and unsponsored American
Depository Receipts ("ADRs") and Global Depository Receipts ("GDRs"), and each
Fund, other than the Select Equity Fund, may also invest in European
Depository Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers (together,"Depository Receipts"). ADRs represent
the right to receive securities of foreign issuers deposited in a domestic
bank or a correspondent bank. Prices of ADRs are quoted in U.S. dollars and
are traded in the United States on exchanges or over-the-counter and are
sponsored and issued by domestic banks. EDRs and GDRs are receipts evidencing
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an arrangement with a non-U.S. bank. EDRs and GDRs are not necessarily quoted
in the same currency as the underlying security. To the extent a Fund acquires
Depository Receipts through banks which do not have a contractual relationship
with the foreign issuer of the security underlying the Depository Receipts to
issue and service such Depository Receipts (unsponsored Depository Receipts),
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. Investment in Depository Receipts does not eliminate all the
risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipt and the underlying securities are quoted.
However, by investing in Depository Receipts, such as an ADR, that are quoted
in U.S. dollars, a Fund will avoid currency risks during the settlement period
for purchases and sales.
SPECIAL RISKS OF INVESTMENTS IN THE ASIAN AND OTHER EMERGING
MARKETS. Investing in the securities of issuers in emerging markets involves
risks in addition to those discussed above. The International Equity and Asia
Growth Funds may each invest without limit in the securities of issuers in
countries with emerging economies or securities markets. The Balanced, Growth
and Income, Capital Growth, and Small Cap Equity Funds may invest up to 15%,
25%, 10% and 25%, respectively, of their total assets in securities of issuers
in countries with emerging economies or securities markets. These emerging
markets are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging markets may be constrained by limitations as to
daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser and its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement volume
limitations have been reached.
Foreign investment in the securities markets of certain emerging markets is
restricted or controlled to varying degrees which may limit investment in such
countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only
a specified percentage of an issuer's outstanding securities or a specific
class of securities which may have less advantageous terms (including price)
than securities of such company available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. Due to restrictions on direct investment in
equity securities in certain Asian countries, such as Taiwan, it is
anticipated that a Fund may invest in such countries only through other
investment funds in such countries. See "Other Investment Companies."
Furthermore, the repatriation of both investment income and capital from
several of the Asian countries is subject to restrictions such as the need for
certain governmental consents.
Many of the emerging markets may be subject to a greater degree of economic,
political and social instability than is the case in Western Europe, the
United States and Japan. Many of the emerging markets do not have fully
democratic governments. For example, some governments of emerging market
countries are authoritarian in nature or have been installed or removed as a
result of military coups, while governments in other emerging markets have
periodically used force to suppress civil dissent. Disparities of wealth, the
pace and success of democratization, and ethnic, religious and racial
disaffection, among other factors, have also led to
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social unrest, violence and/or labor unrest in some of the Asian and other
countries. The economies of most of the emerging markets are heavily dependent
upon international trade and are accordingly affected by protective trade
barriers and the economic conditions of their trading partners, principally,
the United States, Japan, China and the European Union. In addition, the
economies of some of the emerging markets are vulnerable to weakness in world
prices for their commodity exports.
Settlement procedures in emerging markets are frequently less developed and
reliable than those in the United States and may involve a Fund's delivery of
securities before receipt of payment for their sale. In addition, significant
delays are common in certain markets in registering the transfer of
securities. Settlement or registration problems may make it more difficult for
a Fund to value its portfolio securities and could cause the Fund to miss
attractive investment opportunities, to have a portion of its assets
uninvested or to incur losses due to the failure of a counterparty to pay for
securities the Fund has delivered or the Fund's inability to complete its
contractual obligations.
Currently, there is no market or only a limited market for many of the
management techniques and instruments with respect to the currencies and
securities markets of the emerging market countries. Consequently, there can
be no assurance that suitable instruments for hedging currency and market-
related risks will be available at the times when a Fund wishes to use them.
FOREIGN CURRENCY TRANSACTIONS. A Fund may, to the extent it invests in
foreign securities, purchase or sell forward foreign currency exchange
contracts for hedging purposes. A Fund may enter into forward foreign currency
exchange contracts to seek to protect against anticipated changes in future
foreign currency exchange rates. In addition, the International Equity and
Asia Growth Funds may enter into such contracts to seek to increase total
return when the Investment Adviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities denominated or quoted in
that currency do not present attractive investment opportunities and are not
held in the Fund's portfolio. When entered into to seek to increase total
return, forward foreign currency exchange contracts are considered
speculative. The International Equity and Asia Growth Funds may also engage in
cross-hedging by using forward contracts in a currency different from that in
which the hedged security is denominated or quoted if the Investment Adviser
determines that there is a pattern of correlation between the two currencies.
If a Fund enters into a forward foreign currency exchange contract to buy
foreign currency or the International Growth or Asia Growth Funds enter into
forward foreign currency exchange contracts to sell foreign currency to seek
to increase total return, the Fund will be required to place and maintain cash
or liquid, high grade debt securities in a segregated account with the Fund's
custodian in an amount equal to the value of the Fund's total assets committed
to the consummation of the forward contract. The Fund will incur costs in
connection with conversions between various currencies.
Currency exchange rates may fluctuate significantly over short periods of
time causing, along with other factors, a Fund's net asset value to fluctuate
as well. They generally are determined by the forces of supply and demand in
the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad. To the
extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions,
is denominated or quoted in the currencies of foreign countries, the Fund will
be more susceptible to the risk of adverse economic and political developments
within those countries.
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The market in forward foreign currency exchange contracts used by each Fund,
and currency swaps and other privately negotiated currency instruments
authorized for use by the International Equity and Asia Growth Funds, offers
less protection against defaults by the other party to such instruments than
is available for currency instruments traded on an exchange. Forward contracts
are subject to the risk that the counterparty to such contract will default on
its obligations. Since a forward foreign currency exchange contract is not
guaranteed by an exchange or clearinghouse, a default on the contract would
deprive the Fund of unrealized profits, transaction costs or the benefits of a
currency hedge or force the Fund to cover its purchase or sale commitments, if
any, at the current market price. A Fund will not enter into such transactions
unless the credit quality of the unsecured senior debt or the claims-paying
ability of the counterparty is considered to be investment grade by the
Investment Adviser.
In addition to investing in securities denominated or quoted in a foreign
currency, the International Equity and Asia Growth Funds may engage in a
variety of foreign currency management techniques. The Funds may hold foreign
currency received in connection with investments in foreign securities when,
in the judgment of the Investment Adviser, it would be beneficial to convert
such currency into U.S. dollars at a later date, based on anticipated changes
in the relevant exchange rate. However, due to the limited market for these
instruments with respect to the currencies of certain Asian countries, the
Investment Adviser does not currently anticipate that a significant portion of
Asia Growth Fund's currency exposure will be covered by such instruments. The
opportunity for hedging currency exposure to other emerging markets is also
generally limited. For a discussion of such instruments and the risks
associated with their use, see "Investment Objective and Policies" in the
Additional Statement.
Because investment in foreign issuers will usually involve currencies of
foreign countries, and because the International Equity and Asia Growth Funds
may have currency exposure independent of their securities positions, the
value of the assets of a Fund as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates.
OPTIONS ON FOREIGN CURRENCIES. A Fund may, to the extent it invests in
foreign securities, purchase and sell (write) put and call options on foreign
currencies for the purpose of protecting against declines in the U.S. dollar
value of foreign portfolio securities and anticipated dividends on such
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. In addition, the International Equity and Asia Growth Funds
may use options on currency to cross-hedge, which involves writing or
purchasing options on one currency to hedge against changes in exchange rates
for a different currency, if there is a pattern of correlation between the two
currencies. As with other kinds of option transactions, however, the writing
of an option on foreign currency will constitute only a partial hedge, up to
the amount of the premium received. A Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition to
purchasing put and call options for hedging purposes, the International Equity
and Asia Growth Funds may purchase call or put options on currency to seek to
increase total return when the Investment Adviser anticipates that the
currency will appreciate or depreciate in value, but the securities quoted or
denominated in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. When purchased or sold
to increase total return, options on currencies are considered speculative.
Options on foreign currencies to be written or purchased by the Funds will be
traded on U.S. and foreign exchanges or over-the-counter.
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INVESTING IN SMALL CAPITALIZATION COMPANIES
The Small Cap Equity Fund will emphasize and the other Funds may invest in
smaller, lesser-known companies which the Investment Adviser believes offer
greater capital appreciation and/or growth potential than larger, more mature,
better known firms. Investing in the securities of such companies, however,
involves greater risk and the possibility of greater portfolio price
volatility. Historically, small capitalization stocks and stocks of recently
organized companies have been more volatile in price than the larger
capitalization stocks included in the S&P 500 Index. Among the reasons for the
greater price volatility of these small company and unseasoned stocks are the
less certain growth prospects of smaller firms and the lower degree of
liquidity in the markets for such stocks.
FIXED INCOME SECURITIES
Each Fund may invest in U.S. Government securities and corporate and certain
other fixed income securities. Select Equity Fund may only invest in debt
securities that are considered cash equivalents. Fixed income securities are
subject to the risk of the issuer's inability to meet principal and interest
payments on the obligations (credit risk) and 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 interest rates payable on certain fixed income securities in which a Fund
may invest are not fixed and may fluctuate based upon changes in market rates
of interest.
RATING CRITERIA. The debt securities in which the Balanced, Growth and
Income, International Equity and Asia Growth Funds may invest will, except as
noted below, be rated investment grade at the time of investment. Investment
grade debt securities are securities rated BBB or higher by S&P or Baa or
higher by Moody's. A security will be deemed to have met a rating requirement
if it receives the minimum required rating from at least one such rating
organization even though it has been rated below the minimum rating by one or
more other rating organizations, or if unrated by such rating organizations,
determined by the Investment Adviser to be of comparable credit quality. The
Balanced Fund may invest up to 10% of its total assets in debt securities that
are rated BB or B by S&P or Ba or B by Moody's or, if unrated by such rating
organizations, determined by the Investment Adviser to be of comparable credit
quality. The Capital Growth, Small Cap Equity and Growth and Income Funds may
invest up to 25%, 35% and 10%, respectively, of their total assets in debt
securities which are unrated or rated in the lowest rating categories by S&P
or Moody's (i.e., BB or lower by S&P or Ba or lower by Moody's), including
securities rated D by Moody's or S&P. Fixed income securities rated BB or Ba
or below (or comparable unrated securities) are commonly referred to as "junk
bonds" and are considered predominantly 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 grade 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 S&P or Aaa, Aa, A or Baa by
Moody's). Also, to the extent that the rating assigned to a security in a
Fund's portfolio is downgraded by a rating organization, the market price and
liquidity of such security may be adversely affected. See Appendix A to the
Additional Statement for a description of the corporate bond ratings assigned
by S&P and Moody's.
GOVERNMENT DEBT OBLIGATIONS. Each Fund may invest in U.S. Government
securities which include: obligations issued by the U.S. Government or by any
agency, instrumentality or sponsored enterprise thereof
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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
state government agencies or instrumentalities, which may or may not be
entitled to the full faith and credit of the issuer. A Fund may also invest in
zero coupon U.S. Treasury securities and in zero coupon securities issued by
financial institutions, which represent 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. A Fund's investment in zero coupon securities
may require the Fund to sell certain of its portfolio securities to generate
sufficient cash to satisfy certain income distribution requirements. See
"Taxation" in the Additional Statement.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Each Fund (other than the
Select 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. Each Fund (other than the
Select 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.
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 which may
increase the volatility of such investments relative to similarly rated debt
securities. During periods of declining interest rates, prepayment of loans
underlying mortgage-backed and asset-backed securities can be expected to
accelerate and thus impair a Fund's ability to reinvest the returns of
principal at comparable yields. During periods of rising interest rates,
reduced prepayment rates may extend the average life of mortgage-backed and
asset-backed securities and increase a Fund's exposure to rising interest
rates. 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 cases, recoveries on repossessed collateral may not be available
to support payments on these securities.
The Balanced Fund may also invest in stripped mortgage-backed securities
("SMBS") (including interest only and principal only securities), which are
derivative mortgage securities. SMBS are usually structured with two classes
that receive different proportions of the interest and principal distributions
from a pool of mortgage assets. The Fund's investments in such securities are
subject to the risk that if mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities.
STRUCTURED SECURITIES. The Balanced Fund may invest in structured notes,
bonds or debentures. The value of the principal of and/or interest on such
securities is determined by reference to changes in the value of specific
currencies, interest rates, commodities, indices or other financial indicators
(the "Reference") or the relative change in two or more References. The
interest rate or the principal amount payable upon maturity or redemption
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may be increased or decreased depending upon changes in the applicable
Reference. The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, result in the
loss of the Fund's investment. Structured securities may be positively or
negatively indexed, so that appreciation of the Reference may produce an
increase or decrease in the interest rate or value of the security at
maturity. In addition, changes in the interest rates or the value of the
security at maturity may be a multiple of changes in the value of the
Reference. Consequently, structured securities may entail a greater degree of
market risk than other types of fixed income securities. Structured securities
may also be more volatile, less liquid and more difficult to accurately price
than less complex securities.
BANK OBLIGATIONS. The Balanced Fund may invest in U.S. dollar denominated
obligations issued or guaranteed by U.S. or foreign banks. Bank obligations,
including without limitation time deposits, bankers' acceptances and
certificates of deposit, may be general obligations of the parent bank or may
be limited to the issuing branch by the terms of the specific obligations or
by government regulation. Banks are subject to extensive but different
governmental regulations which may limit both the amount and types of loans
which may be made and interest rates which may be charged. In addition, the
profitability of the banking industry is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. General economic conditions as well
as exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operation of this industry.
MORTGAGE DOLLAR ROLLS. The Balanced Fund may enter into mortgage "dollar
rolls" in which the Fund sells securities for delivery in the current month
and simultaneously contracts with the same counterparty to repurchase
substantially similar (same type, coupon and maturity) securities on a
specified future date. During the roll period the Fund loses the right to
receive principal and interest paid on the securities sold. However, the Fund
would benefit to the extent of any difference between the price received for
the securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of the Fund compared with what such
performance would have been without the use of mortgage dollar rolls. The Fund
will hold and maintain in a segregated account until the settlement date cash
or liquid, high grade debt securities in an amount equal to the forward
purchase price. The benefits derived from the use of mortgage dollar rolls may
depend upon the Investment Adviser's ability to predict correctly mortgage
prepayments and interest rates. There is no assurance that mortgage dollar
rolls can be successfully employed. For financial reporting and tax purposes,
the Fund treats mortgage dollar rolls as two separate transactions; one
involving the purchase of a security and a separate transaction involving a
sale. The Fund does not currently intend to enter into mortgage dollar rolls
that are accounted for as a financing.
OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund (other than the Select Equity Fund) may purchase put and call
options and write (sell) covered call and put options on any securities in
which it may invest or on any securities index composed of securities in which
it may invest. A Fund will purchase and write such options that are listed on
national or foreign securities 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 direct investments in equity securities. The use of options to increase
total return involves the risk of loss if the Investment Adviser is incorrect
in its expectation of fluctuations in securities prices or interest rates. The
successful use of puts for hedging purposes also depends in part on the
ability of the Investment Adviser to predict future price fluctuations
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and the degree of correlation between the options and securities markets. If
the Investment Adviser is incorrect in its expectation of changes in
securities prices or determination of the correlation between the securities
indices on which options are written and purchased and the securities in a
Fund's investment portfolio, the investment performance of the Fund will be
less favorable than it would have been in the absence of such options
transactions. The writing of options could significantly increase a Fund's
portfolio turnover rate and, therefore, associated brokerage commissions or
spreads.
The Balanced Fund may also purchase options and write covered options on the
yield "spread," or yield differential, between two securities. Such
transactions are referred to as "yield curve" options. In contrast to other
types of options, a yield curve option is based on the difference between the
yields of designated securities, rather than the prices of the individual
securities, and is settled through cash payments. Accordingly, a yield curve
option is profitable to the holder if this differential widens (in the case of
a call) or narrows (in the case of a put), regardless of whether the yields of
the underlying securities increase or decrease.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
To hedge against changes in interest rates, securities prices or currency
exchange rates or to seek to increase total return, a Fund may purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. The Select Equity Fund may enter
into such transactions only with respect to the S&P 500 Index. A Fund will
engage in futures and related options transactions only for bona fide hedging
purposes as defined in regulations of the Commodity Futures Trading Commission
or (except with respect to transactions by the Balanced, Growth and Income,
Select Equity, Capital Growth and Small Cap Equity Funds, in futures on
foreign currencies) to seek to increase total return to the extent permitted
by such regulations. A Fund may not purchase or sell futures contracts or
purchase or sell related options to seek to increase total return, except for
closing purchase or sale transactions, if immediately thereafter the sum of
the amount of initial margin deposits and premiums paid on the Fund's
outstanding positions in futures and related options entered into for the
purpose of seeking to increase total return would exceed 5% of the market
value of the Fund's net assets. These transactions involve brokerage costs,
require margin deposits and, in the case of contracts and options obligating a
Fund to purchase securities or currencies, require the Fund to segregate and
maintain cash or liquid, high grade debt securities with a value 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 Futures
Contracts" in the Additional Statement. Thus, while a Fund may benefit from
the use of futures and options on futures, unanticipated changes in interest
rates, securities prices or currency exchange rates may result in a poorer
overall performance of the Fund than if it had not entered into any futures
contracts or options transactions. The loss incurred by a Fund in writing
options on futures is potentially unlimited and may exceed the amount of the
premium received. Futures markets are highly volatile and the use of futures
may increase the volatility of a Fund's net asset value. The profitability of
a Fund's trading in futures to seek to increase total return depends upon the
ability of the Investment Adviser to correctly analyze the futures markets. In
addition, because of the low margin deposits normally required in futures
trading, a relatively small price movement in a futures contract may result in
substantial losses to a Fund. Further, futures contracts and options on
futures may be illiquid, and exchanges may limit fluctuations in futures
contract prices during a single day.
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 the Fund may be exposed to risk of loss. Perfect
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correlation between a Fund's futures positions and its portfolio positions
will be impossible to achieve. A Fund's transactions in options and futures
contracts may be limited by the requirements of the Internal Revenue Code of
1986, as amended (the "Code") for qualification as a regulated investment
company.
CURRENCY SWAPS, MORTGAGE SWAPS, INDEX SWAPS AND INTEREST RATE SWAPS, CAPS,
FLOORS AND COLLARS
The Balanced Fund may enter into currency swaps for hedging purposes and the
International Equity and Asia Growth Funds may enter into currency swaps for
both hedging purposes and to seek to increase total return. In addition, the
Balanced Fund may enter into mortgage, index and interest rate swaps and other
interest rate swap arrangements such as rate caps, floors and collars, for
hedging purposes or to seek to increase total return. Currency swaps involve
the exchange by a Fund with another party of their respective rights to make
or receive payments in specified currencies. Interest rate swaps involve the
exchange by a Fund with another party of their respective commitments to pay
or receive interest, such as an exchange of fixed rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that they
represent commitments to pay and receive interest. The notional principal
amount, however, is tied to a reference pool or pools of mortgages. Index
swaps involve the exchange by a Fund with another party of the respective
amounts payable with respect to a notional principal amount at interest rates
equal to two specified indices. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest
rate floor entitles the purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive payments of interest on a
notional principal amount from the party selling the interest rate floor. An
interest rate collar is the combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates.
A Fund will enter into interest rate, mortgage and index swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate, index and mortgage swaps do not involve the delivery
of securities, other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate, index and mortgage swaps is limited to the
net amount of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate, index or mortgage swap defaults,
the Fund's risk of loss consists of the net amount of interest payments that
the Fund is contractually entitled to receive. In contrast, currency swaps
usually involve the delivery of a gross payment stream in one designated
currency in exchange for the gross payment stream in another designated
currency. Therefore, the entire payment stream under a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. To the extent that the net amount payable
under an interest rate, index or mortgage swap and the entire amount of the
payment stream payable by a Fund under a currency swap or an interest rate
floor, cap or collar is held in a segregated account consisting of cash or
liquid, high grade debt securities, the Funds and the Investment Advisers
believe that swaps do not constitute senior securities under the Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restriction.
A Fund will not enter into swap transactions unless the unsecured commercial
paper, senior debt or claims paying ability of the other party thereto is
considered to be investment grade by the Investment Adviser.
The use of interest rate, mortgage, index and currency swaps, as well as
interest rate caps, floors and collars, is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If an Investment Adviser is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of a Fund would be less favorable
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than it would have been if this investment technique were not used. The staff
of the SEC currently take the position that swaps, caps, floors and collars
are illiquid and thus subject to a Fund's 15% limitation on investments in
illiquid securities.
RISKS OF DERIVATIVE TRANSACTIONS
A Fund's transactions, if any, in options, futures, options on futures, swap
transactions, structured securities and currency forward contracts involve
certain risks, including a possible lack of correlation between changes in the
value of hedging instruments and the portfolio assets being hedged, the
potential illiquidity of the markets for derivative instruments, the risks
arising from the margin requirements and related leverage factors associated
with such transactions. The use of these management techniques to seek to
increase total return may be regarded as a speculative practice and involves
the risk of loss if the Investment Adviser is incorrect in its expectation of
fluctuations in securities prices, interest rates or currency prices. A Fund's
transactions in foreign currency, forward foreign currency exchange contracts,
options, futures contracts and certain other derivative transactions may be
limited by the requirements of the Code for qualification as a regulated
investment company.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each Fund may purchase when-issued securities. When-issued transactions
arise when securities are purchased by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. Each Fund may also purchase securities on a forward commitment
basis; that is, make contracts to purchase securities for a fixed price at a
future date beyond customary settlement time. A Fund is required to hold and
maintain in a segregated account with the Fund's custodian until the
settlement date, cash or liquid, high grade debt securities in an amount
sufficient to meet the purchase price. Alternatively, each Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date. Although a Fund would generally purchase
securities on a when-issued or forward commitment basis with the intention of
acquiring securities for its portfolio, the Fund may dispose of when-issued
securities or forward commitments prior to settlement if its Investment
Adviser deems it appropriate to do so.
INVESTMENT IN UNSEASONED COMPANIES
Each Fund may invest up to 5% of its total assets, calculated at the time of
purchase, in companies (including predecessors) which have operated less than
three years, except that this limitation does not apply to debt securities
which have been rated investment grade or better by at least one nationally
recognized statistical rating organization. The securities of such companies
may have limited liquidity, which can result in their being priced higher or
lower than might otherwise be the case. In addition, investments in unseasoned
companies are more speculative and entail greater risk than do investments in
companies with an established operating record.
ILLIQUID AND RESTRICTED SECURITIES
A Fund may not invest more than 10% of its total assets in securities that
are subject to restrictions on resale ("restricted securities") under the
Securities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale in reliance on Rule 144A under the 1933 Act. In addition, a Fund
will not invest more than 15% of its net assets in illiquid investments, which
includes securities (both foreign and domestic) that are not readily
marketable, swap transactions, repurchase agreements maturing in more than
seven days, time deposits with a notice or demand period of more than seven
days, certain over-the-counter options, and certain restricted
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securities, unless it is determined, based upon the continuing review of the
trading markets for a specific restricted security, that such restricted
security is eligible for sale under Rule 144A and, therefore, is liquid. The
Board of Directors has adopted guidelines and delegated to the Investment
Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Board of Directors, however, retains oversight
focusing on factors such as valuation, liquidity and availability of
information and is ultimately responsible for each determination. Investing in
restricted securities eligible for resale pursuant to Rule 144A could have the
effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. The purchase price and subsequent valuation of
restricted and illiquid securities normally reflect a discount, which may be
significant, from the market price of comparable securities for which a liquid
market exists.
OTHER INVESTMENT COMPANIES
A Fund reserves the right to invest up to 10% of its total assets in the
securities of other investment companies, but may not invest more than 5% of
its total assets in the securities of any one investment company or acquire
more than 3% of the voting securities of any other investment company.
Pursuant to an exemptive order obtained from the SEC, the Funds may invest in
money market funds for which an Investment Adviser or any of its affiliates
serves as investment adviser. A Fund will indirectly bear its proportionate
share of any management fees and other expenses paid by investment companies
in which it invests in addition to the advisory and administration fees paid
by the Fund. However, to the extent that the Fund invests in a money market
fund for which an Investment Adviser or any of its affiliates acts as adviser,
the advisory and administration fees payable by the Fund to an Investment
Adviser will be reduced by an amount equal to the Fund's proportionate share
of the advisory and administration fees paid by such money market fund to the
Investment Adviser.
REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with dealers in U.S.
Government securities and member banks of the Federal Reserve System which
furnish collateral at least equal in value or market price to the amount of
their repurchase obligation. The International Equity and Asia Growth Funds
may also enter into repurchase agreements involving certain foreign government
securities. If the other party or "seller" defaults, a Fund might suffer a
loss to the extent that the proceeds from the sale of the underlying
securities and other collateral held by the Fund in connection with the
related repurchase agreement are less than the repurchase price. In addition,
in the event of bankruptcy of the seller or failure of the seller to
repurchase the securities as agreed, the Fund could suffer losses, including
loss of interest on or principal of the security and costs associated with
delay and enforcement of the repurchase agreement. The Directors of the
Company have reviewed and approved certain sellers whom they believe to be
creditworthy and have authorized the Funds to enter into repurchase agreements
with such sellers. In addition, each Fund, together with other registered
investment companies having advisory agreements with an Investment Adviser,
may transfer uninvested cash balances into a single joint account, the daily
aggregate balance of which will be invested in one or more repurchase
agreements.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies, such loans may be made to institutions,
such as certain 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
securities loaned. Cash collateral may be invested in cash equivalents. If an
Investment Adviser determines to make securities loans, the value of the
securities loaned may
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not exceed 33 1/3% of the value of the total 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.
SHORT SALES AGAINST-THE-BOX
Each Fund (other than the Select Equity Fund) may make short sales of
securities or maintain a short position, provided that at all times when a
short position is open the 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 a
Fund's net assets (determined at the time of the short sale) may be subject to
such short sales. Short sales will be made primarily to defer realization of
gain or loss for federal tax purposes; a gain or loss in a Fund's long
position will be offset by a gain or loss in its short position.
TEMPORARY INVESTMENTS
Notwithstanding a Fund's investment objective, each Fund may on occasion,
for temporary defensive purposes to preserve capital, hold part or all of its
assets (except that the Select Equity Fund may only hold up to 35% of its
total assets) in cash, obligations issued or guaranteed by the U.S.
Government, its agencies, instrumentalities, political subdivisions or
authorities, commercial paper rated at least A-2 by S&P or P-2 by Moody's,
certificates of deposit, bankers' acceptances, repurchase agreements, non-
convertible preferred stocks, non-convertible corporate bonds with a remaining
maturity of less than one year or, subject to certain tax restrictions,
foreign currencies. When a Fund's assets are invested in such instruments, the
Fund may not be achieving its investment objective.
INVESTMENT RESTRICTIONS
Each Fund is subject to certain investment restrictions that are described
in detail under "Investment Restrictions" in the Additional Statement. These
investment restrictions are fundamental policies of a Fund that can not be
changed without approval of a majority of the outstanding shares of that Fund.
For more information on a Fund's investment restrictions, an investor should
obtain the Additional Statement. All investment objectives and policies not
specifically designated as fundamental are non-fundamental and may be changed
without shareholder approval. If there is a change in a Fund's investment
objective, shareholders should consider whether the Fund remains an
appropriate investment in light of their then current financial positions and
needs.
PORTFOLIO TURNOVER
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by a Fund and its shareholders and may
under certain circumstances make it more difficult for a Fund to qualify as a
regulated investment company under the Code. See "Financial Highlights" for a
statement of each Fund's historical portfolio turnover ratio. The portfolio
turnover rate is calculated by dividing the lesser of the dollar amount of
sales or purchases of portfolio securities by the average monthly value of a
Fund's portfolio
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securities, excluding securities having a maturity at the date of purchase of
one year or less. Notwithstanding the foregoing, the Investment Adviser may,
from time to time, make short-term investments when it believes such
investments are in the best interest of a Fund.
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's Board of Directors is responsible for deciding matters of
general policy and reviewing the actions of the Investment Advisers,
subadviser, administrator, distributor and transfer agent. The officers of the
Company conduct and supervise each Fund's daily business operations. The
Additional Statement contains information as to the identity of, and other
information about, the Directors and officers of the Company.
INVESTMENT ADVISERS, SUBADVISER AND ADMINISTRATOR
INVESTMENT ADVISERS AND SUBADVISER. Goldman Sachs Asset Management, a
separate operating division of Goldman Sachs, serves as the investment adviser
to the Balanced, Growth and Income, Small Cap Equity and International Equity
Funds. Goldman Sachs registered as an investment adviser in 1981. Goldman
Sachs Funds Management, L.P., a Delaware limited partnership which is an
affiliate of Goldman Sachs, serves as the investment adviser to the Capital
Growth and Select Equity Funds. Goldman Sachs Funds Management, L.P.
registered as an investment adviser in 1990. Goldman Sachs Asset Management
International, an affiliate of Goldman Sachs, serves as the investment adviser
to the Asia Growth Fund and subadviser to the International Equity Fund.
Goldman Sachs Asset Management International became a member of the Investment
Management Regulatory Organisation Limited in 1990 and registered as an
investment adviser in 1991. Goldman Sachs Asset Management serves as
administrator to each Fund. As of January 31, 1996, GSAM, GSFM and GSAMI,
together with their affiliates, acted as investment adviser, administrator or
distributor for assets in excess of $57 billion.
Under an Investment Advisory Agreement with each Fund, the applicable
Investment Adviser, and in the case of the International Equity Fund under a
Subadvisory Agreement, the subadviser, subject to the general supervision of
the Board of Directors, provides day-to-day advice as to the 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 a Fund's Investment Advisory Agreement is in effect.
In performing its investment advisory services, each Investment Adviser,
while remaining ultimately responsible for the management of the Funds, may
rely upon the asset management division of its Singapore and Tokyo affiliates
for portfolio decisions and management with respect to certain portfolio
securities and is able to draw upon the research and expertise of its other
affiliate offices.
The Balanced Fund's portfolio managers are Jonathan A. Beinner, Mitchell E.
Cantor, Ronald E. Gutfleish, Richard C. Lucy and Theodore T. Sotir. Mr. Cantor
and Mr. Gutfleish are primarily responsible for the Fund's equity investments
and Mr. Beinner, Mr. Lucy and Mr. Sotir are primarily responsible for the
Fund's fixed income investments. Mr. Cantor joined the Investment Adviser in
1991 and is a Vice President and Co-Chief Investment Officer of GSAM's Active
Equity Team. Prior to 1991, Mr. Cantor was a senior partner and served
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as research director of the Institutional Division and as the investment
management research director for Sanford C. Bernstein & Co., Inc. Mr.
Gutfleish joined the Investment Adviser in 1993 and is a Vice President. Prior
to 1993, he was a principal of Sanford C. Bernstein & Co., Inc. in its
Investment Management Research Department and a member of the Research Review
Committee. Mr. Beinner joined the Investment Adviser in 1990 and is a Vice
President. Prior to 1990, Mr. Beinner worked in the trading and arbitrage
group of Franklin Savings Association. Mr. Lucy joined the Investment Adviser
in 1992 and is a Vice President. Prior to 1992, Mr. Lucy spent nine years
managing fixed income assets at Brown Brothers Harriman & Co. Mr. Sotir joined
the Investment Adviser in 1993 and is a Vice President. Mr. Sotir is a
strategist and member of the risk control team. Prior to 1993, Mr. Sotir
worked as a portfolio manager at Fidelity Management Trust Company. Prior to
joining Fidelity, Mr. Sotir worked for Goldman Sachs for six years.
The Select Equity Fund's portfolio manager is Robert C. Jones. Mr. Jones is
a Vice President and brings 15 years of investment experience to his work in
developing and implementing the Investment Advisers' quantitative equity
management services. Prior to joining the Investment Adviser in 1989, Mr.
Jones was the senior quantitative analyst in Goldman Sachs' Investment
Research Department and the author of the monthly Stock Selection publication.
Mitchell E. Cantor and Ronald E. Gutfleish are also the Growth and Income
Fund's senior portfolio managers.
The Capital Growth Fund's portfolio managers are Mitchell E. Cantor and Paul
D. Farrell. See below for information regarding Mr. Farrell.
The Small Cap Equity Fund's senior portfolio manager is Paul D. Farrell who
is also a Vice President and Co-Chief Investment Officer of GSAM's Active
Equity Team. Prior to joining the Investment Adviser in 1991, Mr. Farrell
served as a managing director at Plaza Investments, the investment subsidiary
of GEICO Corp., a major insurance company. He was previously a Vice President
in the Goldman Sachs research department and was responsible for the formation
of the firm's Emerging Growth Research Group.
The International Equity Fund's portfolio managers are Roderick D. Jack
(Executive Director), Marcel Jongen (Executive Director), Warwick Negus
(Executive Director) and Shogo Maeda (Vice President). Before joining the
Investment Adviser in 1992, Mr. Jack spent five years with the advisory and
financing group for S.G. Warburg in London. Before joining the Investment
Adviser in 1992, Mr. Jongen was with Philips pension fund in Eindhaven where
he was head of equities. Before joining Goldman Sachs Asset Management (Japan)
Ltd. in 1994, Mr. Maeda spent most of the last thirteen years at Nomura and a
period at Manufacturers Hanover Bank in New York. See below for information
about Mr. Negus.
The Asia Growth Fund's portfolio manager is Warwick Negus, who is based in
Asia. His responsibilities include Asian equities and emerging equities
markets. Mr. Negus joined the Investment Adviser in January 1994 after seven
years as Vice President of Bankers Trust Australia Ltd. where he was head of
its Southeast Asian equities group.
It is the responsibility of the Investment Adviser to make investment
decisions for a Fund and to place the purchase and sale orders for the Fund's
portfolio transactions in U.S. and foreign securities and currency markets.
Such orders may be directed to any broker including, to the extent and in the
manner permitted by applicable law, Goldman Sachs or its affiliates.
33
<PAGE>
As compensation for its services rendered and assumption of certain expenses
pursuant to separate Investment Advisory Agreements, GSAM is entitled to a fee
from the Balanced, Growth and Income, Small Cap Equity and International
Equity Funds, computed daily and payable monthly, at the annual rates of
0.50%, 0.55%, 0.75% and 0.25%, respectively, of average daily net assets;
however, GSAM is currently only imposing its advisory fee with respect to the
International Equity Fund at the annual rate of 0.71% of average daily net
assets. As compensation for its services rendered and assumption of certain
expenses pursuant to a separate Investment Advisory Agreements, GSFM is
entitled to a fee from the Select Equity and Capital Growth Funds, computed
daily and payable monthly, at the annual rate of 0.50% and 0.75%, respectively
of average daily net assets; however, GSFM is currently only imposing its
advisory fee with respect to the Select Equity Fund at the annual rate of
0.44% of average daily net assets. As compensation for its services rendered
and assumption of certain expenses pursuant to Investment Advisory and
Subadvisory Agreements, GSAMI is entitled to a fee from the Asia Growth and
International Equity Funds, computed daily and payable monthly at the annual
rates of 0.75% and 0.50%, respectively, of average daily net assets; however
GSAMI is currently only imposing its advisory fee with respect to the Asia
Growth Fund and its subadvisory fee with respect to International Equity Fund
at the annual rate of 0.71% and %, respectively of average daily net assets.
GSAM, GSAMI and GSFM may discontinue or modify such limitations in the future
at their discretion, although they have no current intention to do so. For the
fiscal year ended January 31, 1996, each Fund paid fees at the foregoing
rates, except that the Select Equity Fund paid an advisory fee equal to 0. %
of its average daily net assets. Without giving effect to fee limitations, the
aggregate management fees paid by the Capital Growth, Small Cap Equity,
International Equity and Asia Growth Funds are higher than the fees paid by
most funds but the Investment Adviser believes such fees are comparable to
management fees paid by funds with similar investment strategies. Each
Investment Adviser has voluntarily agreed to reduce the fees payable to it by
a Fund (to the extent of its fees) by the amount (if any) that the Fund's
expenses would exceed the applicable expense limitations imposed by state
securities administrators. See "Management--Expenses" in the Additional
Statement. In addition, the Investment Adviser to the Balanced, Select Equity,
Growth and Income, International Equity and Asia Growth Funds has voluntarily
agreed to reduce or limit certain "Other Expenses" of such Funds (excluding
advisory, subadvisory, administration, distribution and authorized dealer
service fees, taxes, interest and brokerage and litigation, indemnification
and other extraordinary expenses, and in the case of Select Equity,
International Equity and Asia Growth Funds, transfer agency fees) to the
extent such expenses exceed %, %, %, % and % per annum of such
Funds' average daily net assets, respectively. Such reductions or limits, if
any, are calculated monthly on a cumulative basis and may be discontinued or
modified by the applicable Investment Adviser in its discretion at any time.
ADMINISTRATOR. As administrator, pursuant to an Administration Agreement
with each Fund, GSAM provides personnel for supervisory, administrative, and
clerical functions; oversees the performance of administrative and
professional services to each Fund by others; provides office facilities; and
prepares, but does not pay for, reports to shareholders, the SEC and other
regulatory authorities. As compensation for the services rendered to the
Funds, GSAM is entitled to a fee from the Balanced and Growth and Income
Funds, computed daily and payable monthly, at an annual rate equal to 0.15% of
each such Fund's average daily net assets and GSAM is entitled to a fee from
each other Fund, computed daily and payable monthly at an annual rate equal to
0.25% of each such Fund's average daily net assets; however, GSAM is currently
only imposing its administration fee with respect to the Select Equity,
International Equity and Asia Growth Funds at the annual rate of 0.15% of
average daily net assets. GSAM may discontinue or modify such limitation in
the future at its discretion, although it has no current intention to do so.
For the period ended January 31, 1996, each Fund paid GSAM a fee for
administration services at the foregoing rates, except that the Select Equity
Fund paid an administrative fee equal to 0. % of its average daily net assets.
GSAM has agreed to reduce its fees payable by a Fund (to the extent of its
34
<PAGE>
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.
Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers for performing administrative
services to their customers. These services include maintaining account
records, processing orders to purchase, redeem and exchange Fund shares and
responding to certain customer inquiries. The amount of such compensation may
be up to 0.125% annually of the average daily net assets of the Balanced and
Select Equity Funds, 0.1375% annually of the average daily net assets of the
Growth and Income Fund and 0.1875% annually of the average daily net assets of
the Capital Growth, Small Cap Equity, International Equity and Asia Growth
Funds attributable to shares held by customers of such Authorized Dealers. In
addition, Goldman Sachs may from time to time, at its own expense, provide
compensation to certain Authorized Dealers who perform administrative services
with respect to depository institutions whose customers purchase shares of a
Fund. These services include responding to certain inquiries from and
providing written materials to depository institutions about a Fund;
furnishing advice about and assisting depository institutions in obtaining
from state regulatory agencies any rulings, exemptions or other authorizations
that may be required to conduct a mutual fund sales program; acting as liaison
between depository institutions and national regulatory organizations;
assisting with the preparation of sales material; and providing general
assistance and advice in establishing and maintaining mutual fund sales
programs on the premises of depository institutions. The amount of such
compensation may be up to 0.08% annually of the average net assets of a Fund's
shares attributable to purchases through, and held by the customers of, such
depository institutions. Such compensation does not represent an additional
expense to a Fund or its shareholders, since it will be paid from the assets
of Goldman Sachs or its affiliates.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS. The involvement of the Investment Advisers, Goldman Sachs and
their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to a Fund or limit a Fund's investment activities. Goldman Sachs and
its affiliates engage in proprietary trading and advise accounts and funds
which have investment objectives similar to those of the Funds and/or which
engage in and compete for transactions in the same types of securities,
currencies and instruments as the Funds. Goldman Sachs and its affiliates will
not have any obligation to make available any information regarding their
proprietary activities or strategies, or the activities or strategies used for
other accounts managed by them, for the benefit of the management of the Funds
and in general it is not anticipated that the Investment Advisers will have
access to proprietary information for the purpose of managing a Fund. 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 and Funds achieve significant profits on their trading for
proprietary or other accounts. From time to time, a Fund's activities may be
limited because of regulatory restrictions applicable to Goldman Sachs and its
affiliates, and/or their internal policies designed to comply with such
restrictions. See "Management--Activities of Goldman Sachs and its Affiliates
and Other Accounts Managed by Goldman Sachs" in the Additional Statement for
further information.
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York, serves as the exclusive
distributor of each Fund's shares. Shares may also be sold by Authorized
Dealers. Authorized Dealers include investment dealers that are members of the
NASD and certain other financial service firms. To become an Authorized
Dealer, a dealer or financial service firm must enter into a sales agreement
with Goldman Sachs. The minimum investment
35
<PAGE>
requirements, services, programs and purchase and redemption options for
shares purchased through a particular Authorized Dealer may be different from
those available to investors purchasing through other Authorized Dealers.
Goldman Sachs, 4900 Sears Tower, Chicago, Illinois, also serves as each
Fund's transfer agent (the "Transfer Agent") and as such performs various
shareholder servicing functions. As compensation for the services rendered to
each Fund 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 from each Fund, with respect to Class A shares and Class B shares of
$12,000 per year plus $7.50 per account, together with out-of-pocket and
transaction-related expenses (including those out-of-pocket expenses payable
to servicing agents). Shareholders with inquiries regarding any Fund should
contact Goldman Sachs (as Transfer Agent) at the address or the telephone
number set forth on the back cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Shareholders will receive an annual report containing audited financial
statements and a semi-annual report. Each shareholder will also be provided
with a printed confirmation for each transaction in the shareholder's account
and an individual quarterly account statement. A year-to-date statement for
any account will be provided upon request made to Goldman Sachs. The Funds do
not generally provide sub-accounting services.
HOW TO INVEST
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund continuously offers through this prospectus Class A and Class B
shares, as described more fully in "How to Buy Shares of the Funds." If you do
not specify in your instructions to the Funds which class of shares you wish
to purchase, the Funds will assume that your instructions apply to Class A
shares.
CLASS A SHARES. If you invest less than $1 million in Class A shares you
will pay an initial sales charge. Certain purchases may qualify for reduced
initial sales charges. If you invest $1 million or more in Class A shares no
sales charge will be imposed at the time of purchase, but you will incur a
sales charge equal to 1.00% if you redeem your shares of a Fund within 18
months of purchase. Class A shares are subject to distribution fees of up to
0.25% (which currently is being waived in the case of Balanced, Growth and
Income, Capital Growth and Small Cap Equity Funds and limited to 0.21% for the
Select Equity, International Equity and Asia Growth Funds) and authorized
dealer service fees of up to 0.25%, respectively, of each Fund's average daily
net assets attributable to Class A shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but
are subject to a contingent deferred sales charge ("CDSC") of up to 5% if
redeemed within six years of purchase. Class B shares are subject to
distribution and authorized dealer service fees of up to 0.75% and 0.25%,
respectively, of each Fund's average daily net assets attributable to Class B
shares. See "Distribution and Authorized Dealer Service Plans". Your entire
investment in Class B shares is available to work for you from the time you
make your initial investment, but the distribution fee paid by Class B shares
will cause your Class B shares (until conversion to Class A shares) to have a
higher expense ratio and to pay lower dividends, to the extent dividends are
paid, than Class A shares. Class B shares will automatically convert to Class
A shares, based on their relative net asset values, eight years after the
initial purchase.
36
<PAGE>
FACTORS TO CONSIDER IN CHOOSING CLASS A OR CLASS B SHARES. The decision as
to which class to purchase depends on the amount you invest, the intended
length of the investment and your personal situation. For example, if you are
making an investment in excess of $50,000 that qualifies for a reduced sales
charge, you should consider purchasing Class A shares. A brief description of
when the initial sales charge may be reduced or eliminated is set forth below
under "Right of Accumulation" and "Statement of Intention." If you prefer not
to pay an initial sales charge on an investment, you might consider purchasing
Class B shares.
HOW TO BUY SHARES OF THE FUNDS--CLASS A AND CLASS B SHARES
You may purchase shares of the Funds through any Authorized Dealer
(including Goldman Sachs) or directly from a Fund, c/o National Financial Data
Services, Inc. ("NFDS"), P.O. Box 419711, Kansas City, MO 64141-6711 on any
Business Day (as defined under "Additional Information") at the net asset
value next determined after receipt of an order, plus, in the case of Class A
shares, any applicable sales charge. If, by the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m. New York time), a purchase
order is received by a Fund, Goldman Sachs or an Authorized Dealer, the price
per share will be based on the net asset value computed on the day the
purchase order is received.
The minimum initial investment in each Fund is $1500. An initial investment
minimum of $250 applies to purchases in connection with Individual Retirement
Account Plans. For purchases through the Automatic Investment Plan, the
minimum investment is $50. The minimum subsequent investment is $50. These
requirements may be waived at the discretion of the Company's officers.
You may pay for purchases of shares by check (except that a check drawn on a
foreign bank will not be accepted), Federal Reserve draft, Federal Funds wire,
ACH transfer or bank wire. Purchases of shares by check or Federal Reserve
draft should be made payable as follows: (i) to an investor's Authorized
Dealer, if purchased through such Authorized Dealer, or (ii) to Goldman Sachs
Equity Portfolios, Inc.--(Name of Fund and Class of shares) and sent to NFDS,
P.O. Box 419711, Kansas City, MO 64141-6711. Federal Funds wires, ACH
transfers and bank wires should be sent to State Street Bank and Trust Company
("State Street"). Payment must be received within three Business Days after
receipt of the purchase order. An investor's Authorized Dealer is responsible
for forwarding payment promptly to the Fund.
In order to make an initial investment in a Fund, an investor must establish
an account with the Fund by furnishing to the Fund, Goldman Sachs or the
investor's Authorized Dealer the information in the Account Application
attached to this Prospectus. The Fund may refuse to open an account for any
investor who fails to (1) provide a social security number or other taxpayer
identification number, or (2) certify that such number is correct (if required
to do so under applicable law).
The Funds reserve the right to redeem shares of any shareholder whose
account balance is less than $50 as a result of earlier redemptions. Such
redemptions will not be implemented if the value of a shareholder's account
falls below the minimum account balance solely as a result of market
conditions. A Fund will give sixty (60) days' prior written notice to
shareholders whose shares are being redeemed to allow them to purchase
sufficient additional shares of the Fund to avoid such redemption. In
addition, the Funds and Goldman Sachs reserve the right to modify the minimum
investment, the manner in which shares are offered and the sales charge rates
applicable to future purchases of shares.
37
<PAGE>
OFFERING PRICE--CLASS A SHARES
The offering price of Class A shares of each Fund is the next determined net
asset value per share plus a sales charge, if any, paid to Goldman Sachs at
the time of purchase of shares as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM DEALER
SALES CHARGE AS AS PERCENTAGE ALLOWANCE AS
AMOUNT OF PURCHASE PERCENTAGE OF OF NET AMOUNT PERCENTAGE OF
INCLUDING SALES CHARGE, IF ANY)( OFFERING PRICE INVESTED OFFERING PRICE
- -------------------------------- --------------- ------------- --------------
<S> <C> <C> <C>
Less than $50,000.............................. 5.50% 5.82% 5.00%
$50,000 up to (but less than) $100,000......... 4.75 4.99 4.00
$100,000 up to (but less than) $250,000........ 3.75 3.90 3.00
$250,000 up to (but less than) $500,000........ 2.75 2.83 2.25
$500,000 up to (but less than) $1 million...... 2.00 2.04 1.75
$1 million or more............................. 0.00* 0.00* **
</TABLE>
- --------
* No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within 18 months of purchase.
** Goldman Sachs pays a one-time commission to Authorized Dealers who initiate
or are responsible for purchases of $1 million or more of shares of the
Funds.
Purchases of $1 million or more of Class A shares will be made at net asset
value with no initial sales charge, but if the shares are redeemed within 18
months after the end of the calendar month in which the purchase was made (the
contingent deferred sales charge period), a CDSC of 1.00% will be imposed. The
CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares. In determining whether a CDSC applies to a
redemption, the calculation will be determined in a manner that results in the
lowest possible rate being charged. Therefore, it will be assumed that the
redemption is first made from any shares in your account that are not subject
to the CDSC. The CDSC is waived on redemptions in certain circumstances. See
"Waiver or Reduction of Contingent Deferred Sales Charges" below.
Class A shares of the Funds may be sold at net asset value without payment
of any sales charge to (a) Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any Director or officer of the Company and designated family members of any of
the above individuals; (b) qualified retirement plans of Goldman Sachs; (c)
trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor; (d) any employee or registered representative of
any Authorized Dealer or their respective spouses and children; (e) banks,
trust companies or other types of depository institutions investing for their
own account or investing for accounts for which they have investment
discretion; (f) banks, trust companies or other types of depository
institutions investing for accounts for which they do not have investment
discretion, provided they have entered into an agreement with GSAM specifying
aggregate minimums and certain operating policies and standards; (g) any
state, county or city, or any instrumentality, department, authority or agency
thereof, which is prohibited by applicable investment laws from paying a sales
charge or commission in connection with the purchase of shares of a Fund; (h)
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans having either 200 eligible employees or at least $1,000,000
under management with GSAM and its affiliates; (i) shareholders whose purchase
is attributable to redemption proceeds (subject to appropriate documentation)
from a registered open-end management investment company not distributed or
38
<PAGE>
managed by Goldman Sachs or its affiliates, if such redemption has occurred no
more than 60 days prior to the purchase of shares of the Funds and the
shareholder either (a) paid an initial sales charge or (b) was at some time
subject to a deferred sales charge with respect to the redemption proceeds;
(j) "wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided that they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards; (k) registered investment advisers who have entered
into an agreement with GSAM specifying aggregate minimums and certain
operating policies and standards; and (l) accounts over which GSAM or its
advisory affiliates have investment discretion. Purchasers must certify
eligibility for an exemption on the Account Application and notify Goldman
Sachs if the shareholder is no longer eligible for an exemption. Exemptions
will be granted subject to confirmation of a purchaser's entitlement.
Investors purchasing shares of the Funds at net asset value without payment of
any initial sales charge may be charged a fee if they effect transactions in
shares through a broker or agent. In addition, under certain circumstances,
dividends and distributions from any of the Goldman Sachs Portfolios may be
reinvested in shares of each Fund at net asset value, as described under
"Cross-Reinvestment of Dividends and Distributions and Automatic Exchange
Program."
REINVESTMENT OF REDEMPTION PROCEEDS--CLASS A SHARES
A shareholder who redeems Class A shares of a Fund may reinvest at net asset
value any portion or all of his redemption proceeds (plus that amount
necessary to acquire a fractional share to round off his purchase to the
nearest full share) in Class A shares of a Fund or of any other Goldman Sachs
Portfolio. Shareholders should obtain and read the applicable prospectuses of
such other funds and consider their objectives, policies and applicable fees
before investing in any of such funds. This reinvestment privilege is subject
to the condition that the shares redeemed have been held for at least thirty
(30) days before the redemption and that the reinvestment is effected within
ninety (90) days after such redemption. If you paid a CDSC upon a redemption
and reinvest in Class A shares subject to the conditions set forth above, your
account will be credited with the amount of the CDSC previously charged, and
the reinvested shares will continue to be subject to a CDSC. The holding
period of the Class A shares acquired through reinvestment for purposes of
computing the CDSC payable upon a subsequent redemption, will include the
holding period of the redeemed shares. Shares are sold to a reinvesting
shareholder at the net asset value next determined following timely receipt by
Goldman Sachs or an Authorized Dealer of a written purchase order indicating
that the shares are eligible for reinvestment at net asset value.
A reinvesting shareholder may realize a gain or loss for federal tax
purposes as a result of such redemption. If the redemption occurs within
ninety (90) days after the original purchase of the Class A shares, any sales
charge paid on the original purchase cannot be taken into account by a
shareholder reinvesting at net asset value pursuant to the reinvestment
privilege for purposes of determining gain or loss realized on the redemption,
but instead will be added to the tax basis of the Class A shares received in
the reinvestment. To the extent that any loss is realized and shares of the
same Fund are purchased within thirty (30) days before or after the
redemption, some or all of the loss may not be allowed as a deduction
depending upon the number of shares purchased. Shareholders should consult
their own tax advisers concerning the tax consequences of a reinvestment. Upon
receipt of a written request, the reinvestment privilege may be exercised once
annually by a shareholder, except that there is no such time limit as to the
availability of this privilege in connection with transactions the sole
purpose of which is to reinvest the proceeds at net asset value in a tax-
sheltered retirement plan.
RIGHT OF ACCUMULATION--CLASS A SHARES
Class A purchasers may qualify for reduced sales charges when the current
market value of holdings (shares at current offering price), plus new
purchases, reaches $50,000 or more. Class A shares of the Goldman Sachs
Portfolios may be combined under the Right of Accumulation. See Additional
Statement for more information about the Right of Accumulation.
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<PAGE>
STATEMENT OF INTENTION--CLASS A SHARES
Purchases of $50,000 or more made over a 13-month period are eligible for
reduced sales charges. Class A shares of the Goldman Sachs Portfolios may be
combined under the Statement of Intention. See the Additional Statement for
more information about the Statement of Intention.
OFFERING PRICE--CLASS B SHARES
Investors may purchase Class B shares of the Funds at the next determined
net asset value without the imposition of an initial sales charge. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates shown in the table that follows. At redemption, the charge will
be assessed on the amount equal to the lesser of the current market value or
the original purchase cost of the shares being redeemed. No CDSC will be
imposed on increases in account value above the initial purchase price,
including shares derived from the reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of purchase until the time of redemption of Class B shares. For
the purpose of determining the number of years from the time of any purchase,
all payments during a month will be aggregated and deemed to have been made on
the first day of that month. In processing redemptions of Class B shares, the
Funds will first redeem shares not subject to any CDSC, and then shares held
longest during the eight-year period. As a result, a redeeming shareholder
will pay the lowest possible CDSC.
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
YEAR SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CDSC
---------- ---------------
<S> <C>
First........................................................ 5.0%
Second....................................................... 4.0%
Third........................................................ 3.0%
Fourth....................................................... 3.0%
Fifth........................................................ 2.0%
Sixth........................................................ 1.0%
Seventh and thereafter....................................... none
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B shares, including the payment of compensation to Authorized Dealers. A
commission equal to 4.00% of the amount invested is paid to Authorized
Dealers.
Class B shares of a Fund will automatically convert into Class A shares of
the same Fund at the end of the calendar quarter that is eight years after the
purchase date, except as noted below. Class B shares of a Fund acquired by
exchange from Class B shares of another Fund will convert into Class A shares
of such Fund based on the date of the initial purchase. Class B shares
acquired through reinvestment of distributions will convert into Class A
shares based on the date of the initial purchase of the shares on which the
distribution was paid. The conversion of Class B shares to Class A shares is
subject to the continuing availability of a ruling from the Internal Revenue
Service, for which the Funds will apply, or an opinion of counsel that such
conversions will not constitute taxable events for Federal tax purposes. There
can be no assurance that such ruling or opinion will be available. The
conversion of Class B shares to Class A shares will not occur if such ruling
or opinion is not available and, therefore, Class B shares would continue to
be subject to higher expenses than Class A shares for an indeterminate period.
40
<PAGE>
WAIVER OR REDUCTION OF CONTINGENT DEFERRED SALES CHARGE. The CDSC on Class B
shares and Class A shares that are subject to a CDSC may be waived or reduced
if the redemption results from the death or disability (as defined in Section
72 of the Code, of a shareholder if the redemption is made within one year of
such event. In addition, Class B shares subject to a Systematic Withdrawal
Plan may be redeemed without a CDSC. However, Goldman Sachs reserves the right
to limit such redemptions, on an annual basis, to 12% of the value of your
Class B shares.
SHAREHOLDER SERVICES AVAILABLE TO SHAREHOLDERS
AUTOMATIC INVESTMENT PLAN
Systematic cash investments may be made through a shareholder's bank via the
Automated Clearing House Network or a shareholder's checking account via bank
draft each month. Required forms are available from Goldman Sachs or any
Authorized Dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS AND AUTOMATIC EXCHANGE
PROGRAM
A shareholder may elect to cross-reinvest dividends and capital gain
distributions paid by a Fund in shares of the same class or an equivalent
class of any other Goldman Sachs Portfolio or ILA Portfolio. See "Fund
Highlights." Shareholders may also elect to exchange automatically a specified
dollar amount of shares of a Fund for shares of the same class or an
equivalent class of any other Goldman Sachs Portfolio or ILA Portfolio. Shares
accrued through cross-reinvestment of dividends or the automatic exchange
program will be purchased at net asset value and will not be subject to any
initial or contingent deferred sales charge as a result of the cross-
reinvestment or exchange, but Class B shares acquired under the automatic
exchange program may be subject to a CDSC at the time of redemption from the
Fund into which the exchange is made determined on the basis of the date and
value of the investors initial purchase of the fund from which the exchange
(or any prior exchange) is made. Automatic exchanges are made monthly on the
fifteenth day of each month or the first Business Day thereafter. The minimum
dollar amount for automatic exchanges must be at least $50 per month. Cross-
reinvestments and automatic exchanges are subject to the following conditions:
(i) the value of the shareholder's account(s) in the fund which is paying the
dividend or from which the automatic exchange is being made must equal or
exceed $10,000 and (ii) the value of the account in the acquired fund must
equal or exceed the acquired fund's minimum initial investment requirement or
the shareholder must elect to continue cross-reinvestment or automatic
exchanges until the value of acquired fund shares in the shareholder's account
equals or exceeds the acquired fund's minimum initial investment requirement.
A Fund shareholder may elect cross-reinvestment into an identical account or
an account registered in a different name or with a different address, social
security or other taxpayer identification number, provided that the account in
the acquired fund has been established, appropriate signatures have been
obtained and the minimum initial investment requirement has been satisfied. A
Fund shareholder should obtain and read the prospectus of the Fund into which
dividends are invested or automatic exchanges are made.
TAX-SHELTERED RETIREMENT PLANS
The Funds offer their shares for purchase by retirement plans, including IRA
Plans for individuals and their non-employed spouses and defined contribution
plans such as 401(k) Salary Reduction Plans. Detailed
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information concerning these plans and copies of the plans may be obtained
from the Transfer Agent. This information should be read carefully, and
consultation with an attorney or tax adviser may be advisable. The information
sets forth the service fee charged for retirement plans and describes the
federal income tax consequences of establishing a plan. Under all plans,
dividends and distributions will be automatically reinvested in additional
shares of the same class of the Fund or, if so directed by the shareholder, in
cash or, in shares of the same class or an equivalent class of any other
Goldman Sachs Portfolio or ILA Portfolio.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged at net asset value without the imposition
of an initial or contingent deferred sales charge at the time of exchange for:
shares of the same class or an equivalent class of any other Fund, Goldman
Sachs Portfolio or ILA Portfolio. See "Fund Highlights". A shareholder needs
to obtain and read the prospectus of the fund into which the exchange is made.
The shares or units of these other funds acquired by an exchange may later be
exchanged for shares of the same (or an equivalent class) of the original Fund
at the next determined net asset value without the imposition of an initial or
contingent deferred sales charge if the dollar amount in the Fund resulting
from such exchanges is below the shareholder's all-time highest dollar amount
on which it has previously paid a sales charge. Shares or units of these other
funds purchased through dividends and/or capital gains reinvestment may be
exchanged for shares of the Funds without a sales charge. In addition to free
automatic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each twelve-month period. A fee of $12.50 may be
charged for each subsequent exchange during such period. The exchange
privilege may be modified or withdrawn at any time upon sixty (60) days'
notice to shareholders and is subject to certain limitations.
An exchange of Class B shares will not be subject to the applicable CDSC at
the time of exchange. Class B shares acquired in an exchange will be subject
to the CDSC of the share originally held. For purposes of determining the
amount of any applicable CDSC, the length of time a shareholder had owned
Class B shares will be measured from the date the shareholder acquired the
original Class B shares and will not be affected by any subsequent exchange.
An exchange may be made by identifying the applicable Fund and class of
shares and either writing to Goldman Sachs, Attention: Goldman Sachs Equity
Portfolios, Inc., Shareholder Services, c/o NFDS, P.O. Box 419711, Kansas
City, MO 64141-6711 or, if previously elected in the Fund's Account
Application, by telephone at 800-526-7384 (8:00 a.m. to 3:00 p.m. Chicago
time). Certain procedures are employed to prevent unauthorized or fraudulent
exchange requests as set forth under "How to Sell Shares of the Funds." Under
the telephone exchange privilege, shares may be exchanged among accounts with
different names, addresses and social security or other taxpayer
identification numbers only if the exchange request is in writing and is
received in accordance with the procedures set forth under "How to Sell Shares
of the Funds." In times of drastic economic or market changes the telephone
exchange privilege may be difficult to implement.
For federal income tax purposes, an exchange, including an automatic
exchange, is treated as a sale of the shares surrendered in the exchange, on
which an investor may realize a gain or loss, followed by a purchase of shares
or units received in the exchange. If such sale occurs within ninety (90) days
after the purchase of such shares, to the extent a sales charge that would
otherwise apply to the shares or units received in the exchange is not
imposed, the sales charge paid on such purchase of Class A shares cannot be
taken into account by the exchanging shareholder for purposes of determining
gain or loss realized on such sale for federal income tax purposes, but
instead will be added to the tax basis of the shares or units received in the
exchange. Shareholders should consult their own tax advisers concerning the
tax consequences of an exchange.
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All exchanges which represent an initial investment in a Fund must satisfy
the minimum investment requirements of the Fund into which the shares are
being exchanged. Exchanges are available only in states where exchanges may
legally be made.
OTHER PURCHASE INFORMATION
If shares of a Fund are held in a "street name" account or were purchased
through an Authorized Dealer, shareholders should contact the Authorized
Dealer to purchase, redeem or exchange shares, to make changes in or give
instructions concerning the account or to obtain information about the
account. Authorized Dealers who receive a portion of the sales charge
applicable to the purchase of Class A or Class B shares, will not be permitted
to impose any other fees on the shareholders in connection with the purchase
of such shares.
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). The Funds or Goldman
Sachs may reject or restrict purchases or exchanges of shares by a particular
purchaser or group, for example, when a pattern of frequent purchases and
sales of 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. Goldman Sachs reserves the right to limit the
participation in the Fund of its partners and employees.
In addition to concessions allowed to Authorized Dealers, Goldman Sachs may,
from time to time, assist Authorized Dealers by, among other things, providing
sales literature to and holding informational programs for the benefit of
Authorized Dealers' registered representatives. Authorized Dealers may limit
the participation of registered representatives in such informational programs
by means of sales incentive programs which may require the sale of minimum
dollar amounts of shares of the Goldman Sachs Portfolios. Goldman Sachs may
also provide additional promotional incentives to Authorized Dealers in
connection with sales of shares of the Goldman Sachs Portfolios. These
incentives may include payment for travel expenses, including lodging,
incurred in connection with trips taken by qualified registered
representatives and members of their families within or without the United
States. Incentive payments will be provided for out of the sales charge and
distribution fees or out of Goldman Sachs' other resources. Other than sales
charges and distribution fees, a Fund and its shareholders do not bear
distribution expenses. An Authorized Dealer receiving such incentives may be
deemed to be an underwriter under the 1933 Act. In some instances, such
incentives may be made available only to certain Authorized Dealers whose
representatives have sold or are expected to sell significant amounts of
shares.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
DISTRIBUTION PLAN--CLASS A SHARES
The Company, on behalf of each Fund's Class A shares, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class A
Distribution Plan"). Under the Class A Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.25% of a Fund's average daily net assets attributable to
Class A shares of such Fund. Currently, Goldman Sachs has voluntarily agreed
to waive the entire amount of such fee for the Balanced, Growth and Income,
Capital Growth and Small Cap Equity Funds and to limit the amount of such fee
to 0.21% of average daily net assets attributable to Class A shares of Select
Equity, International Equity and Asia Growth Funds. Goldman Sachs has no
current intention of modifying or discontinuing such waiver, but may do so in
the future at its discretion. The average rate for the
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fiscal year ended January 31, 1996 paid by the Balanced, Select Equity, Growth
and Income, Capital Growth, Small Cap Equity, International Equity and Asia
Growth Funds to Goldman Sachs was with respect to each Fund's Class A
shares.
Goldman Sachs may use the distribution fee for its expenses of distribution
of Class A shares of the Funds. The types of expenses for which Goldman Sachs
may be compensated for distribution services under the Class A Distribution
Plan include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and their respective officers, employees and sales
representatives, allocable overhead, telephone and travel expenses, the
printing of prospectuses for prospective shareholders, preparation and
distribution of sales literature, advertising of any type and all other
expenses incurred in connection with activities primarily intended to result
in the sale of Class A shares. If the fee received by Goldman Sachs pursuant
to the Class A Distribution Plan exceeds its expenses, Goldman Sachs may
realize a profit from these arrangements. The Class A Distribution Plan will
be reviewed and is subject to approval annually by the Board of Directors of
the Company. The aggregate compensation that may be received under the Class A
Distribution Plan for distribution services may not exceed the limitations
imposed by the NASD's Rules of Fair Practice.
DISTRIBUTION PLAN--CLASS B SHARES
The Company, on behalf of each Fund's Class B shares, has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Act (the "Class B
Distribution Plan"). Under the Class B Distribution Plan, Goldman Sachs is
entitled to a quarterly fee from each Fund for distribution services equal, on
an annual basis, to 0.75% of a Fund's average daily net assets attributable to
Class B shares of such Fund.
Goldman Sachs may use the distribution fee for its expenses of distributing
of Class B shares of the Funds. The types of expenses for which Goldman Sachs
may be compensated for distribution services under the Class B Distribution
Plan include compensation paid to and expenses incurred by Authorized Dealers,
Goldman Sachs and their respective officers, employees and sales
representatives, commissions paid to Authorized Dealers allocable overhead,
telephone and travel expenses, the printing of prospectuses for prospective
shareholders, preparation and distribution of sales literature, advertising of
any type and all other expenses incurred in connection with activities
primarily intended to result in the sale of Class B shares. If the fee
received by Goldman Sachs pursuant to the Class B Distribution Plan exceeds
its expenses, Goldman Sachs may realize a profit from these arrangements. The
Class B Distribution Plan will be reviewed and is subject to approval annually
by the Board of Directors of the Company. The aggregate compensation that may
be received under the Class B Distribution Plan for distribution services may
not exceed the limitations imposed by the NASD's Rules of Fair Practice.
AUTHORIZED DEALER SERVICE PLANS
The Company on behalf of each Fund's Class A and Class B shares has adopted
non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service Plan")
pursuant to which Goldman Sachs and Authorized Dealers are compensated for
providing personal and account maintenance services. Each Fund pays a fee
under its Class A or Class B Service Plan equal on an annual basis to 0.25% of
its average daily net assets attributable to Class A or Class B shares. The
fee for personal and account maintenance services paid pursuant to a Service
Plan may be used to make payments to Goldman Sachs, Authorized Dealers and
their officers, sales representatives and employees for responding to
inquiries of, and furnishing assistance to, shareholders regarding ownership
of their shares or their accounts or similar services not otherwise provided
on behalf of the Funds. The Service Plans will be reviewed and are subject to
approval annually by the Board of Directors. For the period June 1, 1995
through January 31, 1996, each Fund paid Authorized Dealer service fees at the
foregoing rate for each Funds' Class A shares.
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HOW TO SELL SHARES OF THE FUNDS
Each Fund will redeem its shares upon request of a shareholder on any
Business Day at the net asset value next determined after the receipt of such
request in proper form, subject to any applicable contingent deferred sales
charge. See "Net Asset Value." Redemption proceeds will be mailed by check to
a shareholder within three (3) Business Days of receipt of a properly executed
request. If shares to be redeemed were recently purchased by check, a Fund may
delay transmittal of redemption proceeds until such time as it has assured
itself that good funds have been collected for the purchase of such shares.
This may take up to fifteen (15) days. Redemption requests may be made by
writing to or calling the Transfer Agent at the address or telephone number
set forth on the back cover page of this Prospectus or an Authorized Dealer.
A shareholder 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 and exchange requests by telephone, Goldman Sachs and NFDS each
employ reasonable procedures specified by the Company to confirm that such
instructions are genuine. Consequently, proceeds of telephone redemption
requests will be sent only to the shareholder's address of record or
authorized bank account designated in the Account Information Form and
exchanges of shares will be made only to an identical account. Telephone
requests will also be recorded. The Company may implement other procedures
from time to time. If reasonable procedures are not implemented, the Company
may be liable for any loss due to unauthorized or fraudulent transactions. In
all other cases, neither a Fund, the Company nor Goldman Sachs will be
responsible for the authenticity of instructions received by telephone.
Proceeds of telephone redemptions will be mailed to the shareholder's address
of record or wired to the authorized bank account indicated on the Account
Information Form, unless the shareholder provides written instructions
(accompanied by a signature guarantee) indicating another address.
Written requests for redemptions must be signed by each shareholder with its
signature guaranteed by a bank, a securities broker or dealer, a credit union
having authority to issue signature guarantees, a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association, a national securities exchange, a registered
securities association or a clearing agency, provided that such institution
satisfies the standards established by the Transfer Agent.
The Funds will also arrange for the proceeds of redemptions effected by any
means to be wired as Federal Funds to the bank account designated in the
shareholder's Account Application. Redemption proceeds will normally be wired
on the next Business Day in Federal Funds (for a total one Business Day delay)
following receipt of a properly executed wire transfer redemption request.
Wiring of redemption proceeds may be delayed one additional Business Day if
the Federal Reserve Bank is closed on the day redemption proceeds would
ordinarily be wired. A transaction fee of $7.50 may be charged for payments of
redemption proceeds by wire. In order to change the bank designated on the
Account Information Form to receive redemption proceeds, a written request
must be received by the Transfer Agent. This request must be signature
guaranteed as set forth above. Further documentation may be required for
executors, trustees or corporations. Once wire transfer instructions have been
given by Goldman Sachs or an Authorized Dealer, neither a Fund, the Company,
Goldman Sachs nor any Authorized Dealer assumes any further responsibility for
the performance of intermediaries or the shareholder's bank in the transfer
process. If a problem with such performance arises, the shareholder should
deal directly with such intermediaries or bank.
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Additional documentation regarding a redemption by any means may be required
to effect a redemption when deemed appropriate by the Transfer Agent. The
request for such redemption will not be considered to have been received in
proper form until such additional documentation has been received.
Except with respect to shareholders whose account balances are less than $50
or who have not provided a social security number or other taxpayer
identification number and certification (if required) that such number is
correct, shares 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 that
Fund. The Company, however, assumes no responsibility to compel redemptions of
a Fund.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may draw on shareholdings systematically with monthly checks
in any amount specified by the shareholder over $50. Each systematic
withdrawal is a sale for tax purposes. A minimum balance of $5,000 in shares
of a Fund is required. The maintenance of a withdrawal plan concurrently with
purchases of additional Class A or Class B shares would be disadvantageous
because of the sales charge included in your purchases of Class A shares or
the imposition of a CDSC on your redemptions of Class B shares. See Additional
Statement for more information about the Systematic Withdrawal Plan.
DIVIDENDS
Each dividend from net investment income and capital gains distribution, if
any, declared by a Fund on its outstanding shares will, at the election of
each shareholder, be paid in (i) cash, (ii) additional shares of the same
class of the Fund or (iii) shares of the same or an equivalent class of any of
the Goldman Sachs Portfolios or units of the ILA Portfolios (the Prime
Obligations Portfolio only for Class B), as described under "Cross-
Reinvestment of Dividends and Distributions and Automatic Exchange Program."
This election should initially be made on a shareholder's Account Application
and may be changed upon written notice to Goldman Sachs at any time prior to
the record date for a particular dividend or distribution. If no election is
made, all dividends from net investment income and capital gain distributions
will be reinvested in the Fund. 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
additional shares or units of the Fund or any other Goldman Sachs Portfolio or
ILA Portfolio will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares or units of the Fund, another Goldman Sachs Portfolio
or an ILA Portfolio.
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 for each taxable year. The Balanced
and Growth and Income Funds will pay dividends from net investment income
quarterly. Each other Fund will pay dividends from net investment income at
least annually. All of the Funds will pay dividends from net realized long-
term and short-term capital gains, reduced by available capital losses, at
least annually. From time to time, a portion of any Fund's dividends may
constitute a return of capital.
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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
securities. Therefore, subsequent distributions (or portions thereof) of
taxable income 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.
NET ASSET VALUE
The net asset value per share of each class of a Fund is calculated by the
Fund's custodian as of the close of regular trading on the New York Stock
Exchange (normally 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 and the
Balanced and Growth and Income Funds may publish their yield and distribution
rate in advertisements and communications to shareholders or prospective
investors. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at the maximum public
offering price for specified periods ending with the most recent calendar
quarter, assuming reinvestment of all dividends and distributions at net asset
value. The total return calculation assumes a complete redemption of the
investment at the end of the relevant period. Total return calculations for
Class A shares reflect the effect paying the maximum initial sales charge.
Investment at a lower sales charge would result in higher performance figures.
Total return calculations for Class B shares reflect deduction of the
applicable CDSC imposed upon redemption of Class B shares held for the
applicable period. Each Fund may also from time to time advertise total return
on a cumulative, average, year-by-year or other basis for various specified
periods by means of quotations, charts, graphs or schedules. In addition, each
Fund may furnish total return calculations based on investments at various
sales charge levels or at net asset value. Any performance data which is based
on a Fund's net asset value per share would be reduced if a sales charge were
taken into account. In addition to the above, each Fund may from time to time
advertise its performance relative to certain performance rankings and
indices.
The Balanced and Growth and Income Funds compute their yield by dividing net
investment income earned during a recent thirty-day period by the product of
the average daily number of shares outstanding and entitled to receive
dividends during the period and the maximum offering price per share on the
last day of the relevant period. The results are compounded on a bond
equivalent (semi-annual) basis and then annualized. Net investment income per
share is equal to the dividends and interest earned during the period, reduced
by accrued expenses for the period. The calculation of net investment income
for these purposes may differ from the net investment income determined for
accounting purposes. The Balanced and Growth and Income Funds'
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quotations of distribution rate are calculated by annualizing the most recent
distribution of net investment income for a monthly, quarterly or other
relevant period and dividing this amount by the net asset value per share on
the last day of the period for which the distribution rates are being
calculated.
Each Fund's yield, total return and distribution rate will be calculated
separately for each class of shares in existence. Because each class of shares
may be subject to different expenses, the yield, total return and distribution
rate calculations with respect to each class of shares for the same period
will differ. The investment performance of the Class A and Class B shares will
be affected by the payment of a sales charge and distribution fees. See
"Shares of the Company" below.
The investment results of a Fund will fluctuate over time and any
presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the Fund's
performance may be in any future period. In addition to information provided
in shareholder reports, the Funds may, in their discretion, from time to time,
make a list of their holdings available to investors upon request.
SHARES OF THE 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 2,000,000,000 shares of common stock, par value of
$.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. 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 Select Equity,
Growth and Income, International Equity and Asia Growth Funds offer four
classes of shares: Institutional Shares, Service Shares and the shares offered
by this Prospectus which are designated as Class A shares or Class B shares.
The Balanced, Capital Growth and Small Cap Equity Funds offer Class A shares
and Class B shares.
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the applicable Fund available for distribution to such shareholders. All
shares entitle their holders to one vote per share, are freely transferable
and have no preemptive, subscription or conversion rights.
As of , 1996, State Street Bank and Trust Company as Trustee for
Goldman Sachs Profit Sharing Master Trust, attention: Louis Pereira, P.O. Box
1992, Boston, MA 02105-1992 was record holder of % of Select Equity Fund's
outstanding shares.
Unless otherwise required by the Act, ordinarily it will not be necessary
for the Company to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of Directors or the
appointment 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 such special
meeting of shareholders for any purpose and recordholders may, under certain
circumstances as permitted by the Act, communicate with other shareholders in
connection with requiring a special meeting of shareholders. 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.
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In the interest of economy and convenience, the Company does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
TAXATION
FEDERAL TAXES
Each Fund is treated as a separate entity for tax purposes and has elected
or intends to elect to be treated as a regulated investment company and to
qualify for such treatment for each taxable year under Subchapter M of the
Code. To qualify as such, a Fund must satisfy certain requirements relating to
the sources of its income, diversification of its assets and distribution of
its income to shareholders. As a regulated investment company, a Fund will not
be subject to federal income or excise tax on any net investment income and
net realized capital gains that are distributed to its shareholders in
accordance with certain timing requirements of the Code.
Dividends paid by a Fund from net investment income, certain net realized
foreign exchange gains, the excess of net short-term capital gain over net
long-term capital loss and original issue discount or market discount income
will be taxable to shareholders as ordinary income. 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
regardless of whether distributions are received in cash or reinvested in
shares. A Fund's dividends that are paid to its corporate shareholders from
qualifying dividends such Fund receives from U.S. domestic corporations may be
eligible, in the hands of such corporate shareholders, for the corporate
dividends-received deduction, subject to certain holding period requirements
and debt financing limitations under the Code. Dividends paid by International
Equity Fund and Asia Growth Fund are not generally expected to qualify, in the
hands of corporate shareholders, for the corporate dividends-received
deduction, but a portion of each other Fund's dividends may generally so
qualify. Certain distributions paid by a Fund in January of a given year may
be taxable to shareholders as if received the prior December 31. Shareholders
will be informed annually about the amount and character of distributions
received from the Funds for federal income tax purposes.
Investors should consider the tax implications of buying shares immediately
prior to a distribution. Investors who purchase shares shortly before the
record date for a distribution 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
shareholder 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
exchanges if they fail to furnish their correct taxpayer identification number
and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not
U.S. persons under the Code are subject to different tax rules and may be
subject to non-resident alien withholding at the rate of 30% (or a lower rate
provided by an applicable tax treaty) on amounts treated as ordinary dividends
from the Funds.
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Each Fund anticipates that it will be subject to foreign withholding or
other foreign taxes on income or gain from certain foreign securities. The
Funds do not anticipate that they will elect to pass such foreign taxes
through to their shareholders, who therefore will generally not take such
taxes into account on their own tax returns. The Funds will generally deduct
such taxes in determining the amounts available for a distribution to
shareholders.
OTHER TAXES
In addition to federal taxes, a shareholder may be subject to state, local
or foreign taxes on payments received from the Funds. A state income (and
possibly local income and/or intangible property) tax exemption is generally
available to the extent (if any) a Fund's distributions are derived from
interest on (or, in the case of intangibles taxes, the value of its assets is
attributable to) certain U.S. Government obligations, provided in some states
that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. For a further discussion of certain tax
consequences of investing in shares of the Funds, see "Taxation" in the
Additional Statement. Shareholders are urged to consult their own tax advisers
regarding specific questions as to federal, state and local taxes as well as
to any foreign taxes.
ADDITIONAL INFORMATION
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 (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
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APPENDIX
STATEMENT OF INTENTION
(APPLICABLE ONLY TO CLASS A SHARES PURCHASED SUBJECT TO A SALES CHARGE)
If a shareholder anticipates purchasing $50,000 or more of Class A shares of
a Fund alone or in combination with Class A shares of another Fund or another
Goldman Sachs Portfolio within a 13-month period, the shareholder may obtain
shares of the Fund at the same reduced sales charge as though the total
quantity were invested in one lump sum by filing this Statement of Intention
incorporated by reference in the Account Application. Income dividends and
capital gain distributions taken in additional shares will apply toward the
completion of this Statement of Intention.
To ensure that the reduced price will be received on future purchases, the
investor must inform Goldman, Sachs & Co. that this Statement of Intention is
in effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if his
purchases within 13 months plus the value of shares credited toward completion
do not total the sum specified, he will pay the increased amount of the sales
charge prescribed in the Escrow Agreement.
ESCROW AGREEMENT
Out of the initial purchase (or subsequent purchases if necessary) 5% of the
dollar amount specified on the Account Application shall be held in escrow by
the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will
be paid to the investor or to his order. When the minimum investment so
specified is completed (either prior to or by the end of the thirteenth
month), the shareholder will be notified and the escrowed shares will be
released. In signing the Account Application, the investor irrevocably
constitutes and appoints the Transfer Agent his attorney to surrender for
redemption any or all escrowed shares with full power of substitution in the
premises.
If the intended investment is not completed, the investor will be asked to
remit to Goldman, Sachs & Co. any difference between the sales charge on the
amount specified and on the amount actually attained. If the investor does not
within 20 days after written request by Goldman, Sachs & Co. pay such
difference in the sales charge, the Transfer Agent will redeem an appropriate
number of the escrowed shares in order to realize such difference. Shares
remaining after any such redemption will be released by the Transfer Agent.
A-1
<PAGE>
- --------------------------------------------------------------------------------
GOLDMAN SACHS ASSET
MANAGEMENT
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS FUNDS
MANAGEMENT, L.P.
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
GOLDMAN SACHS ASSET
MANAGEMENT INTERNATIONAL
140 FLEET STREET
LONDON, ENGLAND EC4A 2BJ
GOLDMAN, SACHS & CO.
DISTRIBUTOR
85 BROAD STREET
NEW YORK, NEW YORK 10004
GOLDMAN, SACHS & CO.
TRANSFER AGENT
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
TOLL FREE (IN U.S.) . . . . . . . . 800-526-7384
EQI/ /0596
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE GOLDMAN SACHS
EQUITY PORTFOLIOS
CLASS A AND B SHARES
- --------------------------------------------------------------------------------
PROSPECTUS
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SEND TO: The Goldman Sachs Portfolios
c/o NFDS
ACCOUNT APPLICATION P.O. Box 419711
PLEASE PRINT OR TYPE ALL INFORMATION Kansas City, MO 64141-6711
ANY QUESTIONS? CALL GSAM AT:
1-800-526-7384
I. FUND SELECTION (MINIMUM $1,500 PER FUND)
<TABLE>
<CAPTION>
CLASS A CLASS B
FUND NAME (AND CODE A/B) AMOUNT AMOUNT
- ------------------------ ------- -------
<S> <C> <C>
[_] Asia Growth Fund
(880/980) $______ $_____
[_] Balanced Fund
(070/970) $______ $_____
[_] Capital Growth Fund
(807/907) $______ $_____
[_] Growth & Income Fund
(814/914) $______ $_____
[_] International Equity
Fund (815/915) $______ $_____
[_] Select Equity Fund
(817/917) $______ $_____
[_] Small Cap Equity
Fund (819/919) $______ $_____
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
FUND NAME (AND CODE A/B) AMOUNT AMOUNT
------------------------ ------- -------
<S> <C> <C>
[_] Adjustable Rate Govern-
ment Fund (677) $______ N/A
[_] Global Income Fund
(818/918) $______ $_____
[_] Government Income Fund
(812/912) $______ $_____
[_] Municipal Income Fund
(816/916) $______ $_____
[_] ILA-Prime Obligations
Portfolio-C (806/906)* $______ $_____
[_] ILA-Tax-Exempt Diversi-
fied Portfolio-C (820)* $______ N/A
[_] Other: $______ $_____
</TABLE>
* Minimum $10,000 or transfer balance of
existing fund
A check in the amount of $__________ is enclosed. Note: Class B shares and
certain purchase of Class A shares may be subject to a Contingent Deferred
Sales Charge on Redemption. If not otherwise indicated, purchasers will default
to Class A shares.
If your order was placed through a broker, insert the order number here:
______________ and the date of order here:
If you are exempt from sales charges, check here [_]. By checking this box I
certify that I am exempt from the sales charge in accordance with the terms of
the applicable Fund's prospectus and I agree to notify Goldman, Sachs & Co. at
or prior to purchase if I am no longer eligible for exemption. Reason for
Exemption:_________________________________________________________________
II. ACCOUNT REGISTRATION (CHECK ONE) AND MAILING ADDRESS
[_] INDIVIDUAL
__________________________________ ___________________________
First Middle Last Social Security Number
- --------------------------------------------------------------------------------
[_] MULTIPLE OWNERS
(INCLUDING SPOUSES)
__________________________________ ___________________________
(as Joint Tenants with Rights of Survivorship)
First Middle Last Social Security Number
__________________________________ ___________________________
First Middle Last Social Security Number
- --------------------------------------------------------------------------------
[_] GIFT/TRANSFER TO MINOR
_________________________________
Name of Custodian
_________________________________ ___________________________
Name of Minor Social Security Number of
Minor
Under the Uniform Gift/Transfer to Minors Act
State of Minor's Residence Birthdate of Minor
- --------------------------------------------------------------------------------
[_] CORPORATION,
_________________________________ ___________________________
TRUST OR Name of Corporation, Trust or Other Federal Tax I.D. Number
OTHER ENTITYEntity
_________________________________ ___________________________
Date of Trust Instrument Name of Trustee (If to be
included in
account registration)
_________________________________
Name of Beneficiary (If to be included in account
registration)
- --------------------------------------------------------------------------------
MAILING
ADDRESS
__________________________________________________________________
Street Address or Post Office Box
__________________________________________________________________
CityState Zip Code
____________________ _______________________
Attention (if applicable) Daytime Telephone Number
<PAGE>
- --------------------------------------------------------------------------------
III. DIVIDENDS AND DISTRIBUTION ALTERNATIVES (CHECK ONE)
[_] All dividends and distributions to be reinvested in my account. (This
option will apply if no box is checked.)
[_] All dividends and distributions to be sent by check to me at the address in
"Account Registration."
[_] All dividend distributions to be sent to me by check at the address in
"Account Registration", short-term and long-term capital gains distributions
to be reinvested in my account.
[_] All dividends and distributions to be invested in another Goldman Sachs
Portfolio.
If so, insert name of Fund here:_____________________________________________.
Insert name of account registration here:_____ and account number here:______.
[_] All distributions to be sent by check to a special payee (i.e., someone
other than you):
Name: ________________________________________________________________________
Street Address: ______________________________________________________________
City: __________________ State: _____________ Zip Code: ___
[_] All dividends and distributions to be directly deposited to the following
bank account: (ATTACH CHECK MARKED "VOID"):
Bank Name: __________________________________ Account Number: _______________
ABA Routing #: ______________________________
Street Address: _____________________________ Name on Account: ______________
City: __________________ State: _____________ Zip Code: _____________________
IV. RIGHT OF ACCUMULATION (OPTIONAL) CLASS A SHARES ONLY
If you previously purchased Class A shares of the Goldman Sachs Portfolios on
which you paid a sales charge, and when combined with this purchase the total
is $50,000 or more (in the case of equity funds) or $100,000 or more (in the
case of fixed income funds), you may qualify for a reduced sales charge on
this purchase. Purchases by (a) spouses and children, (b) fiduciaries as to a
single trust account, (c) persons affiliated with the same business enterprise
and (d) clients of Goldman Sachs' PCS Division as to affiliated accounts, may
qualify to be aggregated. See the Statement of Additional Information or call
Goldman Sachs for additional details. List below accounts which should be
aggregated for a right of accumulation. Attach an additional page if
necessary.
Name ____________________________ Name ____________________________
Fund ____________________________ Fund ____________________________
Acct No. ________________________ Acct No. ________________________
V. STATEMENT OF INTENTION (OPTIONAL) CLASS A SHARES ONLY
Although not obligated to do so, I intend to invest, over a 13-month period
from this date, in Class A shares of the Fund alone or in combination with
Class A shares of any other fund, on which sales charge was paid, which qualify
for a quantity discount as described in the accompanying Prospectus, in an
amount that will equal or exceed the amount circled below. I agree to the
Statement of Intention and Escrow Agreement in the Appendix to the accompanying
Prospectus and incorporated by reference herein. Circle one:
$50,000 $100,000 $250,000 $500,000 $1,000,000
VI. AUTOMATIC INVESTMENT PLAN (OPTIONAL)
I authorize State Street Bank, the custodian for the Fund(s), to debit the
amount requested below from my bank account for investment in the Fund(s)
beginning in (month) and periodically thereafter. I understand that my
participation in the Automatic Investment Plan is subject to the terms and
conditions of such plan as amended from time to time.
Check One: [_] Monthly [_] Quarterly Check One: [_] 5th of the month
[_] 15th of the month (applicable unless 5th checked)
_________________________________________ $________________________________
Amount of each investment
Name of Fund/Class (minimum $50)
_________________________________________ $________________________________
Amount of each investment
Name of Fund/Class (minimum $50)
X X
_______________________________ ___________________________________
Authorized Signature (as shown on bank Authorized Signature (if joint bank
records) account both sign)
_________________________________________ _________________________________
Bank Name Account Number
_________________________________________
Bank Street Address City State Zip Code
_________________________________________ _________________________________
ABA Routing # Name on Account
<PAGE>
- --------------------------------------------------------------------------------
VII.TELEPHONE EXCHANGE (CHECK IF APPLICABLE)
[_]I authorize Goldman, Sachs & Co. to accept and act upon telephone
instructions from myself or any other person for the exchange of shares of the
Fund(s) into any fund described in the accompanying prospectus. I understand
and agree that neither the Fund(s) nor Goldman, Sachs & Co. will be liable for
any loss, expense, or cost arising out of any telephone request effected
hereunder.
VIII.
TELEPHONE REDEMPTIONS (OPTIONAL) (ATTACH VOIDED CHECK)
[_] Goldman, Sachs & Co. is hereby authorized to honor telephone, telegraphic,
or other instructions, without signature guarantee, from any person for the
redemption of shares for the above account, without an obligation on behalf of
Goldman, Sachs & Co., to verify that such person is the shareholder of record
or authorized to give redemption instructions, provided that the proceeds are
transmitted to the following bank account only or are mailed to me at the
address in "Account Registration". Absent its own gross negligence neither the
Fund(s) nor Goldman, Sachs & Co. shall be liable for such redemption or for
payments made to any unauthorized account.
________________________________________________________________________________
Bank Name ABA Routing #
________________________________________________________________________________
Bank Street Address City State Zip Code
_______________________________ _______________________________
Name(s) on Account Account Number
IX. AUTOMATIC EXCHANGES (OPTIONAL)
The originating Fund's balance must be at least $10,000 and the receiving
Fund's minimum investment must have been met prior to discontinuance.
I hereby authorize automatic exchanges of $ ______ (exact
dollars--$50 minimum):
Exchange from (Name of Fund) ____________________________
to (Name of Fund) _____________________________________
Account Name ____________________________________________
Account No. (if known) __________________________________
Please make exchanges on the 15th of the month (or next
business day) beginning the month of_______ Year________.
X.
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) (ATTACH VOIDED CHECK)
Frequency of withdrawals (check one): [_] Monthly [_] Quarterly Make
payments via (check one): [_] check [_] ACH (Attach voided check.)
Payments made via check are withdrawn from your account on or about the 25th of
the month.
Please withdraw $ from my account on the of each month beginning in
.*
* See Prospectus for circumstances in which contingent deferred sales charge is
waived in connection with systematic withdrawal plans.
Complete the following section if withdrawal payments are to be made via ACH.
_______________________________ _______________________________
Bank Name ABA Routing #
________________________________________________________________________________
Bank Street Address City State Zip Code
_______________________________ _______________________________
Name(s) on Account Account Number
Complete the following section if checks are to be paid to someone other than
registered owner(s).
________________________________________________________________________________
Name of check recipient
________________________________________________________________________________
Street Address City State Zip Code
<PAGE>
- --------------------------------------------------------------------------------
XI. CHECKWRITING PRIVILEGE FOR ILA ACCOUNTS (OPTIONAL)
[_]I have invested in the ILA-Prime Obligations Portfolio Service Units and/or
the ILA-Tax-Exempt Diversified Portfolio Service Units and would like an
application for checkwriting sent to me.
XII.
SIGNATURE AND CERTIFICATION--ALL REGISTERED OWNERS MUST SIGN
You are required by law to provide the Fund with your correct Social Security
or other Taxpayer Identification Number (TIN). Failure to do so and to complete
this section may subject you to penalties and result in backup withholding of
31% of Fund distributions or other payments. If you have been notified by the
IRS that you are subject to backup withholding because you failed to report all
of your interest and/or dividend income and have not received IRS notice that
such withholding should cease, you must cross out item (2) in this section. If
you do not have but are applying for a TIN, write "Applied For" in the space
provided for your TIN and provide your TIN and required certifications within
60 days. Backup withholding could apply to payments relating to your account
prior to the Fund's receipt of your TIN and required certifications. If you are
an exempt recipient, please furnish your TIN and write "exempt" after your
signature. Exempt recipients include: corporations, tax-exempt pension plans
and IRAs, governmental agencies, financial institutions, registered securities
and commodities dealers and others. If you are a nonresident alien or foreign
entity, write "NRA" after your signature and provide a completed Form W-8 to
the Fund in order to avoid backup withholding on certain payments. I certify
under penalties of perjury that: (1) The number shown on this form is my
correct TIN (or I am waiting for a number to be issued to me), and (2) I am not
subject to backup withholding because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure to report all interest
or dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
By the execution of this Account Application, the undersigned represents and
warrants that it has full right, power and authority to make the investment
applied for pursuant to this Application and is acting for itself or in some
fiduciary capacity in making such investment. THE UNDERSIGNED UNDERSTANDS THAT
NON-MONEY MARKET FUNDS DO NOT MAINTAIN A CONSTANT NET ASSET VALUE AND FURTHER
THAT A CONSTANT NET ASSET VALUE IN MONEY MARKET FUNDS IS NOT GUARANTEED. AS A
RESULT THE UNDERSIGNED MAY EXPERIENCE A LOSS OF PRINCIPAL ON ITS INVESTMENTS.
The undersigned affirms that it has received a current Prospectus for the Funds
and has reviewed the same.
X _______________________________ X _______________________________
Signature of Owner, Custodian Signature of Co-Owner Date
or Officer Date
FOR DEALER USE ONLY
Investment dealer's signature is required for Systematic Withdrawal Plan
("SWP") or Statement of Intention. If an SWP is being opened, we believe that
the amount to be withdrawn is reasonable in light of the investor's
circumstances and we recommend establishment of the account.
________________________________________________________________________________
Name of Dealer Firm Home Office Location
________________________________________________________________________________
City State
Zip Code
________________________________________________________________________________
Branch Office Location Branch Number/Branch Phone
________________________________________________________________________________
Authorized Signature State
Zip Code
________________________________________________________________________________
Reg. Rep. Name Reg. Rep's Number
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
CLASS A SHARES
CLASS B SHARES
GOLDMAN SACHS BALANCED FUND
GOLDMAN SACHS SELECT EQUITY FUND
GOLDMAN SACHS GROWTH AND INCOME FUND
GOLDMAN SACHS CAPITAL GROWTH FUND
GOLDMAN SACHS SMALL CAP EQUITY FUND
GOLDMAN SACHS INTERNATIONAL EQUITY FUND
GOLDMAN SACHS ASIA GROWTH FUND
(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 Class A Shares and Class B Shares of Goldman Sachs
Balanced Fund, Goldman Sachs Select Equity Fund, Goldman Sachs Growth and
Income Fund, Goldman Sachs Capital Growth Fund, Goldman Sachs Small Cap Equity
Fund, Goldman Sachs International Equity Fund and Goldman Sachs Asia Growth
Fund, dated May 1, 1996 as amended and/or supplemented from time to time (the
"Prospectus"), which may be obtained without charge from Goldman, Sachs & Co.
by calling the telephone number, or writing to one of the addresses, listed
below.
TABLE OF CONTENTS
Page
----
Introduction............................................................B-3
Investment Policies.....................................................B-4
Investment Restrictions.................................................B-43
Management..............................................................B-58
Distribution and Authorized Dealer Service Plans........................B-71
Portfolio Transactions and Brokerage....................................B-79
Net Asset Value.........................................................B-84
Other Information Regarding Purchases, Redemptions,
Exchanges and Dividends................................................B-86
Performance Information.................................................B-89
Shares of the Company...................................................B-106
Taxation................................................................B-109
Financial Statements....................................................B-118
Other Information.......................................................B-118
Appendix A:.............................................................1-A
Appendix B:.............................................................1-B
Appendix C:.............................................................1-C
The date of this Additional Statement is May 1, 1996.
<PAGE>
GOLDMAN SACHS FUNDS MANAGEMENT, L.P. GOLDMAN, SACHS & CO.
Adviser to Goldman Sachs Capital Distributor
Growth Fund and 85 Broad Street
Goldman Sachs Select Equity Fund New York, New York 10004
One New York Plaza
New York, New York 10004
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
Administrator to all Funds and Adviser to MANAGEMENT INTERNATIONAL
Goldman Sachs Small Cap Equity Fund, Adviser to Goldman Sachs
Goldman Sachs International Equity Fund, Asia Growth Fund
Goldman Sachs Growth and Income Fund Subadviser to Goldman Sachs
and Goldman Sachs Balanced Fund International Equity Fund
One New York Plaza 140 Fleet Street
New York, New York 10004 London, England EC4A 2BJ
GOLDMAN, SACHS & CO.
Transfer Agent
4900 Sears Tower
Chicago, Illinois 60606
Toll free.......800-526-7384
B-2
<PAGE>
INTRODUCTION
Goldman Sachs Equity Portfolios, Inc. (the "Company") is an open-end,
management investment company currently offering eight series of shares,
including Goldman Sachs Balanced Fund ("Balanced Fund"), Goldman Sachs Select
Equity Fund ("Select Equity Fund"), Goldman Sachs Growth and Income Fund
("Growth and Income Fund"), Goldman Sachs Capital Growth Fund ("Capital Growth
Fund"), Goldman Sachs Small Cap Equity Fund ("Small Cap Fund"), Goldman Sachs
International Equity Fund ("International Fund") and Goldman Sachs Asia Growth
Fund ("Asia Growth Fund"). Balanced Fund, Growth and Income Fund, Select
Equity Fund, Capital Growth Fund, Small Cap Fund, International Fund and Asia
Growth Fund are sometimes referred to collectively herein as the "Funds."
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 and to classify and reclassify any
series or portfolio of shares into one or more classes without further action
by shareholders. Pursuant thereto, the Directors have created the Funds, and
additional series may be added in the future from time to time. The Select
Equity, Growth and Income, International and Asia Growth Funds currently offer
four classes of shares: Class A Shares, Class B Shares, Institutional Shares
and Service Shares. The Balanced, Capital Growth and Small Cap Equity Funds
currently offer Class A and Class B Shares. See "Shares of the Company."
Goldman Sachs Funds Management, L.P., ("GSFM") an affiliate of Goldman,
Sachs & Co.("Goldman Sachs"), serves as investment adviser to Capital Growth
Fund and Select Equity Fund. Goldman Sachs Asset Management ("GSAM"), a
separate operating division of Goldman Sachs, serves as investment adviser to
Balanced Fund, Growth and Income Fund, Small Cap Fund and International Fund.
Goldman Sachs Asset Management International ("GSAMI"), an affiliate of Goldman
Sachs, serves as the investment adviser to Asia Growth Fund and subadviser to
International Fund. GSFM, GSAM and GSAMI are sometimes referred to collectively
herein as the "Advisers." In addition, GSAM serves as administrator of 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").
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectus. See the
Prospectus for a fuller description of the Funds' investment objectives and
policies. There is no assurance that each Fund will achieve its objective.
B-3
<PAGE>
INVESTMENT POLICIES
Each Fund's share price will fluctuate with market, economic and, to the
extent applicable, foreign exchange conditions, so that an investment in any of
the Funds may be worth more or less when redeemed than when purchased. None of
the Funds should be relied upon as a complete investment program.
INVESTING IN ASIA
- -----------------
Asia Growth Fund is intended for long-term investors who can accept the
risks associated with investing primarily in equity and equity-related
securities of Asian Companies (as defined in the Prospectus) as well as the
risks associated with investments quoted or denominated in foreign currencies.
In addition, certain of Asia Growth Fund's potential investment and management
techniques entail special risks. There can be no assurance that Asia Growth
Fund will achieve its investment objective. See "Investment Objective and
Policies" and "Special Investment Methods and Risk Factors" in the Prospectus.
The pace of change in Asia over the last 10 years has been rapid.
Accelerating economic growth in the region has combined with capital market
development, high government expenditure, increasing consumer wealth and
taxation policies favoring company expansion. As a result, stock market
returns in many Asian countries have been relatively attractive. GSAMI believes
that Asia offers an attractive investment environment and that new
opportunities will continue to emerge in the years ahead. Asia Growth Fund
concentrates on companies that GSAMI believes are taking full advantage of the
region's growth and that have the potential for long-term capital appreciation.
See "Special Investment Methods and Risk Factors" in the Prospectus.
Each of the securities markets of the Asian countries is less liquid and
subject to greater price volatility and has a smaller market capitalization
than the U.S. securities markets. Issuers and securities markets in such
countries are not subject to as extensive and frequent accounting, financial
and other reporting requirements or as comprehensive government regulations as
are issuers and securities markets in the U.S. Certain of the Asian securities
markets are marked by a high concentration of market capitalization and trading
volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of ownership of such securities by
a limited number of investors. The limited liquidity of Asian markets may also
affect Asia Growth Fund's ability to accurately value its portfolio securities
or to acquire or dispose of securities at the price and time it wishes to do so
or in order to meet redemption requests.
Foreign investment in the securities markets of several of the Asian
countries is restricted or controlled to varying degrees.
B-4
<PAGE>
These restrictions may limit Asia Growth Fund's investment in certain of the
Asian countries and may increase the expenses of Asia Growth Fund. Certain
Asian countries require governmental approval prior to investments by foreign
persons or limit investment by foreign persons to only a specified percentage
of an issuer's outstanding securities or a specific class of securities which
may have less advantageous terms (including price) than securities of the
company available for purchase by nationals. In addition, the repatriation of
both investment income and capital from several of the Asian countries is
subject to restrictions such as the need for certain governmental consents.
Even where there is no outright restriction on repatriation of capital, the
mechanics of repatriation may affect certain aspects of the operation of Asia
Growth Fund.
Each of the Asian countries may be subject to a greater degree of
economic, political and social instability than is the case in the United
States, Japan and most Western European countries. Such instability may result
from, among other things, the following: (i) authoritarian governments or
military involvement in political and economic decision making, including
changes or attempted changes in governments through extra-constitutional means;
(ii) popular unrest associated with demands for improved political, economic or
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection or
conflict. Such economic, political and social instability could disrupt the
principal financial markets in which Asia Growth Fund invests and adversely
affect the value of Asia Growth Fund's assets.
Asia Growth Fund's income and, in some cases, capital gains from foreign
stocks and securities will be subject to applicable taxation in certain of the
countries in which it invests, and treaties between the U.S. and such countries
may not be available to reduce the otherwise applicable tax rates. Asia Growth
Fund may elect, when eligible, to "pass through" to Asia Growth Fund's
shareholders those taxes that are treated as income or excess profits taxes for
U.S. federal income tax purposes. If Asia Growth Fund is eligible for and
makes such election, U.S. shareholders will be required to include in income
their proportionate share of the amount of qualifying non-U.S. taxes paid by
Asia Growth Fund and may be entitled to claim either a credit or deduction for
all or a portion of such taxes. Certain shareholders, including shareholders
not subject to U.S. taxation, will not be entitled to the benefit of a
deduction or credit with respect to non-U.S. income taxes paid by Asia Growth
Fund. See "Taxation."
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
B-5
<PAGE>
periods when a portion of the assets of Asia Growth Fund is uninvested and no
return is earned on such assets. The inability of Asia Growth Fund to make
intended security purchases or sales due to settlement problems could result
either in losses to Asia Growth Fund due to subsequent declines in value of the
portfolio securities or, if Asia Growth Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser.
INTERNATIONAL FUND
- ------------------
International Fund will seek to achieve its investment objective by
investing primarily in equity and equity-related securities of issuers that are
organized outside the United States or whose securities are principally traded
outside the United States. Because research coverage outside the United States
is fragmented and relatively unsophisticated, many foreign companies that are
well-positioned to grow and prosper have not come to the attention of
investors. GSAM and GSAMI believe that the high historical returns and less
efficient pricing of foreign markets create favorable conditions for
International Fund's highly focused investment approach. For a description of
the risks of the International Equity Fund's investments in Asia, see
"Investing in Asia."
A RIGOROUS PROCESS OF STOCK SELECTION. Using fundamental industry and
company research, GSAM's and GSAMI's equity team in London, Hong Kong and Tokyo
seeks to identify companies that have a high probability of achieving superior
long-term returns. Stocks are carefully selected for International Fund's
portfolio through a three-stage investment process. Because International Fund
is a long-term holder of stocks, the portfolio managers adjust International
Fund's portfolio only when expected returns fall below acceptable levels or
when the portfolio managers identify substantially more attractive investments.
Using the research of Goldman Sachs as well as information gathered from
other sources in Europe and the Asia-Pacific region, the portfolio managers
first identify attractive industries around the world. Such industries have
favorable underlying economics and allow companies to generate sustainable and
predictable high returns. As a rule, they are less economically sensitive,
relatively free of regulation and favor strong franchises.
Within these industries the portfolio managers identify well-run companies
that enjoy a stable competitive advantage and are able to benefit from the
favorable dynamics of the industry. This stage includes analyzing the current
and expected financial performance of the company; contacting suppliers,
customers and competitors; and meeting with management. In particular, the
portfolio managers look for companies whose managers have a strong commitment
to both maintaining the high returns of the existing
B-6
<PAGE>
business and reinvesting the capital generated at high rates of return.
Management should always act in the interests of the owners and seek to
maximize returns to all stockholders.
GSAM's currency team manages the foreign exchange risk embedded in foreign
equities by means of a currency overlay program. The program may be utilized
to protect the value of foreign investments in sustained periods of dollar
appreciation and to add returns by seeking to take advantage of foreign
exchange fluctuations. See "Investment Policies" and "Advisory and
Administrative Services."
The members of GSAM and GSAMI's international equity team bring together
years of experience in analyzing and investing in companies in Europe and the
Asia-Pacific region. Their expertise spans a wide range of skills including
investment analysis, investment management, investment banking and business
consulting. In addition, they have access to over 200 economic, equity and
currency research professionals of Goldman Sachs in London, Frankfurt, Hong
Kong, Tokyo and New York.
BALANCED FUND
- -------------
The investment objective of the Balanced Fund is to provide shareholders
with current income and long-term capital growth. The Balanced Fund seeks to
achieve its investment objective by investing in a balanced portfolio
diversified among both equity and fixed income securities.
Balanced Fund is intended to provide a foundation on which an investor can
build an investment portfolio or to serve as the core of an investment program,
depending on the investor's goals. Balanced Fund is designed for relatively
conservative investors who seek a combination of long-term capital growth and
current income in a single investment. Balanced Fund offers a portfolio of
equity and fixed income securities intended to provide less volatility than a
portfolio completely invested in equity securities and greater diversification
than a portfolio invested in only one asset class. Balanced Fund may be
appropriate for people who seek capital appreciation but are concerned about
the volatility typically associated with a fund that invests solely in stocks
and other equity securities.
FIXED INCOME STRATEGIES DESIGNED TO MAXIMIZE RETURN AND MANAGE RISK
GSAM's approach to managing the fixed income portion of Balanced Fund's
portfolio is designed to provide high returns relative to a market benchmark,
the Lehman Brothers Aggregate Bond Index, while also providing high current
income. This approach emphasizes (1) sector allocation strategies which enable
GSAM to tactically overweight or underweight one sector of the fixed-income
market (i.e., mortgages, corporate bonds, U.S. Treasuries, non-
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dollar bonds, emerging market debt) versus another; (2) individual security
selection based on identifying relative value (fixed income securities
inexpensive relative to others in their sector); and (3) to a lesser extent,
strategies based on GSAM's expectation of the direction of interest rates or the
spread between short-term and long-term interest rates such as yield curve
strategy.
GSAM seeks to manage fixed income portfolio risk in a number of ways.
These include diversifying the fixed income portion of the Balanced Fund's
portfolio among various types of fixed income securities and utilizing
sophisticated quantitative models to understand how the fixed income portion of
the portfolio will perform under a variety of market and economic scenarios.
In addition, GSAM uses extensive credit analysis to select and monitor any
investment-grade or non-investment grade bonds that may be included in the
Balanced Fund's portfolio. In employing this and other investment strategies,
the GSAM team has access to extensive fundamental research and analysis
available through Goldman Sachs and a broad range of other sources.
MARKET SECTOR SELECTION. Market sector selection is the underweighting
or overweighting of one or more market sectors (i.e., U.S. Treasuries, U.S.
Government agency securities, corporate securities, mortgage-backed securities
and asset-backed securities). GSAM may decide to overweight or underweight a
given market sector or subsector (e.g., within the corporate sector,
industrials, financial issuers and utilities) based on, among other things,
expectations of future yield spreads between different sectors or subsectors.
ISSUER SELECTION. Issuer selection is the purchase and sale of
corporate securities based on a corporation's current and expected credit
standing (within the constraints imposed by Balanced Fund's minimum credit
quality requirements). This strategy focuses on four types of investment-grade
corporate issuers. Selection of securities from the first type of issuers
- -those with low but stable credit - enhances total returns by providing
incremental yield. Selecting securities from the second type of issuers -those
with low and intermediate but improving credit quality -enhances total returns
in two stages. Initially, these securities provide incremental yield.
Eventually, price appreciation occurs relative to alternative securities as
credit quality improves, the nationally recognized statistical rating
organizations upgrade credit ratings, and credit spreads narrow. Securities
from the third type of issuers - issuers with deteriorating credit quality
- -will be avoided, since total returns are enhanced by avoiding the widening of
credit spreads and the consequent relative price depreciation. Finally, total
returns can be enhanced by focusing on securities that are rated differently by
different rating organizations. If the securities are trading in line with the
higher published quality rating while GSAM concurs with the lower published
quality rating, the securities would generally be sold
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and any potential price deterioration avoided. On the other hand, if the
securities are trading in line with the lower published quality rating while
the higher published quality rating is considered more realistic, the
securities may be purchased in anticipation of the expected market reevaluation
and relative price appreciation.
YIELD CURVE STRATEGY. Yield curve strategy consists of overweighting or
underweighting different maturity sectors relative to a benchmark to take
advantage of the shape of the yield curve. Three alternative maturity sector
selections are available: a "barbell" strategy in which short and long
maturity sectors are overweighted while intermediate maturity sectors are
underweighted; a "bullet" strategy in which, conversely, short-and
long-maturity sectors are underweighted while intermediate-maturity sectors are
overweighted; and a "neutral yield curve" strategy in which the maturity
distribution mirrors that of a benchmark.
SELECT EQUITY FUND
- ------------------
Select Equity Fund's investment objective is to provide its shareholders
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. Under normal circumstances, the Fund will invest at least 90% of its
total assets in equity securities.
The investment strategy of Select Equity Fund will be implemented to the
extent it is consistent with maintaining the Fund's qualification as a
regulated investment company under the Internal Revenue Code. The Fund's
strategy may be limited, in particular, by the requirement for such
qualification that less than 30% of the Fund's annual gross income be derived
from the sale or other disposition of stocks or securities (including options
and futures contracts) held for less than three months.
Since normal settlement for equity securities is three trading days, the
Fund will need to hold cash balances to satisfy shareholder redemption
requests. Such cash balances will normally range from 2% to 5% of the Fund's
net assets. The 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, the 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.
THE MULTIFACTOR MODEL. The Multifactor Model is a sophisticated
computerized rating system for evaluating equity securities according to a
variety of investment characteristics (or factors). The factors used by the
Multifactor Model incorporate
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many variables studied by traditional fundamental analysts and cover measures
of value, yield, growth, momentum, risk and liquidity (e.g. price/earnings
ratio, sustainable long-term growth rate, price momentum and market specific
risk). All of these factors have been shown to significantly impact the
performance of equity securities.
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. By
using a variety of relevant factors to select securities, the Investment Adviser
believes that the Fund will be better balanced and have more consistent
performance than an investment portfolio that uses only one or two factors to
select securities.
The Investment Adviser will monitor, and may occasionally suggest and make
changes to, the method by which securities are selected for or weighted in the
Fund. Such changes (which may be the result of changes in the Multifactor
Model or the method of applying the Multifactor Model) may include: (i)
evolutionary changes to the structure of the Multifactor Model (e.g., the
addition of new factors or a new means of weighting the factors); (ii) changes
in trading procedures (e.g., trading frequency or the manner in which the Fund
uses futures on the S&P 500 Index); or (iii) changes in the method by which
securities are weighted in the Fund. Any such changes will preserve the Fund's
basic investment philosophy of combining qualitative and quantitative methods
of selecting securities using a disciplined investment process.
CORPORATE DEBT OBLIGATIONS
- --------------------------
Each Fund may invest, under normal market conditions, in corporate debt
obligations, including obligations of industrial, utility and financial
issuers. Select Equity Fund may only invest in debt securities that are cash
equivalents. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
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 the
market value of junk bonds will have an adverse effect on a Fund's net asset
value to the extent it invests in such securities. In addition, a Fund may
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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 bonds, which is concentrated in relatively
few market makers, may not be as liquid as the secondary market for more highly
rated securities. This reduced liquidity may have an adverse effect on the
ability of Growth and Income Fund, Capital Growth Fund, Small Cap Fund and
Balanced Fund to dispose of a particular security when necessary to meet their
redemption requests or other liquidity needs. Under adverse market or economic
conditions, the secondary market for junk bonds could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, the Advisers could find it 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 such circumstances, may be less than
the prices used in calculating a Fund's net asset value.
Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which Capital Growth
Fund, Small Cap Fund, Growth and Income Fund and Balanced 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 a 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 unrated securities. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The Advisers will
attempt to reduce these risks through portfolio diversification and by analysis
of each issuer
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and its ability to make timely payments of income and principal, as well as
broad economic trends and corporate developments.
ZERO COUPON BONDS
- -----------------
A Fund's investments in fixed income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the period until maturity. Zero
coupon bonds do not require the periodic payment of interest. Such investments
benefit the issuer by mitigating its need for cash to meet debt service but
also require a higher rate of return to attract investors who are willing to
defer receipt of such cash. Such investments may experience greater volatility
in market value than debt obligations which provide for regular payments of
interest. In addition, if an issuer of zero coupon bonds held by a Fund
defaults, the Fund may obtain no return at all on its investment. Each Fund
will accrue income on such investments for tax and accounting purposes 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 the Fund's distribution obligations. See "Taxation."
VARIABLE AND FLOATING RATE SECURITIES
- -------------------------------------
The interest rates payable on certain securities in which Balanced Fund
may invest are not fixed and may fluctuate based upon changes in market rates.
A variable rate obligation has an interest rate which is adjusted at
predesignated periods in response to changes in the market rate of interest on
which the interest rate is based. Variable and floating rate obligations are
less effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
CUSTODIAL RECEIPTS
- ------------------
Each Fund may invest up to 5% of its total assets in custodial receipts in
respect of securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government, its agencies, instrumentalities, political subdivisions or
authorities. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investors Growth Receipts" ("TIGRs"), and
"Certificates of Accrual on Treasury Securities" ("CATs"). For certain
securities law purposes, custodial receipts are not considered U.S. Government
Securities.
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MUNICIPAL SECURITIES
- --------------------
Balanced Fund may invest up to 5% of its total assets in municipal
securities. Municipal securities consist of bonds, notes and other instruments
issued by or on behalf of states, territories and possessions of the United
States (including the District of Columbia) and their political subdivisions,
agencies or instrumentalities, the interest on which is exempt from regular
federal income tax. Municipal securities are often issued to obtain funds for
various public purposes. Municipal securities also include "private activity
bonds" or industrial development bonds, which are issued by or on behalf of
public authorities to obtain funds for privately operated facilities, such as
airports and waste disposal facilities, and, in some cases, commercial and
industrial facilities.
The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions affecting
such issuers. Due to their tax exempt status, the yields and market prices of
municipal securities may be adversely affected by changes in tax rates and
policies, which may have less effect on the market for taxable fixed income
securities. Moreover, certain types of municipal securities, such as housing
revenue bonds, involve prepayment risks which could affect the yield on such
securities.
Investments in municipal securities are subject to the risk that the
issuer could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal
payments are to be made or the assets collateralizing such obligations.
Revenue bonds, including private activity bonds, are backed only by specific
assets or revenue sources and not by the full faith and credit of the
governmental issuer.
STRUCTURED SECURITIES
---------------------
Balanced Fund may invest in structured notes, bonds or debentures. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific interest rates, commodities,
indices or other financial indicators (the "Reference") or the relative change
in two or more References. The interest rate or the principal amount payable
upon maturity or redemption may be increased or decreased depending upon
changes in the applicable Reference. The terms of the structured securities
may provide that in certain circumstances no principal is due at maturity and,
therefore, may result in the loss of the Balanced Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate
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or value of the security at maturity. In addition, changes in interest rates
or the value of the security at maturity may be a multiple of changes in the
value of the Reference. Consequently, structured securities may entail a
greater degree of market risk than other types of fixed-income securities.
Structured securities may also be more volatile, less liquid and more difficult
to accurately price than less complex securities.
BANK OBLIGATIONS
- ----------------
Balanced Fund may invest up to 5% of its total assets in U.S. dollar
denominated obligations issued or guaranteed by U.S. banks. Bank obligations,
including without limitation time deposits, bankers' acceptances and
certificates of deposit, may be general obligations of the parent bank or may
be limited to the issuing branch by the terms of the specific obligations or by
government regulation.
Banks are subject to extensive but different governmental regulations
which may limit both the amount and types of loans which may be made and
interest rates which may be charged. In addition, the profitability of the
banking industry is largely dependent upon the availability and cost of funds
for the purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important
part in the operations of this industry.
MORTGAGE-BACKED SECURITIES
- --------------------------
GENERAL CHARACTERISTICS. Each Fund (excluding Select Equity Fund) may
invest in mortgage-backed securities. Each mortgage pool underlying
mortgage-backed securities consists of mortgage loans evidenced by promissory
notes secured by first mortgages or first deeds of trust or other similar
security instruments creating a first lien on owner occupied and non-owner
occupied one-unit to four-unit residential properties, multifamily (i.e. five
or more) properties, agriculture properties, commercial properties and mixed
use properties (the "Mortgaged Properties"). The Mortgaged Properties may
consist of detached individual dwelling units, multifamily dwelling units,
individual condominiums, townhouses, duplexes, triplexes, fourplexes, row
houses, individual units in planned unit developments and other attached
dwelling units. The Mortgaged Properties may also include residential
investment properties and second homes.
The investment characteristics of adjustable and fixed rate
mortgage-backed securities differ from those of traditional fixed income
securities. The major differences include the payment of interest and
principal on mortgage-backed securities on a more frequent (usually monthly)
schedule, and the possibility that
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principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if a Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the
market value and the yield to maturity from those which were anticipated. A
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity and market value. Conversely, if a Fund purchases
mortgage-backed securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce yield to maturity
and market values. To the extent that a Fund invests in mortgage-backed
securities, the Advisers may seek to manage these potential risks by investing
in a variety of mortgage-backed securities and by using certain hedging
techniques.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several
types of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), collateralized mortgage obligations and stripped
mortgage-backed securities. A Fund is permitted to invest in other types of
mortgage-backed securities that may be available in the future to the extent
consistent with its investment policies and objective.
A Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies,
authorities, instrumentalities or sponsored enterprises, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee
the timely payment of the principal of and interest on certificates that are
based on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each
Pool consists of residential mortgage loans ("Mortgage Loans") either
previously owned by Fannie Mae or purchased by it in connection with the
formation of the
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Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether
or not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S.
Government sponsored enterprise. The principal activity of Freddie Mac
currently is the purchase of first lien, conventional, residential mortgage
loans and participation interests in such mortgage loans and their resale in
the form of mortgage securities, primarily Freddie Mac Certificates. A
Freddie Mac Certificate represents a pro rata interest in a group of mortgage
loans or participations in mortgage loans (a "Freddie Mac Certificate group")
purchased by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset
or deduction, but does not, generally, guarantee the timely payment of
scheduled principal. The obligations of Freddie Mac under its guaranty of
Freddie Mac Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties
or multifamily projects. Each mortgage loan must meet the applicable standards
set forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac
Certificate group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and participations comprising
another Freddie Mac Certificate group.
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<PAGE>
MORTGAGE PASS-THROUGH SECURITIES. Each Fund (other than Select Equity
Fund) may invest in both government guaranteed and privately issued mortgage
pass-through securities ("Mortgage Pass-Throughs"); that is, fixed or
adjustable rate mortgage-backed securities which provide for monthly payments
that are a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans, net of any fees or other amounts paid to any guarantor,
administrator and/or servicer of the underlying mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in
one or more classes of senior certificates and one or more classes of
subordinate certificates. Each such class may bear a different pass-through
rate. Generally, each certificate will evidence the specified interest of the
holder thereof in the payments of principal or interest or both in respect of
the mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or
--------
disproportionate basis, or any combination thereof. The stated interest rate
on any such subclass of certificates may be a fixed rate or one which varies in
direct or inverse relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion
--- ----
of principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate,
or both. The difference between the mortgage interest rate and the related
mortgage pass-through rate (less the amount, if any, of retained yield) with
respect to each mortgage loan will generally be paid to the servicer as a
servicing fee. Since certain adjustable rate mortgage loans included in a
mortgage pool may provide for deferred interest (i.e., negative amortization),
the amount of interest actually paid by a mortgagor in any month may be less
than the amount of interest accrued on the outstanding principal balance of the
related mortgage loan during the relevant period at the applicable mortgage
interest rate. In such event, the amount of interest that is treated as
deferred interest will be added to the principal balance of the related
mortgage loan and will be distributed pro rata to certificate-holders as
--- ----
principal of such
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<PAGE>
mortgage loan when paid by the mortgagor in subsequent monthly payments or at
maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage
Pass-Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the
related mortgage pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which the
payment stream on such mortgage pool is adequate to make payments required by
such certificates. A rating organization's ratings on such certificates do
not, however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories:
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to
ensure, subject to certain limitations, that scheduled payments on the
underlying pool are made in a timely fashion. Protection against losses
resulting from default ensures ultimate payment of the obligations on at least
a portion of the assets in the pool. Such credit support can be provided by
among other things, payment guarantees, letters of credit, pool insurance,
subordination, or any combination thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes
of certificates may be subordinate certificates which provide that the rights
of the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior
certificate-holders on certain distribution dates, as payment of principal, a
specified percentage (which generally declines over time) of all principal
payments received during the preceding prepayment period ("shifting interest
credit enhancement"). This will have the effect of accelerating the
amortization of the senior certificates while increasing the interest in the
trust fund evidenced by the subordinate certificates. Increasing the interest
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of the subordinate certificates relative to that of the senior certificates is
intended to preserve the availability of the subordination provided by the
subordinate certificates. In addition, because the senior certificate-holders
in a shifting interest credit enhancement structure are entitled to receive a
percentage of principal prepayments which is greater than their proportionate
interest in the trust fund, the rate of principal prepayments on the mortgage
loans will have an even greater effect on the rate of principal payments and
the amount of interest payments on, and the yield to maturity of, the senior
certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions
otherwise available to the subordinate certificate-holders or by excess
servicing fees until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance
the likelihood of timely receipt by senior certificate-holders of the full
amount of scheduled monthly payments of principal and interest due them and
will protect the senior certificate-holders against certain losses; however, in
certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event the Reserve Fund is depleted before the
subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from
the mortgage pool to the extent of the then outstanding subordinated amount.
Unless otherwise specified, until the subordinated amount is reduced to zero,
on any distribution date any amount otherwise distributable to the subordinate
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata
--------
among all certificate-holders in proportion to their respective outstanding
interests in the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to
the credit enhancement afforded by subordination, credit enhancement for
Mortgage Pass-Throughs may be provided by mortgage insurance, hazard insurance,
by the deposit of cash, certificates of deposit, letters of credit, a limited
guaranty or by such other methods as are acceptable to a rating agency. In
certain circumstances, such as where credit enhancement is provided by
guarantees or a letter of credit, the security is subject to credit
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risk because of its exposure to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in
payments on the mortgage loans underlying the Mortgage Pass-Throughs, the
servicer agrees to make advances of cash for the benefit of
certificate-holders, but only to the extent that it determines such voluntary
advances will be recoverable from future payments and collections on the
mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally
5-10%) of the aggregate outstanding principal balance of the mortgage loans as
of the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. A Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. Government agencies and instrumentalities such
as Fannie Mae or Freddie Mac or by trusts formed by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special
purpose subsidiaries of the foregoing. In general, CMOs are debt obligations
of a legal entity that are collateralized by, and multiple class
mortgage-backed securities that represent direct ownership interests in, a pool
of mortgage loans or mortgage-backed securities the payments on which are used
to make payments on the CMOs or multiple class mortgage-backed securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
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CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Funds do not intend to purchase residual interests
in REMICs. The REMIC Certificates represent beneficial ownership interests in
a REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie
Mac or Ginnie Mae guaranteed mortgage- backed securities (the "Mortgage
Assets"). The obligations of Fannie Mae or Freddie Mac under their respective
guaranty of the REMIC Certificates are obligations solely of Fannie Mae or
Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans
or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some
or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in
the order of their respective final distribution dates. Thus no payment of
principal will be made on any class of sequential pay CMOs or REMIC
Certificates until all other classes having an earlier final distribution date
have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other
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principal payments and prepayments of the Mortgage Assets are then required to
be applied to one or more other classes of the Certificates. The scheduled
principal payments for the PAC Certificates generally have the highest
priority on each payment date after interest due has been paid to all classes
entitled to receive interest currently. Shortfalls, if any, are added to the
amount payable on the next payment date. The PAC Certificate payment schedule
is taken into account in calculating the final distribution date of each class
of PAC. In order to create PAC tranches, one or more tranches generally must
be created that absorb most of the volatility in the underlying mortgage
assets. These tranches tend to have market prices and yields that are much
more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. Balanced Fund may invest in
stripped mortgage-backed securities ("SMBS"), which are derivative multiclass
mortgage securities. Although the market for such securities is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of the Fund's limitation on investments in illiquid
securities. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on
other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.
INVERSE FLOATING RATE SECURITIES
- --------------------------------
Balanced Fund may invest up to 5% of its total assets in leveraged inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed . An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of the
Fund's 15% limitation on investments in such securities.
ASSET-BACKED SECURITIES
- -----------------------
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 of
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receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Payments or distributions of principal and interest may
be guaranteed up to certain amounts and for a certain time period by a letter
of credit or a pool insurance policy issued by a financial institution
unaffiliated with the trust or corporation, or other credit enhancements may be
present.
Like mortgage-backed securities, asset-backed securities are often subject
to more rapid repayment than their stated maturity date would indicate as a
result of the pass-through of prepayments of principal on the underlying loans.
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 asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by mortgage-backed securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations.
If the servicer were to sell these obligations to another party, there is a
risk that the purchaser would acquire an interest superior to that of the
holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
- --------------------------------------------------
Each Fund may purchase and sell futures contracts. Each Fund, other than
Select Equity Fund, may also purchase and write options on futures contracts.
Select Equity Fund may only purchase and sell futures contracts on the S&P 500
Index. The other Funds may purchase and sell futures contracts based on various
securities (such as U.S. Government securities), securities indices, foreign
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currencies and other financial instruments and indices. Each Fund will engage
in futures and, except for Select 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 a Fund are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the CFTC or on 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 through the sale of futures contracts to offset a decline in the value
of its current portfolio securities. When rates are falling or prices are
rising, 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, each Fund (other than Select
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. Each Fund (other than Select
Equity Fund) can purchase futures contracts on foreign currency to establish
the price in U.S. dollars of a security quoted or denominated in such currency
that such Fund has acquired or expects to acquire.
Positions taken in the futures market are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While each Fund will usually liquidate futures contracts
on securities or currency in this manner, a Fund may instead make or take
delivery of the underlying securities or currency whenever it appears
economically advantageous for the Fund to do so. A clearing corporation
associated with the exchange on which futures are traded guarantees that, if
still open, the sale or purchase will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish more certainly than would otherwise be possible the effective price,
rate of return or currency exchange rate on portfolio securities or 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 (other than Select Equity Fund) foreign currency rates that would
adversely affect the dollar value of such Fund's
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<PAGE>
portfolio securities. Such futures contracts may (except in the case of Select
Equity Fund) 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, each Fund (other than Select Equity Fund) may
sell futures contracts on a 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 the applicable Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, a 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 Advisers will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any such
differential by having a Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price
changes affecting a 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 a 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, a 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 a Fund's assets. By
writing a call option, a Fund becomes obligated, in exchange for the premium,
to sell a futures contract if the option is exercised, which may have a value
higher than the
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<PAGE>
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 a Fund intends to purchase. However, a Fund becomes obligated
to purchase a futures contract if the option is exercised, which may have a
value lower than the exercise price. Thus, the loss incurred by a Fund in
writing options on futures is potentially unlimited and may exceed the amount
of the premium received. A 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. A 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 transactions and
(except for Select 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 quoted or 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 quoted or 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 quoted or denominated in the related currency) in the cash market at
the time when the futures or options 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 a Fund to elect to comply with a
different test. Under this test the aggregate initial margin and premiums
required to establish positions in futures contracts and options on futures to
seek to increase total return may not exceed 5% of the net asset value of such
Fund's portfolio, after taking into account unrealized profits and losses on
any such positions and excluding the amount by which such options were
in-
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<PAGE>
the-money at the time of purchase. Each Fund will engage in transactions in
futures contracts and (except for Select Equity Fund) 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 cash or 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 a 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 will be difficult to achieve because no futures contracts based on
individual equity or corporate fixed-income securities are currently available.
The only futures contracts 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 a 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 on any securities in which it may invest, although Select Equity
Fund has no present intention of doing so. 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 such Fund will use the other methods described below. A Fund's
purpose in writing covered call options is to realize greater income than would
be realized on portfolio securities transactions alone. However, a Fund may
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<PAGE>
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 such 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 the Fund. However, in return
for the option premium, each Fund accepts the risk that it may be required to
purchase the underlying securities at a price in excess of the securities'
market value at the time of purchase.
Call and put options written by a Fund will also be considered to be
covered to the extent that the Fund's liabilities under such options are wholly
or partially offset by its rights under call and put options purchased by the
Fund.
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
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.
A Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it
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<PAGE>
has written. Obligations under over-the-counter options may be terminated only
by entering into an offsetting transaction with the counterparty to such
option. Such purchases are referred to as "closing purchase transactions."
PURCHASING OPTIONS. Each 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 has no present
intention of doing so. A Fund would also be able to enter into closing sale
transactions in order to realize gains or minimize losses on options it had
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 such 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. A Fund would ordinarily realize a gain if, during the option
period, the value of the underlying securities decreased below the exercise
price sufficiently to more than cover the premium and transaction costs;
otherwise such a Fund would realize either no gain or a loss on the purchase of
the put option. Gains and losses on the purchase of protective put options
would tend to be offset by countervailing changes in the value of the
underlying portfolio securities.
A Fund would purchase put and call options on securities indices for the
same purposes as it would purchase options on individual securities. For a
description of options on securities indices, see "Writing Covered Options"
above.
YIELD CURVE OPTIONS. Balanced Fund may enter into options on the yield
"spread" or differential between two securities. Such transactions are
referred to as "yield curve" options. In contrast to other types of options, a
yield curve option is based on the difference between the yields of designated
securities, rather than
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<PAGE>
the prices of the individual securities, and is settled through cash payments.
Accordingly, a yield curve option is profitable to the holder if this
differential widens (in the case of a call) or narrows (in the case of a put),
regardless of whether the yields of the underlying securities increase or
decrease.
Balanced Fund may purchase or write yield curve options for the same
purposes as other options on securities. For example, Balanced Fund may
purchase a call option on the yield spread between two securities if it owns
one of the securities and anticipates purchasing the other security and wants
to hedge against an adverse change in the yield spread between the two
securities. Balanced Fund may also purchase or write yield curve options in an
effort to increase its current income if, in the judgment of the Adviser,
Balanced Fund will be able to profit from movements in the spread between the
yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread moves
in a direction or to an extent which was not anticipated.
Yield curve options written by the Balanced Fund will be "covered." A
call (or put) option is covered if the Balanced Fund holds another call (or
put) option on the spread between the same two securities and maintains in a
segregated account with its custodian cash or liquid, high grade debt
securities sufficient to cover the Balanced Fund's net liability under the two
options. Therefore, the Balanced Fund's liability for such a covered option is
generally limited to the difference between the amount of the Balanced Fund's
liability under the option written by the Balanced Fund less the value of the
option held by the Balanced Fund. Yield curve options may also be covered in
such other manner as may be in accordance with the requirements of the
counterparty with which the option is traded and applicable laws and
regulations. Yield curve options are traded over-the-counter, and because they
have been only recently introduced, established trading markets for these
options have not yet developed.
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 will have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
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<PAGE>
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in
certain options; (ii) restrictions may be imposed by an exchange on opening or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
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 Securities and Exchange
Commission ("SEC") 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 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. 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 Advisers. An exchange, board of trade or other trading
facility may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of protective
puts for hedging purposes depends in part on the Adviser's ability to predict
future
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<PAGE>
price fluctuations and the degree of correlation between the options and
securities markets.
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
The Capital Growth Fund, Small Cap Fund and Growth and Income Fund may
invest in shares of REITs. The Balanced Fund may invest up to 15% of its total
assets (determined at the time of purchase) in shares of REITs that are not
self-administered or 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 certain requirements under the Code. A Fund will indirectly bear its
proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by a 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.
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 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. A Fund will invest in
warrants and rights only if such equity securities are deemed appropriate by
the Adviser for investment by the Fund. Select Equity Fund has no present
intention of acquiring warrants or rights. Each Fund will not invest more than
2% of its total assets, calculated at the time of purchase, in warrants or
rights which are not listed on the New York or American Stock Exchanges.
Warrants and rights have no
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voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
FOREIGN SECURITIES
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Investments in foreign securities may offer potential benefits not
available from investments solely in securities of U.S. issuers. Such benefits
may include the opportunity to invest in foreign issuers that appear, in the
opinion of the applicable Adviser, to offer better opportunity for long-term
growth of capital and income than investments in U.S. securities, the
opportunity to invest in foreign countries with economic policies or business
cycles different from those of the United States and the opportunity to reduce
fluctuations in portfolio value by taking advantage of foreign 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. Investments in foreign securities may
involve currencies of foreign countries. Accordingly, any Fund that invests in
foreign securities may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies. International Fund and
Asia Growth Fund may be subject to currency exposure independent of their
securities positions.
Currency exchange rates may fluctuate significantly over short periods of
time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or anticipated changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks or the failure to intervene or by currency
controls or political developments in the United States or abroad.
Since foreign companies generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company.
Volume and liquidity in most foreign securities markets are less than in the
United States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions
on U.S. exchanges, although each Fund endeavors to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of Foreign Securities exchanges,
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brokers, dealers and listed and unlisted companies than in the United States.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due
to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund due to subsequent declines
in value of the portfolio securities or, if the Fund has entered into a
contract to sell the securities, could result in possible liability to the
purchaser. In addition, with respect to certain foreign countries, there is
the possibility of expropriation or confiscatory taxation, political or social
instability, or diplomatic developments which could affect a 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.
ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. ADRs are traded on
domestic exchanges or in the U.S. over-the-counter market and, generally, are
in registered form. EDRs and GDRs are receipts evidencing an arrangement with
a non-U.S. bank similar to that for ADRs and are designed for use in the
non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the
same currency as the underlying security.
To the extent a Fund acquires Depository Receipts through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the Depository Receipts to issue and service such Depository
Receipts (unsponsored), there may be an increased possibility that the 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.
International Fund, Asia Growth Fund, Capital Growth Fund, Small Cap Fund,
Growth and Income Fund and Balanced 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
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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 value of a Fund's investments
in those countries and the availability to a 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 a Fund's investments in such countries illiquid and
more volatile than investments in more developed countries, and a 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.
A Fund (other than Select Equity Fund) may invest in securities of issuers
domiciled in a country other than the country in whose currency the instrument
is denominated or quoted. The Funds may also invest in securities quoted or
denominated in the European Currency Unit ("ECU"), which is a "basket"
consisting of specified amounts of the currencies of certain of the member
states of the European Community. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community from time to time to reflect changes in relative values of the
underlying currencies. In addition, the Funds may invest in securities quoted
or denominated in other currency "baskets."
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Capital Growth Fund,
Small Cap Fund, Growth and Income Fund and Balanced Fund may enter into forward
foreign currency exchange contracts for hedging purposes. International Fund
and Asia Growth Fund may enter into forward foreign currency exchange contracts
for hedging purposes and to seek to increase total return. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market 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 a Fund may either accept or make
delivery of the currency specified in the contract or, at or prior to maturity,
enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts
are usually effected
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with the currency trader who is a party to the original forward contract.
A Fund may enter into forward foreign currency exchange contracts in
several circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated or quoted in a foreign currency, or
when a 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 may be. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of
the amount of foreign currency involved in the underlying transactions, the
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.
Additionally, when the Adviser believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, it
may enter into a forward contract to sell, for a fixed amount of U.S. dollars,
the amount of foreign currency approximating the value of some or all of such
Fund's portfolio securities quoted or denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
International Fund and Asia Growth Fund may engage in cross-hedging by
using forward contracts in one currency to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if GSAM or
GSAMI determines that there is a pattern of correlation between the two
currencies. International Fund and Asia Growth Fund may also purchase and sell
forward contracts to seek to increase total return when GSAM or GSAMI
anticipates that the foreign currency will appreciate or depreciate in value,
but securities quoted or denominated in that currency do not present attractive
investment opportunities and are not held in the Fund's portfolio.
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A Fund's custodian will place cash or liquid, high grade debt securities
into a segregated account of such Fund 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 or, in the
case of International Fund and Asia Growth Fund, forward contracts entered into
to increase total return. 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 a 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, a Fund's ability to
utilize forward foreign currency exchange contracts may be restricted.
While a 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 a 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 a Fund to sustain losses which will
prevent the Fund from achieving a complete hedge or expose the Fund to risk of
foreign exchange loss.
Markets for trading foreign forward currency contracts offer less
protection against defaults than is available when trading in currency
instruments 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 a Fund of unrealized profits or force the Fund to cover its
commitments for purchase or resale, if any, at the current market price.
WRITING AND PURCHASING CURRENCY CALL AND PUT OPTIONS. International
Fund, Capital Growth Fund, Small Cap Fund, Growth and Income Fund, Asia Growth
Fund and Balanced Fund each may write covered put and call options and purchase
put and call options on foreign currencies for the purpose of protecting
against declines in the U.S. dollar value of portfolio securities and against
increases in the U.S. dollar cost of 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 a Fund seeks to close out an option, the Fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may constitute an effective hedge against exchange rate
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fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by a Fund will be traded on U.S. and foreign exchanges or
over-the-counter. International Fund and Asia Growth Fund may use options on
currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different currency
with a pattern of correlation. In addition, International Fund and Asia Growth
Fund may purchase call options on currency to seek to increase total return
when the Adviser anticipates that the currency will appreciate in value, but
the securities quoted or denominated in that currency do not present attractive
investment opportunities and are not included in the Fund's portfolio.
A call option written by a Fund obligates a 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 a
Fund would obligate a Fund to purchase specified currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. The writing of currency options involves a risk that a 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.
A Fund may terminate its obligations under a call or put option by
purchasing an option identical to the one it has written. Such purchases are
referred to as "closing purchase transactions." A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options purchased by the Fund.
A 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 a Fund are quoted or denominated. The purchase of
a call option would entitle the Fund, in return for the premium paid, to
purchase specified currency at a specified price during the option period. A
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.
A Fund would normally purchase put options in anticipation of a decline in
the U.S. dollar value of currency in which securities in its portfolio are
quoted or denominated ("protective puts"). The purchase of a put option would
entitle a 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
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designed merely to offset or hedge against a decline in the dollar value of a
Fund's portfolio securities due to currency exchange rate fluctuations. A 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 currency or portfolio
securities.
In addition to using options for the hedging purposes described above,
International Fund and Asia Growth Fund may use options on currency to seek to
increase total return. International Fund and Asia Growth Fund may write
(sell) covered put and call options on any currency in order to realize greater
income than would be realized on portfolio securities transactions alone.
However, in writing covered call options for additional income, International
Fund and Asia Growth Fund may forego the opportunity to profit from an increase
in the market value of the underlying currency. Also, when writing put
options, International Fund and Asia Growth Fund accept, in return for the
option premium, the risk that it may be required to purchase the underlying
currency at a price in excess of the currency's market value at the time of
purchase.
International Fund and Asia Growth Fund would normally purchase call
options to seek to increase total return in anticipation of an increase in the
market value of a currency. International Fund and Asia Growth 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 International Fund and Asia Growth Fund would
realize either no gain or a loss on the purchase of the call option. Put
options may be purchased by either Fund for the purpose of benefiting from a
decline in the value of currencies which it does not own. International Fund
and Asia Growth 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.
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 a 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 a Fund
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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 a 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.
A 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 a Fund.
The amount of the premiums which a Fund may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing
activities.
CURRENCY SWAPS
- --------------
The Balanced Fund may enter into currency swaps for hedging purposes and
International Fund and Asia Growth Fund may enter into currency swaps for
hedging purposes and to seek to increase total return. Inasmuch as swaps are
entered into for good faith hedging purposes or are offset by a segregated
account as described below, the Advisers believe that swaps do not constitute
senior securities as defined in the Act, and, accordingly, will not treat them
as being subject to a Fund's borrowing restrictions. An amount of cash or
liquid, high grade debt securities having an aggregate net asset value at least
equal to the entire amount of the payment stream payable by the Fund will be
maintained in a segregated account by the Fund's custodian.
A Fund will not enter into any currency swap unless the credit quality of
the unsecured senior debt or the claims-paying ability of the other party
thereto is considered to be investment grade by the Adviser. If there is a
default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the
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markets for other similar instruments which are traded in the interbank market.
However, the staff of the SEC takes the position that currency swaps are
illiquid investments that are subject to each Fund's 15% limitation on such
investments.
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, a 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 a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However,
the loans would be made only to firms deemed by the Advisers to be of good
standing, and when, in the judgment of the Advisers, the consideration which
can be earned currently from securities loans of this type justifies the
attendant risk. If the Advisers determine 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
- ----------------------------------------------
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by 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
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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 a Fund's custodian. The repurchase
price may be higher than the purchase price, the difference being income to a
Fund, or the purchase and repurchase prices may be the same, with interest at a
stated rate due to a Fund together with the repurchase price on repurchase. In
either case, the income to a Fund is unrelated to the interest rate on the
security subject to the repurchase agreement.
For purposes of the Act and for 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 purchased
by a Fund subject to a repurchase agreement as being owned by a Fund or as
being collateral for a loan by a 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, a 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 Advisers
seek 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
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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 Advisers or their 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 RESTRICTIONS
The following investment restrictions have been adopted by the Company 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 Capital Growth
Fund is fundamental and may not be changed without the affirmative approval of
a majority (as defined in the Act) of the outstanding voting securities of
Capital Growth Fund. The investment objective of each other 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 Objectives and Policies" in each Fund's 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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CAPITAL GROWTH FUND AND SELECT EQUITY FUND
- ------------------------------------------
Each of Capital Growth Fund and 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 the 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.
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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 Prospectus.
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 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, a 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.
B-45
<PAGE>
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 a 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 10% of its net assets in restricted securities (including
those eligible for resale under Rule 144A).
6. Invest in securities of companies having a record together with
predecessors, of less than three years of continuous operation, if more than 5%
of a Fund's total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-basked
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
SMALL CAP FUND
- --------------
Small Cap 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 Fund's total
assets, not including the amount borrowed; while such borrowings exceed 5% of
the Fund's total 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
indices, options on futures contracts or indices and forward commitment
transactions shall not constitute borrowing.
(2) 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.
B-46
<PAGE>
(3) 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.
(4) 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.
(5) Make short sales of securities, except short sales against-the-box,
or maintain a short position.
(6) 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.
(7) 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.
(8) 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 as described in the Prospectus.
(9) 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 lend its portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f)
of the Act) except as permitted in Investment Restrictions 1, 3, 4 and 8.
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
B-47
<PAGE>
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. 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.
3. 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
protective put options or more than 5% of its total assets in puts, calls,
spreads or straddles, or any combination thereof other than protective put
options. The aggregate value of premiums paid on all options held by the Fund
at any time will not exceed 20% of the Fund's total net assets.
4. Invest (a) more than 15% or 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 1933 Act; or (b) more than 10% of its
net assets in restricted securities (including those eligible for resale under
Rule 144A).
5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.
INTERNATIONAL FUND
- ------------------
International Fund may not:
(1) Borrow money, except from banks on a temporary basis, provided that
the Fund is required to maintain asset coverage of at least 300% for all
borrowings. For purposes of this investment restriction, short sales,
transactions in currency, forward contracts, swaps, options, futures contracts
and options on futures contracts, and forward commitment transactions shall not
constitute borrowing.
(2) 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
in obligations of the U.S. Government or any
B-48
<PAGE>
of its agencies, instrumentalities, political subdivisions or authorities.
(3) 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.
(4) 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.
(5) Make short sales of securities, except short sales against-the-box,
or maintain a short position.
(6) 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.
(7) 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
by the Fund as a result of the ownership of securities.
(8) 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, as described in the Prospectus.
(9) 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 lend portfolio securities in an amount not to
exceed 33-1/3% of the value of its total assets.
(10) Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act) except as permitted in Investment Restriction No. (1).
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
B-49
<PAGE>
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 issuer 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. 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.
3. Write covered calls or put options with respect to more than 25% of
the value of its total assets or invest more than 5% of its total assets in
puts, calls, spreads or straddles, other than protective put options.
4. 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 1933 Act; or (b) more than 10% of its
net assets in restricted securities (including those eligible for resale under
Rule 144A).
5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.
6. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.
ASIA GROWTH FUND
- ----------------
The Asia Growth 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 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, but only if after each such borrowing there is asset coverage of at
least 300% as defined in the Act. For
B-50
<PAGE>
purposes of this investment restriction, short sales, the entry into currency
transactions, options, futures contracts, including those relating to indices,
options on futures contracts or indices and forward commitment transactions
shall not constitute borrowing.
2. 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
in obligations of the U.S. Government or any of its agencies or
instrumentalities.
3. 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.
4. 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.
5. Make short sales of securities, except short sales against-the-box,
or maintain a short position.
6. 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.
7. 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.
8. 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.
9. 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.
B-51
<PAGE>
10. Issue any senior security (as such term is defined in Section 18(f)
of the Act), except as permitted in fundamental investment restrictions 1, 3, 4
and 8.
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 the Fund's 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. 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.
3. Write covered calls or put options with respect to more than 25% of
the value of its net assets or 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 held by the Fund at any time will not
exceed 5% of the Fund's total assets.
4. 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 1933 Act; or (b) more than 10% of its
net assets in restricted securities (including those eligible for resale under
Rule 144A).
5. Purchase the securities of any issuer if, as to 75% of the Fund's
assets at the time of purchase, more than 10% of the voting securities of such
issuer would be held by the Fund.
6. Purchase additional securities if the Fund's borrowings exceed 5% of
its total assets.
B-52
<PAGE>
GROWTH AND INCOME FUND
- ----------------------
Growth and Income Fund may not:
1. Borrow money, except from banks on a temporary basis in an aggregate
amount not exceeding 10% of the value of the Fund's total assets, provided that
the Fund is required to maintain asset coverage of at least 300% for all
borrowings. For purposes of this investment restriction, forward contracts,
swaps, options, futures contracts and options on futures contracts, 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 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.
B-53
<PAGE>
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,
securities of real estate investment trusts and 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 as described in the Prospectus.
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 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 Investment Restriction No. 1.
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 investment 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, invest more than 25% of its net assets in
protective put options or more than 5% of its total assets in puts, calls,
spreads or straddles, or any combination thereof other than protective put
options. The aggregate value of premiums paid on all options other than
protective put options, 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
B-54
<PAGE>
restricted securities not eligible for resale pursuant to Rule 144A under the
1933 Act; or (b) more than 10% of its net assets in restricted securities
(including those eligible for resale under Rule 144A).
4. Purchase additional securities while the Fund's borrowings exceed 5%
of its total assets.
BALANCED FUND
- -------------
The Balanced Fund may not:
1. Borrow money, except (a) from banks for temporary or emergency
purposes or for clearance of transactions in amounts not exceeding one-third 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; (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 or 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 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
B-55
<PAGE>
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 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 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 restrictions in that they may be changed or amended by
action of
B-56
<PAGE>
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 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 1933 Act; or (b) more than 10% 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 total assets.
5. Invest in securities of companies having a record together with
predecessors, of less than three years of continuous operation, if more than 5%
of a Fund's total assets would be invested in such securities. This
restriction shall not apply to mortgage-backed securities, asset-basked
securities or obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
For purposes of the foregoing limitations, with respect to each Fund any
limitation which involves a maximum percentage will not be violated unless an
excess over the percentage occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of, or borrowings by, a
Fund. With respect to each Fund's fundamental investment restriction regarding
borrowings, the Fund must maintain asset coverage of at least 300% (as defined
in the Act), inclusive of any amounts borrowed.
B-57
<PAGE>
MANAGEMENT
Information pertaining to the Board of Directors and officers of the
Company is set forth below. Directors and officers deemed to be "interested
persons" of the Company for purposes of the Act are indicated by an asterisk.
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
- -------- --------------------------------------
Paul C. Nagel, Jr. 73; Chairman; Retired. Director and
19223 Riverside Dr. Chairman of the Finance and Audit
Tequesta, FL 33469 Committees, Great Atlantic & Pacific Tea Co., Inc.;
Director, United Conveyor Construction.
Ashok N. Bakhru 53; Director; President, ABN Associates,
1235 Westlakes Dr. Inc. since June 1994. Retired, Senior
Drive, Suite 385 Vice President of Scott Paper Company;
Berwyn, PA 19312 Director of Arkwright Mutual Insurance Company;
Trustee of International House of Philadelphia;
Member of Cornell University Council; Trustee of the
Walnut Street Theatre.
*Marcia L. Beck 40; President and Director; Director
One New York Plaza Mutual Funds Group, GSAM (since
New York, NY 10004 September 1992); Vice President and Senior Portfolio
Manager, (GSAM from June 1988 to present).
*David B. Ford 50; Director; General Partner, Goldman
One New Plaza Sachs, since 1986. Chairman and Chief
New York, NY 10004 Executive Officer of GSAM since December
1994.
*Alan A. Shuch 46; Director; Director and Vice President
One New York Plaza of Goldman Sachs Fund Management, Inc.
New York, NY 10004 (from April 1990 to November 1994);
President and Chief Operating Officer, GSAM (from
September 1988 to November 1994); Limited Partner,
Goldman Sachs (since December 1994).
B-58
<PAGE>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
- ------------------ --------------------------------------
Jackson W. Smart, Jr.65; Director; Chairman and Chief Executive
One Northfield Plaza Officer, MSP Communications Inc. (a company
Suite #218 engaged in radio broadcasting) (since
Northfield, IL November 1988); Director, Federal Express
60093 Corporation; Director, North American Private Equity
Group (a venture capital fund).
William H. Springer 66; Director; Vice Chairman of Ameritech
701 Morningside Dr. (a telecommunications holding company;
Lake Forest, IL February 1987 to retirement in August
60045 1992); Vice Chairman, Chief Financial and
Administrative Officer, Ameritech (prior thereto);
Director, American Information Technologies
corporation; Director Walgreen Co. (a retail drugstore
business); Director of Baker, Fentress & Co. (a
closed-ended, non-diversified management investment
company).
Richard P. Strubel 56; Director; Managing Director, Tandem
70 West Madison St. Partners, Inc. (since 1990); President
Suite 1400 and Chief Executive Officer, Microdot,
Chicago, IL 60602 Inc. (a diversified manufacturer of
fastening systems and connectors)
(January 1984 to October 1994).
*Pauline Taylor 49; Vice President; Vice President of
4900 Sears Tower Goldman Sachs (since June 1992);
Chicago, IL 60606 Consultant (1989 to June 1992).
*John W. Mosior 57; Vice President; Vice President, Goldman
4900 Sears Tower Sachs, and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group.
*Nancy L. Mucker 46; Vice President; Vice President, Goldman
4900 Sears Tower Sachs, and Manager of Shareholder
Chicago, IL 60606 Services for GSAM Funds Group.
*Scott M. Gilman 36; Treasurer; Director, Mutual Funds
One New York Plaza Administration, GSAM (since April 1994);
New York, NY 10004 Assistant Treasurer of Goldman Sachs Funds Management,
Inc. (since March 1993); Vice
President, Goldman Sachs (since March 1990);
Assistant Treasurer of the Company (April 1990 to
October 1991).
B-59
<PAGE>
NAME AND AGE; POSITIONS WITH COMPANY; PRINCIPAL
ADDRESS OCCUPATION(S) DURING PAST 5 YEARS
- ----------- ------------------------------------
*Michael J. Richman 35; Secretary; Vice President and Assistant
85 Broad Street General Counsel of Goldman Sachs (since
New York, NY 10004 June 1992); Associate General Counsel to
the Funds Group, GSAM (since February 1994); Partner,
Hale and Dorr (September 1991 to June 1992).
*Howard B. Surloff 30; Assistant Secretary; Counsel and Vice
85 Broad Street President, Goldman Sachs (since November
New York, NY 10004 1993 and May 1994, respectively); Counsel to the Funds
Group of GSAM (since November 1993); Formerly
Associate of Shereff Friedman, Hoffman & Goodman
(prior thereto).
*Steven E. Hartstein 32; Assistant Secretary; Legal Products
85 Broad Street Analyst, Goldman Sachs (June 1993 to
New York, NY 10004 present); Funds Compliance Officer, Citibank Global
Asset Management (August 1991 to June 1993).
*Deborah A. Robinson 24; Assistant Secretary; Administrative
85 Broad Street Assistant, Goldman Sachs since January 1994;
New York, NY 10004 formerly at Cleary, Gottlieb, Steen & Hamilton.
_____________
* "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 Advisers or Goldman Sachs are
the investment adviser, administrator, and/or distributor. As of ____________,
1996, the Directors and officers of the Company as a group owned less than 1%
of the outstanding shares of common stock of each of the Funds.
The following table sets forth certain information with respect to the
compensation of each Director of the Company for the one-year period ended
January 31, 1996:
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<PAGE>
Pension or Total
Retirement Compensation
Aggregate Benefits from Goldman Sachs
Compensation Accrued as Mutual Funds
from the Part of Company's (including
Name of Trustee Company Expenses the Company)*
Paul C. Nagel, Jr. $ $0 $
Ashok N. Bakhru 0
Marcia L. Beck 0
David B. Ford 0
Alan A. Shuch 0
Jackson W. Smart 0
William H. Springer 0
Richard P. Strubel 0
______________
* The Goldman Sachs Mutual Funds consisted of __ mutual funds, including
the seven series of the Company, on January 31, 1996.
ADVISORY AND ADMINISTRATIVE SERVICES
- ------------------------------------
As stated in the Funds' Prospectus, GSFM, One New York Plaza, New York,
New York, a Delaware limited partnership and an affiliate of Goldman Sachs, 85
Broad Street, New York, New York, serves as investment adviser to Capital
Growth Fund and Select Equity Fund. GSAM, One New York Plaza, New York, New
York, a separate operating division of Goldman Sachs, serves as investment
adviser to Small Cap Fund, International Fund, Balanced Fund and Growth and
Income Fund. GSAMI, 140 Fleet Street, London, England, EC4A 2BJ acts as the
Investment Adviser and Subadviser to Asia Growth Fund and International Fund,
respectively. GSAM serves as administrator to each Fund pursuant to an
administration agreement. See "Management" in the Funds' Prospectus for a
description of the applicable Adviser's duties as investment adviser or
subadviser and GSAM's duties as administrator to the Funds.
Founded in 1869, Goldman Sachs is among the oldest and largest investment
banking firms in the United States. Goldman Sachs is a leader in developing
portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs is also among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24-hours a day. The firm
is headquartered in New York and has offices throughout the U.S. and in
Beijing, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan,
Montreal, Osaka,
B-61
<PAGE>
Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto,
Vancouver and Zurich. It has trading professionals throughout the United
States, as well as in London, Tokyo, Hong Kong and Singapore. The active
participation of Goldman Sachs in the world's financial markets enhances its
ability to identify attractive investments.
The 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
$160 million, Goldman Sachs' Investment Research Department covers
approximately 1,700 companies, including approximately 1,000 U.S. corporations
in 60 industries. The in-depth information and analyses generated by Goldman
Sachs' research analysts are available to the Advisers. For more than a decade,
Goldman Sachs has been among the top-ranked firms in Institutional Investor's
annual "All-America Research Team" survey. In addition, many of Goldman Sachs'
economists, securities analysts, portfolio strategists and credit analysts have
consistently been highly ranked in respected industry surveys conducted in the
U.S. and abroad. Goldman Sachs is also among the leading investment firms
using quantitative analytics (now used by a growing number of investors) to
structure and evaluate portfolios.
In managing the portfolios of Funds, GSAM and GSAMI have 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. investment managers in the following categories: U.K. Economy
1989-1995; International Economies 1986, 1988-1995; and Currency Movements
1986-1993.
In allocating assets in International Fund's portfolio among various
currencies, GSAM and GSAMI will have access to the Global Asset Allocation
Model. The model is based on the observation that the prices of all financial
assets, including foreign currencies, will adjust until investors globally are
comfortable holding the pool of outstanding assets. Using the model, GSAM and
GSAMI will estimate the total returns from each currency sector which are
consistent with the average investor holding a portfolio equal to
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<PAGE>
the market capitalization of the financial assets among those currency sectors.
These estimated equilibrium returns are then combined with the expectations of
Goldman Sachs' research professionals to produce an optimal currency and asset
allocation for the level of risk suitable for the International Fund's
investment objective and criteria.
Each Fund's investment advisory agreement and administration agreement
and International Fund's subadvisory agreement provides that the Adviser and
GSAM, respectively, may render similar services to others as long as the
services provided by the Adviser and GSAM thereunder are not impaired thereby.
The Funds' advisory agreements were most recently approved by the
Directors of the Company, including a majority of the Directors of the Company
who are not parties to the investment advisory agreement or "interested
persons" (as such term is defined in the Act) of any party thereto (the
"non-interested Directors"), on April 24, 1996. These arrangements were most
recently approved by the shareholders of Capital Growth Fund and Select Equity
Fund, at shareholders' meetings held on November 27, 1991 and by the sole
initial shareholder of each of Small Cap Fund, International Fund, Growth and
Income Fund, Asia Growth Fund and Balanced Fund on September 16, 1992, October
23, 1992, January 29, 1993, June 1, 1994 and October 4, 1994, respectively.
Each Fund's agreement will remain in effect until June 30, 1997 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 Directors of the Company or by
vote of a majority of the outstanding voting securities of the affected Fund on
60 days' written notice to the Adviser and by the Adviser on 60 days' written
notice to the Company.
Pursuant to the advisory agreements for Small Cap Fund, International
Fund, Growth and Income Fund and Balanced Fund, GSAM is entitled to receive a
fee payable monthly by such Funds equal on an annual basis to 0.75%, 0.25%,
0.55% and 0.50%, respectively, of such Funds' average daily net assets. GSAM
voluntarily has agreed to limit its advisory fee with respect to International
Fund to an annual rate equal to 0.71% of International Fund's average daily net
assets.
Pursuant to the advisory agreements for Capital Growth Fund and Select
Equity Fund, GSFM is entitled to receive a fee payable monthly by such Funds
equal on an annual basis to 0.75% and 0.50%, respectively, of such Fund's
average daily net assets. GSFM
B-63
<PAGE>
voluntarily has agreed to limit its advisory fee with respect to Select Equity
Fund to an annual rate equal to 0.44% of Select Equity Fund's average daily net
assets.
Pursuant to a separate Subadvisory Agreement with GSAMI and GSAM, the
International Fund pays GSAMI a monthly subadvisory fee equal on an annual
basis to 0.50% of such Fund's average daily net assets. GSAMI voluntarily has
agreed to limit its advisory fee with respect to International Fund to an
annual rate equal to ___% of International Fund's average daily net assets.
The fee paid by International Fund to GSAMI is in addition to the fee it pays
to GSAM for advisory services.
Pursuant to Asia Growth Fund's advisory agreement, GSAMI is entitled to
receive a fee payable monthly by the Fund equal on an annual basis to 0.75% of
the Fund's average daily net assets. GSAMI voluntarily has agreed to limit its
advisory fee with respect to Asia Growth Fund to an annual rate equal to 0.71%
of Asia Growth Fund's average daily net assets.
GSAM, GSFM and GSAMI may discontinue or modify the above limitations in
the future at their discretion, although they have no current intention to do
so.
For the last three fiscal years the amounts of the investment advisory
fees incurred by each Fund then in existence were as follows:
1996 1995 1994
---- ---- ----
Balanced Fund1 $ $ 6,814 $ N/A
Select Equity Fund2 475,941 475,941
Growth and Income Fund3 621,416 100,926
Capital Growth Fund 6,543,621 5,469,962
Small Cap Fund 2,539,424 941,891
International Fund2 796,627 331,134
Asia Growth Fund2,4 414,813 N/A
- ----------------------------
1 Commenced operations on October 12, 1994.
2 Does not give effect to the agreement (which was not in effect during
such fiscal years) by GSFM, GSAM and GSAMI to limit advisory fees to
0.44%, 0.71% and 0.71%, respectively of Select Equity, International and
Asia Growth Fund's average daily net assets.
3 Commenced operations on February 5, 1993.
4 Commenced operations on July 8, 1994.
For the last three fiscal years, had expense limitations not been in
effect, Select Equity, International and Asia Growth Funds would have paid the
following investment advisory fees:
B-64
<PAGE>
1996 1995 1994
---- ---- ----
Select Equity Fund/1/ $ $ $
International Fund/2/
Asia Growth Fund/3/
- ----------------------------
1 In addition, the expenses of Select Equity Fund were reduced or otherwise
limited in the amounts of $_____________, $__________ and $___________,
respectively, by the Investment Adviser for such periods.
2 In addition, the expenses of International Fund were reduced or otherwise
limited in the amounts of $_____________, $__________ and $___________,
respectively, by the Investment Adviser for such periods.
3 In addition, the expenses of Asia Growth Fund were reduced or otherwise
limited in the amounts of $_____________, $__________ and $___________,
respectively, by the Investment Adviser for such periods.
For the fiscal years ended January 31, 1994, 1995 and 1996, International
Fund paid GSAMI subadvisory fees of $662,267, $1,593,255 and $__________,
respectively.
Pursuant to the administration agreements, GSAM's administrative
responsibilities 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
each 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 SEC 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.
GSAM is entitled to receive a fee from the Balanced and Growth and Income
Funds, computed daily and payable monthly, at an annual rate equal to 0.15% of
each Fund's average daily net assets and GSAM is entitled to a fee from each
other Fund, computed daily and payable monthly at an annual rate equal to 0.25%
of each Fund's average daily net assets; however, GSAM voluntarily has agreed
to
B-65
<PAGE>
limit its administration fee with respect to Select Equity, International and
Asia Growth Funds to an annual rate equal to 0.15% of Select Equity,
International and Asia Growth Fund's average daily net assets. Although it has
no current intention to do so, GSAM may modify or discontinue such limitation
in the future at its discretion.
For the last three fiscal years the amounts of the administration fees
paid by each Fund then in existence were as follows:
1996 1995 1994
---- ---- ----
Balanced Fund1 $ $ 2,044 $ N/A
Select Equity Fund/2/ 231,128 237,970
Growth and Income Fund/3/ 169,477 27,525
Capital Growth Fund 2,181,207 1,823,321
Small Cap Fund 846,475 313,964
International Fund/2/ 796,627 331,134
Asia Growth Fund/2/,/4/ 138,271 N/A
- -----------------------------
1 Commenced operations on October 12, 1994.
2 Does not give effect to the agreement (which was not in effect during
such fiscal years) by GSAM to limit Select Equity, International and Asia
Growth Fund's administration fee to 0.15% of the Fund's average daily net
assets.
3 Commenced operations on February 5, 1993.
4 Commenced operations on July 8, 1994.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS
MANAGED BY GOLDMAN SACHS. The involvement of the Advisers and Goldman Sachs
and their affiliates in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Advisers and their advisory affiliates, have proprietary interests in, and may
manage or advise with respect to, accounts or funds (including separate
accounts and other funds and collective investment vehicles) which have
investment objectives similar to those of the 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 both on a
proprietary basis and for the accounts of customers. As such, Goldman Sachs
and its affiliates are actively engaged in transactions in the same securities,
currencies and instruments in which the 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
B-66
<PAGE>
adverse impact on each Fund's performance. Such transactions, particularly in
respect of proprietary accounts or customer accounts other than those included
in the 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 Advisers and their
advisory affiliates seek to purchase or sell the same assets for their managed
accounts, including the Funds, the assets actually purchased or sold may be
allocated among the accounts on a basis determined in its good faith discretion
to be equitable. In some cases, this system may adversely affect the size or
the price of the assets purchased or sold for the 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 Advisers and/or their
affiliates will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Advisers and/or
their affiliates are performing services or when position limits have been
reached.
In connection with their management of the Funds, the Advisers may have
access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Advisers will not be
under any obligation, however, to effect transactions on behalf of the Funds in
accordance with such analysis and models. In addition, neither Goldman Sachs
nor any of its affiliates will have any obligation to make available any
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
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 Advisers in managing the Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Advisers and their affiliates for their
proprietary accounts or accounts (including investment companies or collective
investment vehicles) managed or advised by them. It is possible that Goldman
Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results
achieved by 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.
B-67
<PAGE>
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Fund in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman
Sachs and its affiliates may develop general policies regarding 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 the Fund's proposed investment activities which is not generally
available to the public. In addition, by virtue of their affiliation with
Goldman Sachs, any such member of an investment policy committee will have
direct or indirect interests in the activities of Goldman Sachs and its
affiliates in securities and investments similar to those in which the Fund
invests.
In addition, certain principals and certain of the employees of the
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
Each Adviser may enter into transactions and invest in currencies or
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 have no incentive to assure that the Funds obtain the best possible prices
or terms in connection with the transactions. Goldman Sachs and its affiliates
may also create, write or issue derivative instruments for customers of Goldman
Sachs or its affiliates, the underlying securities or instruments of which may
be those in which a Fund invests or which may be based on the performance of a
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 transactions with other clients of Goldman Sachs
or its affiliates where such other clients have interests adverse to those of
the Funds. To the extent affiliated transactions are permitted, the Funds will
deal with Goldman Sachs and its affiliates on an arms-length basis.
Each 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
B-68
<PAGE>
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 a Fund in order to increase the assets
of the Fund. 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 shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holdings will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to
time, Goldman Sachs' activities may limit the Funds' flexibility in purchases
and sales of securities. When Goldman Sachs is engaged in an underwriting or
other distribution of securities of an entity, the Advisers may be prohibited
from purchasing or recommending the purchase of certain securities of that
entity for the Funds.
DISTRIBUTOR AND TRANSFER AGENT
- ------------------------------
Goldman Sachs serves 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, as amended as of January 30,
1996. 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.
Goldman Sachs may enter into sales agreements with certain investment dealers
and other financial service firms (the "Authorized Dealers") to solicit
subscriptions for Class A and Class B Shares of the Funds. Goldman Sachs
received a portion of the sales charge imposed on the sale, in the case of
Class A Shares, or redemption in the case of Class B Shares, of such Fund
shares. No Class B Shares were outstanding during the fiscal years ended
January 31, 1994, 1995 and 1996.
Goldman Sachs retained the following commissions on sales of Class A
Shares during the following periods:
1996 1995 1994
---- ---- ----
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<PAGE>
Balanced Fund/1/ $ $ 14,000 $ N/A
Select Equity Fund 58,000 37,000
Growth and Income Fund/2/ 361,000 59,000
Capital Growth Fund 815,000 859,000
Small Cap Fund 868,000 1,035,000
International Fund 660,000 1,121,000
Asia Growth Fund/3/ 829,000 N/A
-------------------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on July 8, 1994.
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 with respect to each Fund
with respect to Class A Shares and Class B Shares equal to $12,000 per year
plus $7.50 per account, together with out-of-pocket and transaction-related
expenses (including those out-of-pocket expenses payable to servicing agents).
Select Equity Fund pays Goldman Sachs a fee for transfer agency services
at the foregoing rate with respect to its Class A shares and at a rate equal to
0.04% of Select Equity Fund's average daily net assets attributable to its
Institutional Shares and Administrative Shares. The transfer agency fees paid
by Select Equity Fund with respect to a particular class are allocated to the
shares of such class.
For the last three fiscal years the amounts paid to Goldman Sachs by each
Fund then in existence for transfer agency services performed were as follows:
1996 1995 1994
---- ---- ----
Balanced Fund/1/ $ $ 20,000 N/A
Select Equity Fund 151,230 111,104
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<PAGE>
Growth and Income Fund/2/ 262,158 74,053
Capital Growth Fund 694,014 498,169
Small Cap Fund 600,618 142,256
International Fund 481,169 150,203
Asia Growth Fund/3/3 120,000 N/A
- -------------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on July 8, 1994.
The Company's 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.
DISTRIBUTION AND AUTHORIZED DEALER SERVICE PLANS
CLASS A DISTRIBUTION PLANS. As described in the Prospectus, the
Company with respect to Class A Shares of each Fund has adopted a distribution
plan (the "Class A Plans") pursuant to Rule 12b-1 under the Act. See
"Distribution and Authorized Dealer Service Plan" in the Prospectus.
The Class A Plans were most recently approved on April 24, 1996 by a
majority vote of Directors of the Company, including a majority of the
non-interested Directors of the Company who have no direct or indirect
financial interest in the Class A Plans, cast in person at a meeting called for
the purpose of approving the Class A Plans. The compensation payable under the
Class A Plans may not exceed 0.25% per annum of each Fund's average daily net
assets.
Currently, Goldman Sachs has voluntarily agreed to waive the entire
amount of such fee for the Balanced, Growth and Income, Capital Growth and
Small Cap Equity Funds and to limit the amount of such fee to 0.21% of average
daily net assets attributable to Class A Shares of Select Equity, International
and Asia Growth Funds. Goldman Sachs has no current intention of modifying or
discontinuing its fee waiver for the other Funds but may do so in the future at
its discretion.
Each Class A Plan was amended effective June 1, 1995 to reduce the fee
payable under the Plan from 0.50% of average daily net assets attributable to
Class A Shares. At the time of such amendment the Board of Directors approved
the Authorized Dealer Service Plan pursuant to which personal and account
maintenance services are provided. See "Management --Authorized Dealer Service
Plans."
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<PAGE>
For the fiscal year ended January 31, 1996 the amounts paid to Goldman
Sachs pursuant to its Class A Plan by each Fund then in existence were as
follows:
1996
----
Balanced Fund/1/
Select Equity Fund
Growth and Income Fund
Capital Growth Fund
Small Cap Fund
International Fund
Asia Growth Fund/2/
- -----------------------
1 Commenced operations on October 12, 1994.
2 Commenced operations on July 8, 1994.
Prior to June 1,1995, Goldman Sachs limited its fees under each Fund's
Distribution Plan to 0.25% of the Fund's average daily net assets. Had Goldman
Sachs' voluntary limitation not been in effect, Balanced Fund, Select Equity
Fund, Growth and Income Fund, Capital Growth Fund, Small Cap Fund,
International Fund and Asia Growth Fund would have paid Goldman Sachs $6,814,
$462,256, $564,924, $4,362,414, $1,692,950, $1,593,254 and $276,542,
respectively during 1995 pursuant to their respective Distribution Plans.
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<PAGE>
During the fiscal year ended January 31, 1996, Goldman Sachs incurred the
following expenses in connection with distribution and personal and account
maintenance services under the Class A Plan of each Fund then in existence:
<TABLE>
<CAPTION>
Compentsation Printing and Preparation
and Expenses Allocable Mailing of and
of the Overhead Prospectuses Distribution
Distributor Telephone to Other of Sales
Compensation & Its Sales and Travel Than Current Literature and
To Dealers Personnel Expenses Shareholders Advertising
------------- -------------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1996:
Balanced Fund/1/ $ $ $ $ $
Select
Equity Fund
Growth and
Income Fund
Small
Cap Fund
International
Fund
Asia Growth Fund/2/
</TABLE>
________________
1 Commenced operation on October 12, 1994.
2 Commenced operation on July 8, 1994.
The table above reflects amounts expended by Goldman Sachs, which amounts are
in excess of the compensation received by Goldman Sachs under the Class A
Plans. The payments under the Class A Plans were used by Goldman Sachs to
compensate it for the expenses shown above on a pro-rata basis.
B-73
<PAGE>
The Plans are compensation plans which provide for the payment of a
specified fee without regard to the expenses actually incurred by Goldman
Sachs. If such fee exceeds its expenses, Goldman Sachs may realize a profit
from these arrangements. If the Plans were terminated by the Directors of the
Company and no successor plans were adopted, each Fund would cease to make
payments to Goldman Sachs under the Distribution Plans and Goldman Sachs would
be unable to recover the amount of any of its unreimbursed distribution
expenditures.
Under the Plans, Goldman Sachs, as distributor of each Fund's Class A
shares, will provide to the Directors of the Company for their review, and the
Directors of the Company will review at least quarterly, a written report of
the services provided and amounts expended by Goldman Sachs under the Plans and
the purposes for which such services were performed and expenditures were made.
The Class A Plans will remain in effect until June 1, 1996 and from year
to year thereafter, provided that such continuance is approved annually by a
majority vote of the Directors of the Company, including a majority of the
non-interested Directors of the Company who have no direct or indirect
financial interest in the Class A Plan. A Class A Plan may not be amended to
increase materially the amount to be spent for the services described therein
as to a Fund without approval of a majority of the outstanding voting
securities of the affected Fund. All material amendments of the Class A Plan
must also be approved by the Directors of the Company in the manner described
above. A Class A Plan may be terminated at any time as to any Fund without
payment of any penalty by a vote of a majority of the non-interested Directors
of the Company or by vote of a majority of the Class A Shares of the applicable
Fund. So long as the Class A Plan is in effect, the selection and nomination
of non-interested Directors of the Company shall be committed to the discretion
of the non-interested Directors. The Directors of the Company have determined
that in their judgment there is a reasonable likelihood that the Distribution
Plan will benefit the Funds and their Class A shareholders.
The Funds' Class A Plans were most recently approved by the Directors of
the Company, including the non-interested Directors at a meeting held on April
24, 1996. The Plans for Capital Growth Fund and Select Equity Fund were most
recently approved by shareholders at a meeting held on November 27, 1991. The
Plans for each of Small Cap Fund, International Fund, Growth and Income Fund,
Asia Growth Fund and Balanced Fund were approved by its sole initial
shareholder on September 16, 1992, October 23, 1992, January 29, 1993, June 1,
1994 and October 4, 1994, respectively.
B-74
<PAGE>
AUTHORIZED DEALER SERVICE PLAN
- ------------------------------
As described in the prospectus, each Fund's Class A and Class B Shares
has adopted a non-Rule 12b-1 Authorized Dealer Service Plans (each a "Service
Plan") pursuant to which Goldman Sachs and Authorized Dealers are compensated
for the provision of personal and account maintenance services. Each Service
Plan has been approved by the Board of Directors, including a majority of the
non-interested Directors who have no direct or indirect financial interest in
the Service Plan, at a meeting held on April 24, 1996. Each Fund's Service
Plan provides for the compensation for personal and account maintenance
services at an annual rate of up to 0.25% of the Fund's average daily net
assets attributable to Class A or Class B shares.
For the period June 1, 1995 through January 31, 1996, each Fund paid
Authorized Dealer Service fees at the foregoing rate for each Fund's Class A
Shares.
The Service Plans will remain in effect until June 1, 1997 and from year
to year thereafter, provided that the continuance of each service plan is
approved annually by a majority vote of the Directors of the Company, including
a majority of the non-interested Directors who have no direct or indirect
financial interest in the Service Plans. All material amendments of the
Service Plans must also be approved by the Directors of the Company in the
manner described above. The Service Plans may be terminated at any time as to
any Fund without payment of any penalty by a vote of a majority of the
non-interested Directors of the Company or by vote of a majority of the
outstanding voting securities of the affected Fund. The Directors of the
Company have determined that in their judgment there is a reasonable likelihood
that the Service Plans will benefit the Funds and their shareholders.
CLASS B DISTRIBUTION PLAN. As described in the Prospectus, the
Company has adopted on behalf of the Funds distribution plans (the "Class B
Plans") pursuant to Rule 12b-1 under the Act with respect to Class B Shares.
See "Distribution and Authorized Dealer Service Plans" in the Prospectus.
The Class B Plans were approved on January 30, 1996 on behalf of the
Company by a majority vote of the Company's Board of Directors, including a
majority of the Directors who are not interested persons of the Company and
have no direct or indirect financial interest in the Class B Plans (the
"non-interested Directors"), cast in person at a meeting called for the purpose
of approving the Class B Plans. The Class B Plans were approved by the sole
initial shareholders of the Class B Shares of the Funds on January 30, 1996.
With respect to each Fund, the compensation payable under the Class B
Plans is equal to 0.75% per annum of the average daily net
B-75
<PAGE>
assets attributable to Class B Shares of that Fund. The fees received by
Goldman Sachs under the Class B Plans and contingent deferred sales charge on
Class B Shares may be sold by Goldman Sachs as distributor to entities which
provide financing for payments to Authorized Dealers in respect of sales of
Class B Shares. To the extent such fee is not paid to such dealers, Goldman
Sachs may retain such fee as compensation for its services and expenses of
distributing the Funds' Class B Shares. If such fee exceeds its expenses,
Goldman Sachs may realize a profit from these arrangements.
The Class B Plans are compensation plans which provide for the payment of
a specified distribution fee without regard to the distribution expenses
actually incurred by Goldman Sachs. If the Class B Plans were terminated by
the Company's Board of Directors and no successor plan were adopted, the Funds
would cease to make distribution payments to Goldman Sachs and Goldman Sachs
would be unable to recover the amount of any of its unreimbursed distribution
expenditures.
Under the Class B Plans, Goldman Sachs, as distributor of the Funds'
shares, will provide to the Board of Directors for its review, and the Board
will review at least quarterly, a written report of the services provided and
amounts expended by Goldman Sachs under the Class B Plans and the purposes for
which such services were performed and expenditures were made.
The Class B Plans will remain in effect with respect to the Funds from
year to year, provided such continuance is approved annually by a majority vote
of the Board of Directors, including a majority of the non-interested
Directors. A Class B Plan may not be amended to increase materially the amount
to be spent for the services described therein as to any Fund without approval
of a majority of the outstanding Class B Shares of that Fund. All material
amendments of the Class B Plan must also be approved by the Board of Directors
of the Company in the manner described above. With respect to any Fund, a
Class B Plan may be terminated at any time without payment of any penalty by a
vote of the majority of the non-interested Directors or by vote of a majority
of the outstanding voting securities of the Class B Shares of that Fund. So
long as a Class B Plan is in effect, the selection and nomination of
non-interested Directors shall be committed to the discretion of the
non-interested Directors. The Directors have determined that in their judgment
there is a reasonable likelihood that the Class B Plans will benefit each Fund
and their respective Class B shareholders.
EXPENSES
- --------
Except as set forth in the Prospectus under "Management," the Company is
responsible for the payment of its expenses. The expenses include, without
limitation, the fees payable to the
B-76
<PAGE>
Advisers, the fees payable to GSAM, the fees and expenses payable to the
Company's custodian and subcustodians, transfer agent fees, brokerage fees and
commissions, filing fees for the registration or qualification of the Company's
shares under federal or state securities laws, expenses of the organization of
the Company, 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 and auditing fees
and expenses (including the cost of legal and certain accounting services
rendered by employees of GSAM, GSAMI 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 Company's shareholders and regulatory
authorities, any expenses assumed by a Fund pursuant to its distribution,
authorized dealer service and administration plans, compensation and expenses
of its "non-interested" Directors and extraordinary expenses, if any, incurred
by the Company. Except for fees under any distribution, authorized dealer
service, administration or service plans applicable to a particular class and
transfer agency fees, all Fund expenses are borne on a non-class specific
basis.
The Adviser has voluntarily agreed to reduce or limit certain "Other
Expenses" of the Balanced, Select Equity, International, Asia Growth and Growth
and Income Funds (excluding advisory, administration, distribution and
authorized dealer service fees, and in the case of Select Equity,
International, Asia Growth and Growth and Income Funds, transfer agency fees,
taxes, interest and brokerage fees and litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed 0.10% of the average
daily net assets of Balanced Fund, 0.06% of the average net assets of Select
Equity Fund, 0.24% of the average daily net assets of International Fund, 0.11%
of the average daily net assets of Growth and Income Fund and 0.24% of the
average daily net assets of Asia Growth Fund. Such reductions or limits, if
any, are calculated monthly on a cumulative basis and may be discontinued or
modified by the Adviser at its discretion at any time.
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 the applicable Adviser's costs of
performing certain accounting services not being provided by a Fund's
Custodian.
For the last three fiscal years the amounts of the expenses of each Fund
then in existence that were reduced or otherwise limited were as follows:
B-77
<PAGE>
1996 1995 1994
---- ---- ----
Balanced Fund1 $ $ 95,906 $ N/A
Growth and Income Fund/2/ 106,725 319,899
Small Cap Fund N/A 0
International Fund N/A 0
Asia Growth Fund/3/ 135,905 N/A
______________________________
1 Commenced operations on October 12, 1994.
2 Commenced operations on February 5, 1993.
3 Commenced operations on July 8, 1994.
Each Adviser has voluntarily agreed to reduce the fees payable to it by a
Fund (to the extent of its fees) by an amount (if any) that the Fund's expenses
would exceed the expense limitations applicable to such Fund imposed by states
securities administrators, as such limitations may be lowered or raised from
time to time. These expense limitations apply to the advisory and
administration fees paid by each Fund and the subadvisory fees paid by
International Fund, but do not apply to taxes, interest, brokerage, fees and
distribution, authorized dealer service and administration fees and, where
permitted, extraordinary expenses such as for litigation. The Advisers will
reduce their respective fees by the amount of such excess in amounts
proportionate to such investment advisory, administration and subadvisory fees.
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.
CUSTODIAN AND SUB-CUSTODIANS
- ----------------------------
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, 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-78
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Advisers are 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, the Advisers are
required to give primary consideration to obtaining the most favorable price
and efficient execution. This means that an 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
Advisers generally seek reasonably competitive spreads or commissions, a Fund
will not necessarily be paying the lowest spread or commission available.
Within the framework of this policy, the Advisers will consider research and
investment services provided by brokers or dealers who effect or are parties to
portfolio transactions of a Fund, the Advisers and their affiliates, or their
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Advisers in connection with all of their
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 the Advisers in providing investment
advisory services for the Company.
On occasions when an 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
B-79
<PAGE>
advisory account for which such Adviser acts as investment adviser or
subadviser), the Adviser, to the extent permitted by applicable laws and
regulations, may aggregate the securities to be sold or purchased for the Fund
with those to be sold or purchased for such other customers in order to obtain
the best net price and most favorable execution. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the applicable 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, the Advisers may use Goldman Sachs
as a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for each 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 broker in a
commensurate arm's-length transaction. Furthermore, the Directors of the
Company, including a majority of the Directors who are not "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 Funds' 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.
B-80
<PAGE>
For the past three fiscal years, each Fund in existence paid
brokerage commissions as follows:
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Reserach
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1996:
Balaned Fund/2/ $ $ $
Select Equity Fund
Growth and Income
Fund
Capaital Growth Fund
Small Cap Fund
International Fund
Asia Growth Fund/4/
</TABLE>
B-81
<PAGE>
<TABLE>
<CAPTION>
Total Total Brokerage
Brokerage Amount of Commissions
Total Commissions Transaction Paid
Brokerage Paid to on which to Brokers
Commissions Affiliated Commissions Providing
Paid Persons Paid Reserach
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1995:
Balanced Fund/1/ $9,652 $1,522(16%)/2/ $7,216,224(10%)/3/ 0
Select Equity Fund 119,192 0(0%)/2/ 99,616,396(0%)/3/ 0
Growth and Income
Fund 637,080 77,404(12%)/2/ 468,165,610(7%)/3/ 0
Capital Growth Fund 1,427,413 273,076(19%)/2/ 786,135,073(13%)/3/ 0
Small Cap Fund 555,667 23,137(4%)/2/ 392,235,715(2%)/3/ 0
International Fund 1,799,525 0(0%)/2/ 546,364,113(0%)/3/ 0
Asia Growth Fund(4) 1,002,148 67,754(7%)/2/ 171,880,775(2%)/3/ 0
</TABLE>
B-82
<PAGE>
<TABLE>
<CAPTION>
Total Brokerage
Amount of Commissions
Total Total Brokerage Transactions Paid
Brokerage Commissions Paid on which to Brokers
Commissions to Affiliated Commissions Providing
Paid Persons Paid Reserach
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Fiscal Year Ended
January 31, 1994:
Select Equity Fund $ 187,041 $ 3,857(2%)(2) $306,043,566(1%)(3) -0-
Growth and
Income Fund(5) 2,974,075 274,704(9%)(2) 74,091,306(27%)(3) -0-
Capital Growth Fund 1,448,921 225,448(16%)(2) 652,557,899(12%)(3) -0-
Small Cap
Fund 448,145 27,826(6%)(2) 520,543,798(1%)(3) -0-
International
Fund 765,594 -0-(0%)(2) 202,360,486(0%)(3) -0-
- ----------------------------
1 Balanced Fund commenced operations on October 12, 1994.
2 Percentage of total commissions paid.
3 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
4 Asia Growth Fund commenced operations on July 8, 1994.
5 Growth and Income Fund commenced operations on February 5, 1993.
6 Small Cap Fund commenced operations on October 22, 1992.
7 International Fund commenced operations on December 1, 1992.
</TABLE>
B-83
<PAGE>
During the fiscal year ended January 31, 1995, the Company acquired and sold
securities of its regular broker-dealers: Daiwa Securities, Kidder Peabody &
Co., Lehman Brothers, Chemical Securities, United Bank of Switzerland, Sanwa
Securities, Swiss Bank Corp., JP Morgan & Co., Bankers Trust Company and
NationsBank Corp. As of January 31, 1995, the Company held the following
amounts of securities of its regular broker/dealers, as defined in Rule 10b-1
under the Act, or their parents ($ in thousands): Capital Growth Fund and
Small Cap Fund owned securities issued by Swiss Bank Corp. in the amounts of
$51,409 and $12,673, respectively. The Select Equity Fund owned securities
issued by Swiss Bank Corp. and NationsBank Corp. in the amounts of $2,144 and
$1,321, respectively. The Growth and Income Fund owned securities issued by
Lehman Brothers, Chemical Securities and Swiss Bank Corp. in the amounts of
$2,305, $758 and $15,588, respectively. The Balanced Fund owned securities
issued by Bankers Trust Company, Chemical Securities and Lehman Brothers in the
amounts of $50, $12, and $250, respectively.
NET ASSET VALUE
Under the Act, the Directors of the Company are responsible for
determining in good faith the fair value of securities of each Fund. In
accordance with procedures adopted by the Directors of the Company, the net
value per share of each class of each Fund is calculated by determining the
value of the net assets attributable to each class of that Fund and dividing by
the number of outstanding shares of that class. All securities are valued as
of the close of regular trading on the New York Stock Exchange (normally 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 SEC or its staff.
Portfolio securities of the Fund for which accurate market quotations are
available are valued as follows: (a) securities listed on any U.S. or foreign
stock exchange or on the Nasdaq National Market ("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
B-84
<PAGE>
be determined 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 price; (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 (such as Reuters), then calculating the mean
between the last bid and asked quotations supplied by certain independent
dealers in such contracts; (e) debt securities, other than money market
instruments, will be valued on the basis of dealer-supplied quotations or by
using a pricing service approved by the Board of Directors if such prices are
believed by the Adviser 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 cost; (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 and exchange traded 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 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.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each business day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all business days in New York. Furthermore,
trading takes place in various foreign markets on days which are not business
days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. 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 a Fund's
calculation of net asset values unless the Directors deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund and each other series of the Company
(as defined herein under "Shares of the Company") established by the Directors
of the Company from the issue or sale
B-85
<PAGE>
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 Fund and constitute the underlying assets of that Fund or
series. The underlying assets of each Fund will be segregated on the books of
account, and will be charged with the liabilities in respect of such Fund and
with a share of the general liabilities of the Company. Expenses of the Company
with respect to the Funds and the other series of the Company are generally
allocated in proportion to the net asset values of the respective Funds or
series except where allocations of direct expenses can otherwise be fairly
made.
OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS,
EXCHANGES AND DIVIDENDS
The following information supplements the information in the Prospectus
under the captions "How to Invest," "How to Sell Shares of the Funds" and
"Dividends." Please see the Prospectus for more complete information.
OTHER PURCHASE INFORMATION
- --------------------------
If shares of a Fund are held in a "street name" account with an
Authorized Dealer, all recordkeeping, transaction processing and payments of
distributions relating to the beneficial owner's account will be performed by
the Authorized Dealer, and not by the Fund and its Transfer Agent. Since the
Funds will have no record of the beneficial owner's transactions, a beneficial
owner should contact the Authorized Dealer to purchase, redeem or exchange
shares, to make changes in or give instructions concerning the account or to
obtain information about the account. The transfer of shares in a "street
name" account to an account with another dealer or to an account directly with
the Fund involves special procedures and will require the beneficial owner to
obtain historical purchase information about the shares in the account from the
Authorized Dealer.
RIGHT OF ACCUMULATION
- ---------------------
A Class A shareholder qualifies for cumulative quantity discounts if the
current purchase price of the new investment plus the shareholder's current
holdings of existing Class A shares (acquired by purchase or exchange) of the
Funds and Class A shares of any other Goldman Sachs Portfolio (as defined in
the Prospectus) total the requisite amount for receiving a discount. For
example, if a shareholder owns shares with a current market value of $35,000
and purchases additional Class A shares of any Fund with a purchase price of
$25,000, the sales charge for the $25,000 purchase would be 4.75% (the rate
applicable to a single purchase of more than $60,000). Class A shares
purchased without the imposition of a sales charge may not be aggregated with
Class A shares purchased subject to a sales charge. Class A shares of the
Funds and any
B-86
<PAGE>
other Goldman Sachs Portfolio purchased (i) by an individual, his spouse and
his minor children, and (ii) by a trustee, guardian or other fiduciary of a
single trust estate or a single fiduciary account, will be combined for the
purpose of determining whether a purchase will qualify for such right of
accumulation and, if qualifying, the applicable sales charge level. For
purposes of applying the right of accumulation, shares of the Funds and any
other Goldman Sachs Portfolio purchased by an existing client of the Private
Client Services Division of Goldman Sachs will be combined with Class A shares
held by any other account over which such client or the client's spouse
exercises investment or voting power. In addition, Class A shares of the Funds
and Class A shares of any other Goldman Sachs Portfolio purchased by partners,
directors, officers or employees of the same business organization or by groups
of individuals represented by and investing on the recommendation of the same
accounting firm or other similar organization (collectively, "eligible
persons") may be combined for the purpose of determining whether a purchase
will qualify for the right of accumulation and, if qualifying, the applicable
sales charge level. This right of accumulation is subject to the following
conditions: (i) the business organization's or firm's agreement to cooperate
in the offering of the Funds' shares to eligible persons; and (ii) notification
to the Funds at the time of purchase that the investor is eligible for this
right of accumulation.
STATEMENT OF INTENTION
- ----------------------
If a shareholder anticipates purchasing at least $50,000 of Class A
shares of a Fund alone or in combination with Class A shares of any other
Goldman Sachs Portfolio within a 13-month period, the shareholder may purchase
shares of the Fund at a reduced sales charge by submitting a Statement of
Intention (the "Statement"). Shares purchased pursuant to a Statement will
be eligible for the same sales charge discount that would have been available
if all of the purchases had been made at the same time. The shareholder or his
Authorized Dealer must inform Goldman Sachs that the Statement is in effect
each time shares are purchased. There is no obligation to purchase the full
amount of shares indicated in the Statement. A shareholder may include the
value of all Class A shares on which a sales charge has previously been paid as
an "accumulation credit" toward the completion of the Statement, but a price
readjustment will be made only on Class A shares purchased within ninety (90)
days before submitting the Statement. The Statement authorizes the Transfer
Agent to hold in escrow a sufficient number of shares which can be redeemed to
make up any difference in the sales charge on the amount actually invested.
For purposes of satisfying the amount specified on the Statement, the gross
amount of each investment, exclusive of any appreciation on shares previously
purchased, will be taken into account.
B-87
<PAGE>
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
- -------------------------------------------------
A Fund shareholder should obtain and read the prospectus relating to any
other Fund, Goldman Sachs Portfolio or ILA Portfolio (as defined in the
Prospectus) and its shares or units and consider its investment objective,
policies and applicable fees before electing cross-reinvestment into that Fund
or Portfolio. The election to cross-reinvest dividends and capital gain
distributions will not affect the tax treatment of such dividends and
distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends
and distributions in shares of other Goldman Sachs Portfolios or in units of
ILA Portfolios is available only in states where such reinvestment may legally
be made.
AUTOMATIC EXCHANGE PROGRAM
- --------------------------
A Fund shareholder may elect cross-reinvestment into an identical account
or an account registered in a different name or with a different address,
social security or other taxpayer identification number, provided that the
account in the acquired fund has been established, appropriate signatures have
been obtained and the minimum initial investment requirement has been
satisfied. A Fund shareholder should obtain and read the prospectus relating
to any other Goldman Sachs Portfolio and its shares and consider its investment
objective, policies and applicable fees and expenses before electing an
automatic exchange into that Goldman Sachs Portfolio.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $10,000.
The Systematic Withdrawal Plan provides for monthly payments to the
participating shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the
right to initiate a fee of up to $5 per withdrawal, upon thirty (30) days
written notice to the shareholder. Withdrawal payments should not be
considered to be dividends, yield or income. If periodic withdrawals
continuously exceed new purchases and reinvested dividends and capital gains
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted. Furthermore, each withdrawal constitutes a
redemption of shares, and any gain or loss realized must be reported for
B-88
<PAGE>
federal and state income tax purposes. A shareholder should consult his or her
own tax adviser with regard to the tax consequences of participating in the
Systematic Withdrawal Plan. For further information or to request a Systematic
Withdrawal Plan, please write or call the Transfer Agent.
DIVIDENDS
- ---------
Net loss, if any, from certain foreign currency transactions or
instruments that is otherwise taken into account in calculating net investment
income or net realized capital gains for accounting purposes may not be taken
into account in determining the amount of dividends to be declared and paid,
with the result that a portion of a Fund's dividends may be treated as a return
of capital, nontaxable to the extent of a shareholder's tax basis in his
shares. In determining amounts of capital gains to be distributed, capital
losses, including any available capital loss carryovers from prior years, will
be offset against capital gains realized during the current year.
PERFORMANCE INFORMATION
A Fund may from time to time quote or otherwise use total return and/or
yield information in advertisements, shareholder reports or sales literature.
Average annual total return and yield are computed pursuant to formulas
specified by the SEC.
Yield is computed by dividing net investment income earned: during a
recent thirty-day period by the product of the average daily number of shares
outstanding and entitled to receive dividends during the period and the maximum
public offering price per share on the last day of the relevant period. The
results are compounded on a bond equivalent (semi-annual) basis and then
annualized. Net investment income per share is equal to the dividends and
interest earned during the period, reduced by accrued expenses for the period.
The calculation of net investment income for these purposes may differ from the
net investment income determined for accounting purposes.
The distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price 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
B-89
<PAGE>
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. The following table
indicates the total return (capital changes plus reinvestment of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market. A beta
of more than 1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to
measure variability of net asset value or total return around an average, over
a specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
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., Morningstar Mutual Funds, Weisenberger
Investment Companies Service, Donoghue's Money Fund Report, Micropal, Barron's,
Business Week, Changing Times, Financial World, Forbes, Fortune, 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 measures the
total return in U.S. dollar terms of government bonds, Eurobonds and foreign
bonds of ten countries, with all such bonds having a minimum maturity of five
years); (f) the Lehman Brothers
B-90
<PAGE>
Aggregate Bond Index or its component indices; (g) the Standard & Poor's Bond
Indices (which measure yield and price of corporate, municipal and U.S.
Government bonds); (h) the J.P. Morgan Global Government Bond Index; (i) other
taxable investments including certificates of deposit (CDs), money market
deposit accounts (MMDAs), checking accounts, savings accounts, money market
mutual funds and repurchase agreements; (j) Donoghues' Money Fund Report (which
provides industry averages for 7-day annualized and compounded yields of
taxable, tax-free and U.S. Government money funds); (k) the Hambrecht & Quist
Growth Stock Index; (l) the NASDAQ OTC Composite Prime Return; (m) the Russell
Midcap Index; (n) the Russell 2000 Index - Total Return; (o) 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), and the Morgan Stanley Capital
International Combined Asia ex Japan Free Index, Salomon Brothers, Merrill
Lynch, Donaldson Lufkin and Jenrette or other providers of such data and (s)
the FT-Actuaries Europe and Pacific Index. The composition of the investments
in such indices and the characteristics of such benchmark investments are not
identical to, and in some cases are very different from, those of the 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-91
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Capital ended
Growth
Fund-- 4/20/90* 1/31/96 $1,000
Class A Shares
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
ended
2/1/95 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-92
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Select
Equity Fund-- 5/24/91* ended
Class A Shares 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
Select Equity
Fund --
Institutuional
Shares 6/15/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-93
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Small
Cap Fund-- 10/22/92* ended $1,000
Class A Shares 1/31/96
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-94
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
International
Fund-- 12/1/92* ended $1,000
Class A Shares 1/31/96
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-95
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Growth
and Income ended
Fund 2/5/93* 1/31/96 $1,000
Class A Shares
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-96
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asia Growth ended
Fund-- 7/8/94* 1/31/95 $1,000
Class A Shares
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
</TABLE>
B-97
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balanced ended
Fund-- 10/12/94* 1/31/96 $1,000
Class A Shares
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
</TABLE>
B-98
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Capital ended
Growth
Fund 4/20/90* 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-99
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Select
Equity Fund 5/24/91* ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
Select Equity
Fund --
Institutuional ended
Shares 6/15/95 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-100
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Small
Cap Fund 10/22/92* ended $1,000
1/31/96
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-101
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
International
Fund 2/1/92* ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-102
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Growth
and Income ended
Fund 2/5/94* 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
one year
2/1/95 ended
1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % %
- -Assumes no
sales charge $ % %
</TABLE>
B-103
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- -------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asia Growth ended
Fund 7/8/94* 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
one year
ended
2/1/95 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
</TABLE>
B-104
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
ASSUMING NO VOLUNTARY WAIVER OF FEES AND NO EXPENSE REIMBURSEMENTS
<TABLE>
<CAPTION>
Net Asset Value
Investment Investment Amount of Investment
Fund Date Period Invested at Period End Cumulative Annualized
- ---- ---------- ---------- ------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balanced ended
Fund 10/12/94* 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
one year
ended
2/1/95 1/31/96 $1,000
- -Assumes 5.5%
sales charge $ % N/A
- -Assumes no
sales charge $ % N/A
- ------------------
</TABLE>
* Commencement of Operations
B-105
<PAGE>
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in the 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 adviser's
views as to markets, the rationale for a Fund's investments and discussions of
a Fund's current asset allocation.
In addition, from time to time, advertisements or information may include
a discussion of asset allocation models developed by GSAM and/or its
affiliates, certain attributes or benefits to be derived from asset allocation
strategies and the Goldman Sachs mutual funds that may be offered as investment
options for the strategic asset allocations. Such advertisements and
information may also include GSAM's current economic outlook and domestic and
international market views to suggest periodic tactical modifications to
current asset allocation strategies. Such advertisements and information may
include other materials which highlight or summarize the services provided in
support of an asset allocation program.
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 and
yield 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 with respect to each class of shares of a Fund will differ.
SHARES OF THE COMPANY
The Funds are series of the Company, which is a Maryland corporation
authorized to issue 2,000,000,000 shares of common stock. The Company assumed
its present name in May 1991. Prior thereto, the name of the Company was
Goldman Sachs Capital Growth Fund, Inc. Each Fund then in existence commenced
"doing business" under the name used herein in February 1994. As specified in
the Company's Charter, the names of the funds are Goldman Sachs Balanced Fund,
GS Select Equity Fund, GS Growth and Income Fund, GS Capital Growth Fund, GS
Small Cap Equity Fund, GS International
B-106
<PAGE>
Equity Fund, Goldman Sachs Asia Growth Fund and Goldman Sachs Mid-Cap Equity
Fund. 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 eight series, seven of
which are described in this Additional Statement. Additional series may be
added in the future.
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.
The Directors also have authority to classify and reclassify any series
of shares into one or more classes of shares. As of the date of this
Additional Statement, the Directors have classified the shares of the Mid-Cap
Equity Fund into two classes: Institutional and Service Shares. Select Equity,
Growth and Income, Small Cap Equity, International Equity and the Asia Growth
Funds have been classified into four classes: Institutional Shares, Service
Shares, Class A Shares and Class B Shares. Each other series of the Company
has Class A Shares and Class B Shares outstanding.
Each Institutional Share, Service Share, Class A Share and Class B Share
of a Fund represents a proportionate interest in the assets belonging to the
Fund. All expenses of a Fund are borne at the same rate by each class of
shares, except that fees under Service Plans are borne exclusively by Service
Shares, fees under Distribution and Authorized Dealer Service Plans are borne
exclusively by Class A Shares or Class B Shares and transfer agency fees are
borne at different rates by Class A Shares or Class B Shares than Institutional
and Service Shares. The Directors may determine in the future that it is
appropriate to allocate other expenses differently between classes of shares
and may do so to the extent consistent with the rules of the SEC. Each class
of shares may have different minimum investment requirements and are entitled
to different shareholder services. Currently, shares of a class may only be
exchanged for shares of the same or an equivalent class of another fund. See
"Exchange Privilege" in the Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Institutional Shares pay a transfer agency fee equal to 0.04% of the average
daily net assets of a Fund attributable to such class.
Service Shares may be purchased at net asset value without a sales charge
for accounts held in the name of an institution that, directly or indirectly,
provides certain account
B-107
<PAGE>
administration services to its customers, including maintenance of account
records and processing orders to purchase, redeem and exchange Service Shares.
Service Shares bear the cost of account administration fees at the annual rate
of up to 0.50% of the average daily net assets of the Fund attributable to
Service Shares. Service Shares pay transfer agency fees at the rate of 0.04% of
the average daily net assets of the Fund attributable to Service Shares.
Class A Shares are sold, with an initial sales charge of up to 5.5%,
through brokers and dealers who are members of the National Association of
Securities Dealers, Inc. and certain other financial service firms that have
sales agreements with Goldman Sachs. Class A Shares bear the cost of
distribution (Rule 12b-1) fees at the aggregate rate of up to 0.25% of the
average daily net assets of such Class A Shares. Except for Select Equity,
International and Asia Growth Funds, Goldman Sachs has voluntarily agreed to
waive its entire distribution fee. Goldman Sachs has no current intention of
modifying or discontinuing such limitation but may do so in the future at its
discretion. Class A Shares also bear the cost of an Authorized Dealer Service
Plan at an annual rate of up to 0.25% of the average daily net assets
attributable to Class A Shares. Class A Shares pay a transfer agency fee equal
to $12,000 per year plus $7.50 per account together with out-of-pocket and
transaction related expenses.
Class B Shares of the Funds are sold subject to a contingent deferred
sales charge of up to 5.0% through brokers and dealers who are members of the
National Association of Securities Dealers Inc. and certain other financial
services firms that have sales arrangements with Goldman Sachs. Class B Shares
bear the cost of distribution (Rule 12b-1) fees at the aggregate rate of up to
0.75% of the average daily net assets attributable to Class B Shares. Class B
Shares also bear the cost of an Authorized Dealer Service Plan at an annual
rate of up to 0.25% of the average daily net assets attributable to Class B
Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A Shares and Class B
Shares) to its customers and thus receive different compensation with respect
to different classes of shares of each Fund. Dividends paid by each Fund, if
any with respect to each class of shares will be calculated in the same manner,
at the same time on the same day and will be the same amount, except for
differences caused by the differences in expenses discussed above. Similarly,
the net asset value per share may differ depending upon the class of shares
purchased.
Certain aspects of the shares may be altered, after advance notice to
shareholders if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
B-108
<PAGE>
When issued, shares are fully paid and non-assessable. In the event of
liquidation, shareholders are entitled to share pro rata in the net assets of
the relevant 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.
As of ____________, 1996, [insert 5% shareholder].
Rule 18f-2 under the Act provides that any matter required to be
submitted by the provisions of the Act or applicable state law, or otherwise,
to the holders of the outstanding voting securities of an investment company
such as the 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.
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 of the Company. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his 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 has elected to be treated or
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,
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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
end of each quarter of its taxable year, (i) at least 50% of the market value
of such Fund's total (gross) assets is comprised of cash, cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities limited in respect of any one issuer to an amount not greater
in value than 5% of the value of such 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 U.S. Government securities and securities of other regulated
investment companies) or two or more issuers controlled by the Fund and engaged
in the same, similar or related trades or businesses. 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 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. For purposes of the 90% gross
income test, income that a Fund earns from equity interests in certain entities
that are not treated as corporations (e.g., partnerships or trusts) for U.S.
tax purposes will generally have the same character for such Fund as in the
hands of such an entity; consequently, a Fund may be required to limit its
equity investments in such entities that earn fee income, rental income, or
other nonqualifying income. In addition, future Treasury regulations could
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 or swap
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.
If a Fund complies with such provisions, then in any taxable year in
which such Fund distributes, in compliance with the Code's
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timing requirements, at least 90% of its "investment company taxable income"
(which includes dividends, interest, accrued original issue discount and market
discount income, income from securities lending, any net short-term capital
gain in excess of net long-term capital loss and certain net realized foreign
exchange gains and is reduced by deductible expenses), 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. Exchange control
or other foreign laws, regulations or practices may restrict repatriation of
investment income, capital or the proceeds of securities sales by foreign
investors such as the Asia Growth Fund or International Fund and may therefore
make it more difficult for such a Fund to satisfy the distribution requirements
described above, as well as the excise tax distribution requirements described
below. However, each Fund generally expects to be able to obtain sufficient
cash to satisfy such requirements from new investors, the sale of securities or
other sources. If for any taxable year a Fund fails to distribute at least 90%
of its investment company taxable income or otherwise 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.
Select Equity Fund has received a private letter ruling from the
Internal Revenue Service which confirms that its issuance of multiple classes
of shares will not adversely affect its tax status and the tax treatment of its
distributions.
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
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such year, at least 98% of the excess of its capital gains over its capital
losses (generally computed on the basis of the one-year period ending on
October 31 of such year), and all taxable ordinary income and the excess of
capital gains over capital losses for the previous year that were not
distributed for such year and on which the Fund paid no federal income 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 distributed by the
Fund and are taxable to such shareholders as if received on December 31 of the
year declared. 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, 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. Asia Growth Fund has $183,543
of capital loss carryforwards, which expire in 2002, available to offset
future capital gains.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except
certain foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable
year. These provisions may require a Fund to recognize income or gains without
a concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except
for certain foreign currency options, forward contracts, and futures contracts)
be treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss. As a result of certain hedging transactions entered into by a
Fund, the Fund may be required to defer the recognition of losses on futures
contracts, forward contracts, and options or underlying securities or foreign
currencies to the extent of any unrecognized gains on related positions held by
such Fund and the characterization of gains or losses as long-term or
short-term may be changed. The tax provisions described above applicable to
options, futures and forward contracts may affect the amount, timing and
character of a Fund's distributions to shareholders. The short-short test
described above may limit a Fund's ability to use options, forward contracts,
and futures transactions as well as its ability to engage in short sales.
Moreover, application of certain requirements for qualification as a regulated
investment company and/or these tax rules to certain derivatives such as
interest rate or currency swaps, floors, caps and collars may be unclear in
some respects, and a Fund may therefore be required to limit its participation
in such transactions. Certain tax elections may be
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available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount,
timing and character of income, gain or loss recognized by 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.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark to market" gain from options,
futures or forward contracts, as described above, will generally cause it to
realize income prior to the receipt of cash payments with respect to these
securities. In order to distribute this income, 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.
Each Fund (other than Select Equity Fund) anticipates that it will 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. If, as may occur
for Asia Growth Fund and International Fund, more than 50% of a Fund's total
assets at the close of any taxable year consists of stock or securities of
foreign corporations, the Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to (i)
include in income (in addition to taxable distributions actually received)
their pro rata shares of foreign income taxes paid by the Fund that are treated
as income taxes under U.S. tax regulations (which excludes, for example, stamp
taxes, securities transaction taxes, and similar taxes) even though not
actually received, and (ii) treat such respective pro rata portions as foreign
taxes paid by them.
If the Asia Growth and International Funds make this election, their
respective shareholders may then deduct such pro rata portions of qualified
foreign taxes in computing their taxable incomes, or, alternatively, use them
as foreign tax credits, subject to applicable limitations, against their U.S.
income taxes. Shareholders who do not itemize deductions for federal income
tax purposes will not, however, be able to deduct their pro rata portion of
foreign taxes paid by the Asia Growth and International
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Funds, although such shareholders will be required to include their shares of
such taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by Asia Growth Fund or
International Fund, the amount of the credit that may be claimed in any year
may not exceed the same proportion of the U.S. tax against which such credit is
taken which the shareholder's taxable income from foreign sources (but not in
excess of the shareholder's entire taxable income) bears to his entire taxable
income. For this purpose, distributions from long-term and short-term capital
gains or foreign currency gains by a Fund will generally not be treated as
income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of Asia Growth Fund and International Fund may not be able to
claim a credit for the full amount of their proportionate share of the foreign
taxes paid by such Fund.
Shareholders who are not liable for U.S. income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year that the Asia Growth Fund or International Fund files the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes paid by a Fund and (ii)
the portion of Fund dividends which represents income from each foreign
country. The other Funds will not be entitled to elect to pass foreign taxes
and associated credits or deductions through to their shareholders because they
will not satisfy the 50% requirement described above. If a Fund cannot or does
not make this election, it may 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, rentals, royalties or capital gains) 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 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. In some cases, elections may be
available that would ameliorate these adverse tax consequences, but such
elections would require the Fund to include certain amounts as income or gain
(subject to the distribution requirements described above) without a concurrent
receipt of cash. Each Fund may limit its investments
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in passive foreign investment companies or dispose of such investments if
potential adverse tax consequences are deemed material in particular
situations.
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 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.
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, if any, 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. Because eligible
dividends are limited to those a Fund receives from U.S. domestic corporations,
it is unlikely that a substantial portion of the distributions made by Asia
Growth Fund or International Fund will qualify for the dividends-received
deduction. 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,
if any, that are in excess of a Fund's current and
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accumulated earnings and profits will first reduce a shareholder's tax basis in
his shares and, after such basis is reduced to zero, will constitute capital
gains to a shareholder who holds his shares as capital assets.
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 the redemption
proceeds are reinvested, or the exchange is effected, without payment of an
additional sales load pursuant to the reinvestment or exchange privilege. The
load not taken into account will be added to the tax basis of the
newly-acquired shares. Additionally, any loss realized on a sale or redemption
of shares of a Fund may be disallowed to the extent the shares disposed of are
replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of such Fund.
Each Fund may be required to withhold federal income tax at a rate of 31%
from dividends and share redemption and exchange proceeds to individuals and
other non-exempt shareholders ("backup withholding") who fail to furnish such
Fund with a correct taxpayer identification number ("TIN") certified under
penalties of perjury, or if the Internal Revenue Service or a broker notifies
the Fund that the payee is subject to backup withholding as a result of failing
to properly report interest or dividend income to the Internal Revenue Service
or that the TIN furnished by the payee to
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the Fund is incorrect, or if (when required to do so) the payee fails to
certify under penalties of perjury that it is not subject to backup
withholding. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability.
NON-U.S. SHAREHOLDERS
- ---------------------
Shareholders who, as to the United States, are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors generally will be subject to U.S.
withholding tax at the rate of 30% on distributions treated as ordinary income
unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by
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. Non-U.S. shareholders may also be subject to U.S. withholding tax on
deemed income resulting from any election by Asia Growth Fund or International
Fund to treat qualified foreign taxes it pays as passed through to shareholders
(as described above), but they may not be able to claim a U.S. tax credit or
deduction with respect to such taxes.
Any gain realized by a non-U.S. shareholder 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 U.S., or in the case of a shareholder who is a nonresident
alien individual, the shareholder is present in the U.S. for 183 days or more
during the taxable year and certain other conditions are met. Non-U.S.
investors should consult their tax advisers about the applicability of U.S.
federal income or withholding taxes to certain distributions received by them.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31%
on capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
- ---------------
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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 different tax
consequences for shareholders than would direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
FINANCIAL STATEMENTS
The audited financial statements and related Reports of Independent
Public Accountants, contained in the 1996 Annual Report of each of the Funds,
are incorporated herein by reference into this Additional Statement and
attached hereto.
OTHER INFORMATION
Class A Shares of each Fund are sold at a maximum sales charge of 5.5%.
Using the initial offering price per share, as of January 31, 1996, the maximum
offering price of each Fund's Class A shares would be as follows:
Maximum Offering
Net Asset Sales Price to
Value Charge Public
--------- -------- --------
Balanced Fund $ $ $
Select Equity Fund
Growth and Income
Fund
Capital Growth Fund
Small Cap Fund
International Fund
Asia Growth Fund
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 received in the
redemption.
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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
SEC; or during any emergency, as determined by the SEC, 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 SEC may by order permit for the protection of shareholders of such Fund.
The Prospectus and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectus. Certain
portions of the Registration Statement have been omitted from the Prospectus
and this Additional Statement pursuant to the rules and regulations of the SEC.
The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
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Appendix A
DESCRIPTION OF BOND RATINGS*
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.
- ----------------------------------------------------------------* The rating
system described herein are believed to be the most recent ratings systems
available from Moody's Investors Service, Inc. and Standard and 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.
Ba: Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often
1-A
<PAGE>
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.
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, Ba1 and B1.
2-A
<PAGE>
STANDARD & POOR'S RATINGS GROUP
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. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties of major risk exposures to adverse
conditions. BB is the highest rating within the speculative grade category.
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 obligation as a matter of policy.
3-A
<PAGE>
Appendix B
The Company may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
. the performance of various types of securities (common stocks,
small company stocks, long-term government bonds, treasury bills
and certificates of deposit) over time. However, the
characteristics of these securities are not identical to, and may
be very different from, those of a Fund's portfolio;
. the dollar and non-dollar based returns of various market indices
(i.e., Morgan Stanley Capital International EAFE Index,
FT-Actuaries Europe & Pacific Index and the Standard & Poor's Index
of 500 Common Stocks) over varying periods of time;
. total stock market capitalizations of specific countries and
regions on a global basis;
. performance of securities markets of specific countries and
regions; and
. value of a dollar amount invested in a particular market or type of
security over different periods of time.
In addition, the Company may from time to time include rankings of
Goldman, Sachs & Co.'s research department by publications such as the
Institutional Investor and the Wall Street Journal in advertisements.
1-B
<PAGE>
Appendix C
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of
the firm's activities and serve as the basis for its distinguished reputation
among investors worldwide.
OUR CLIENT'S INTERESTS ALWAYS COME FIRST. Our experience shows that
if we serve our clients well, our own success will follow.
OUR ASSETS ARE OUR PEOPLE, CAPITAL AND REPUTATION. If any of these
assets diminish, reputation is the most difficult to restore. We are dedicated
to complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
WE TAKE GREAT PRIDE IN THE PROFESSIONAL QUALITY OF OUR WORK. We have
an uncompromising determination to achieve excellence in everything we
undertake. Though we may be involved in a wide variety and heavy volume of
activity, we would, if it came to a choice, rather be best than biggest.
WE STRESS CREATIVITY AND IMAGINATION IN EVERYTHING WE DO. While
recognizing that the old way may still be the best way, we constantly strive to
find a better solution to a client's problems. We pride ourselves on having
pioneered many of the practices and techniques that have become standard in the
industry.
WE STRESS TEAMWORK IN EVERYTHING WE DO . While individual creativity
is always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of
the interests of the firm and its clients.
INTEGRITY AND HONESTY ARE THE HEART OF OUR BUSINESS. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the firm and in their personal lives.
1-C
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING AND SECURITIES ACTIVITIES
Goldman, Sachs & Co. is a leading global investment banking and
securities firm with a number of distinguishing characteristics.
. Privately owned and ranked among Wall Street's best capitalized
firms, with assets exceeding $54 billion and partners capital and subordinated
liabilities of over $4.5 billion as of November 25, 1994.
. Thirty-one offices worldwide where professionals focus on
identifying financial opportunities (includes a staff of 1,100 in London, 650
in Tokyo, 150 in Hong Kong and 4,000 in 11 offices throughout the U.S.).
. An equity research budget of $120 million for 1995.
. The number one lead manager of U.S. common stock offerings for the
past six years (1989-1994) with 18% of the total dollar volume.*
. Premier lead manager of negotiated municipal bond offerings over
the past five years (1990-1994), aggregating $114 billion.
* Source: Securities Data Corporation. Ranking excludes REITs, Trusts,
------------------------------------
Rights and closed-end Fund offerings
2-C
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1865 End of Civil War
1869 Marcus Goldman opens Goldman Sachs
1890 Dow Jones Industrial Average first published
1896 Goldman Sachs joins New York Stock Exchange
1906 Goldman Sachs takes Sears Roebuck public (oldest ongoing client)
Dow Jones Industrial Average tops 100
1925 Goldman Sachs finances Warner Brothers, producer of the first
talking film
1956 Goldman Sachs co-manages Ford's public offering, the largest to
date
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman Sachs takes Microsoft public
1990 Provides advisory services for the largest privatization in the
region of the sale of Telefonos de Mexico
1992 Dow Jones Industrial Average breaks 3000
1993 Goldman Sachs is lead manager in taking Allstate public, largest
equity offering to date ($2.4 billion)
1995 Dow Jones Industrial Average breaks 4000
3-C
<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), to Post-Effective Amendment No. 14 to such
Registration Statement filed on November 30, 1995 (Reference L), Post-
Effective Amendment No. 16 to such Registration Statement filed on March
31, 1995 (Reference M)and Post-Effective Amendment No. 17 to such
Registration Statement filed on May 31, 1995 (Reference N):
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
<PAGE>
Balanced Fund. (Reference L)
2. Bylaws of the Registrant. (Reference A)
2.(b) Form of Articles of Amendment. (Reference D)
3. Not applicable.
4. Not applicable.
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)
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)
<PAGE>
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)
15(h). Amended and Restated Plan of Distribution Pursuant to Rule
12b-1 of the Registrant (Reference N)
15(i). Authorized Dealer Service Plan of the Registrant (Reference N)
15(j). Administration Plan on behalf of Goldman Sachs Mid-Cap Equity
Fund and Goldman Sachs Select Equity Fund (Reference N)
16. Schedule of Computation of Registrant's performance data.
(Reference L)
18. Form of Plan entered into by Registrant pursuant to Rule
18f-3. (Reference M)
19. 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 electronically pursuant to EDGAR
rules:
5.(a) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Capital Growth Fund and Goldman Sachs Asset
Management.
5.(b) Administration Agreement between Registrant on behalf of
Goldman Sachs Capital Growth Fund and Goldman Sachs Asset
Management.
<PAGE>
5.(c) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Select Equity Fund and Goldman Sachs Asset
Management.
5.(d) Administration Agreement between Registrant on behalf of
Goldman Sachs Select Equity Fund and Goldman Sachs Asset
Management.
5.(e) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asset
Management.
5.(f) Administration Agreement between Registrant on behalf of
Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asset
Management.
5.(g) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs International Equity Fund and Goldman Sachs
Asset Management.
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.
5.(i) Administration Agreement between Registrant on behalf of
Goldman Sachs International Equity Fund and Goldman Sachs
Asset Management.
5.(j) Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Growth and Income Fund and Goldman
Sachs Asset Management.
5.(k) Administration Agreement between Registrant on behalf of
Goldman Sachs Growth and Income Fund and Goldman Sachs Asset
Management.
5.(l) Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Asia Growth Fund and Goldman Sachs
Asset Management International.
5.(m) Administration Agreement between Registrant on behalf of
Goldman Sachs Asia Growth Fund and Goldman Sachs Asset
Management.
5.(n). Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Balanced Fund and Goldman Sachs Asset
Management.
5(o). Administration Agreement between Registrant on behalf of
Goldman Sachs Balanced Fund and Goldman Sachs Asset
Management.
<PAGE>
5(p). Administration Agreement between Registrant on behalf of
Goldman Sachs Mid-Cap Equity Fund and Goldman Sachs Asset
Management.
5(q). Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Mid-Cap Equity Fund and Goldman Sachs Asset
Management.
11(a). Consent of Arthur Andersen LLP.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
--------------------------------------------------
REGISTRANT.
----------
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF FEBRUARY 20, 1996).
---------------------------------------------------------
Number of
Title of Class Record Holders
-------------- --------------
Goldman Sachs Capital Growth Fund Shares 31,060
Goldman Sachs Select Equity Fund Shares 6,760
Institutional Class 10
Goldman Sachs Small Cap Equity Fund Shares 17,512
Goldman Sachs International Equity Fund Shares 16,685
Institutional Class 3
Goldman Sachs Growth and Income Fund Shares 27,527
Goldman Sachs Asia Growth Fund Shares 10,582
Institutional Class 1
Goldman Sachs Balanced Fund Shares 2,683
Goldman Sachs Mid-Cap Equity Fund 5
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
<PAGE>
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 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
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 S. Corzine, Chairman (1)(2) Robert J. Hurst (2)
Henry M. Paulson, Jr., Chairman (1)(2) Howard C. Katz (2)
Roy J. Zuckerberg (5) Peter K. Barker (9)
David M. Silfen (5) Eric S. Dobkin (5)
Richard M. Hayden (7) Willard J. Overlock, Jr. (2)
Jonathan L. Cohen (2)
<PAGE>
Frederic B. Garonzik (7) Donald F. Textor (5)
Kevin W. Kennedy (2) Thomas B. Walker, III (2)
William C. Landreth (8) Patrick J. Ward (7)
Daniel M. Neidich (2) Jeffrey M. Weingarten (7)
Edward Spiegel (5) Jon Winkelried (2)
Robert F. Cummings, Jr. (2) Richard E. Witten (2)
Angelo De Caro (2) Gregory K. Palm (2)(7)
Steven G. Einhorn (5) Carlos A. Cordeiro (7)
David B. Ford (2) John O. Downing (5)
David M. Leuschen (2) Mark Evans (13)
Michael R. Lynch (2) Michael D. Fascitelli (2)
Michael D. McCarthy (2) Sylvain M. Hefes (7)
Donald C. Opatrny, Jr. (2) Reuben Jeffrey, III (7)
Thomas E. Tuft (5) Lawrence H. Linden (2)
Robert J. Katz (1)(2) Jun Makihara (10)
Michael P. Mortara (2) Masanori Mochida (10)
Lloyd C. Blankfein (2) Robert B. Morris III (11)(7)
John P. Curtin, Jr. (2) Philip D. Murphy (14)
Gavyn Davies (7) Suzanne M. Nora Johnson (9)
Dexter D. Earle (5) Terence M. O'Toole (2)
John Ehara (10) Carl G.E. Palmstierna (7)
J. Christopher Flowers (2) Michael G. Rantz (7)
Gary Gensler (2) J. David Rogers (5)
Charles T. Harris, III (2) Joseph Sassoon (7)
Thomas J. Healey (2) Peter Savitz (7)(2)
Stephen Hendel (2) Charles B. Seelig, Jr. (2)
Robert E. Higgins (2) Ralph F. Severson (11)
Ernest S. Liu (5) Gene T. Sykes (9)
Eff W. Martin (11) Gary A. Syman (10)
Charles B. Mayer, Jr. (2) Leslie C. Tortora (2)
Michael J. O'Brien (7) John L. Townsend, III (2)
Mark Schwartz (2) Lee G. Vance (7)
Stephen M. Semlitz (2) David A. Viniar (2)
Robert K. Steel (5) John S. Weinberg (2)
John A. Thain (2)(7) Peter A. Weinberg (2)
John L. Thornton (7) Laurence M. Weiss (2)
Bracebridge H. Young, Jr. (7) George W. Wellde, Jr. (10)
Joseph R. Zimmel (2) Jaime E. Yordan (2)(16)
Barry L. Zubrow (2) Sharmin Mossavar-Rahmani (5)
Gary L. Zwerling (2) Hideo Ishihara (10)
Jon R. Aisbitt (7) Paul M. Achleitner (14)
Andrew M. Alper (2) Armen A. Avanessians (2)
William J. Buckley (5) Joel S. Beckman (2)
Frank L. Coulson, Jr. (2) David W. Blood (7)
Connie Duckworth (8) Zachariah Cobrinik (10)
Richard A. Friedman (2) Gary D. Cohn (7)
Alan R. Gillespie (7) Christopher A. Cole (2)
Joseph H. Gleberman (2) Henry Cornell (13)
Jacob D. Goldfield (2) Robert V. Delaney (2)
Steven M. Heller (2) Joseph Della Rosa (5)
Ann F. Kaplan (2) J. Michael Evans (7)
Robert S. Kaplan (2) Lawton W. Fitt (5)
Peter D. Kiernan, III (2) Joseph D. Gatto (2)
John P. McNulty (5) Peter C. Gerhard (2)
T. Willem Mesdag (14) Nomi P. Ghez (5)
Gaetano J. Muzio (11) David T. Hamamoto (2)
Robin Neustein (2) Walter H. Haydock (2)(15)
Timothy J. O'Neill (2) David L. Henle (5)
Scott M. Pinkus (2) Francis J. Ingrassia (2)
John J. Powers (2) Scott B. Kapnick (7)
Stephen D. Quinn (2) Kevin M. Kelly (2)
Arthur J. Reimers, III (7) John C. Kleinert (2)
James P. Riley, Jr. (2) Jonathan L. Kolatch (2)
Richard A. Sapp (7) Peter S. Kraus (2)
<PAGE>
Name and Principal
Business Address
----------------
Robert Litterman (2)
Jonathan M. Lopatin (2)
Thomas J. Macirowski (2)
Peter G. Mallinson (13)
Oki Matsumoto (10)
E. Scott Mead (7)
Eric M. Mindich (5)
Steven T. Mnuchin (2)
Thomas K. Montag (2)
Edward A. Mule (2)
Kipp M. Nelson (7)
Christopher K. Norton (2)
Robert J. O'Shea (2)
Wiet H. Pot (7)
Jack L. Salzman (5)
Eric S. Schwartz (5)
Michael F. Schwerin (2)
Richard S. Sharp (7)
Richard G. Sherlund (5)
Michael S. Sherwood (7)
Cody J. Smith (2)
Daniel W. Stanton (5)
Esta E. Stecher (2)
Frederic E. Steck (2)
Byron D. Trott (8)
Barry S. Volpert (2)
Peter S. Wheeler (13)
Anthony G. Williams (7)
Gary W. Williams (5)
Tracy R. Wolstencroft (4)
Danny O. Yee (13)
Michael J. Zamkow (2)
Mark A. Zurack (5)
Jim O'Neill (2)
Peter D. Sutherland (7)
______________
(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, 45th 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
<PAGE>
Garden Road, Hong Kong
(14) Finanz GmbH, MesseTurm, 60308 Frankfurt am Main, Germany
(15) Munsterhof 4, 8022, Zurich, Switzerland
(16) Casa de Bolsa, S.A. de C.V. Av. de las Palmas 405, Piso 18. Lomas de
Chapultepec Mexico 11000, D.F.
(c) Not applicable.
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.
<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. 20 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 1st day of March, 1996.
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.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Paul C. Nagel, Jr.* Director March 1, 1996
- ---------------------------
Paul C. Nagel, Jr.
/s/ Marcia L. Beck* President March 1, 1996
- ---------------------------
Marcia L. Beck and Director
of the Company
/s/ Scott M. Gilman* Treasurer March 1, 1996
- ---------------------------
Scott M. Gilman and Principal
Financial and
Accounting Officer
/s/ Ashok N. Bakhru* Director March 1, 1996
- ---------------------------
Ashok N. Bakhru
/s/ David B. Ford* Director March 1, 1996
- ---------------------------
David B. Ford
/s/ Alan A. Shuch* Director March 1, 1996
- ---------------------------
Alan A. Shuch
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Jackson W. Smart, Jr.* Director March 1, 1996
- ---------------------------
Jackson W. Smart, Jr.
/s/ William H. Springer* Director March 1, 1996
- ---------------------------
William H. Springer
/s/ Richard P. Strubel* Director March 1, 1996
- ---------------------------
Richard P. Strubel
</TABLE>
*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.
20 to the Registration Statement:
5.(a) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Capital Growth Fund and Goldman Sachs Asset
Management.
5.(b) Administration Agreement between Registrant on behalf of
Goldman Sachs Capital Growth Fund and Goldman Sachs Asset
Management.
5.(c) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Select Equity Fund and Goldman Sachs Asset
Management.
5.(d) Administration Agreement between Registrant on behalf of
Goldman Sachs Select Equity Fund and Goldman Sachs Asset
Management.
5.(e) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asset
Management.
5.(f) Administration Agreement between Registrant on behalf of
Goldman Sachs Small Cap Equity Fund and Goldman Sachs Asset
Management.
5.(g) Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs International Equity Fund and Goldman Sachs
Asset Management.
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.
5.(i) Administration Agreement between Registrant on behalf of
Goldman Sachs International Equity Fund and Goldman Sachs
Asset Management.
5.(j) Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Growth and Income Fund and Goldman
Sachs Asset Management.
5.(k) Administration Agreement between Registrant on behalf of
Goldman Sachs Growth and Income Fund and Goldman Sachs Asset
Management.
5.(l) Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Asia Growth
<PAGE>
Fund and Goldman Sachs Asset Management International.
5.(m) Administration Agreement between Registrant on behalf of
Goldman Sachs Asia Growth Fund and Goldman Sachs Asset
Management.
5.(n). Investment Advisory Agreement between the Registrant on
behalf of Goldman Sachs Balanced Fund and Goldman Sachs Asset
Management.
5(o). Administration Agreement between Registrant on behalf of
Goldman Sachs Balanced Fund and Goldman Sachs Asset
Management.
5(p). Administration Agreement between Registrant on behalf of
Goldman Sachs Mid-Cap Equity Fund and Goldman Sachs Asset
Management.
5(q). Investment Advisory Agreement between Registrant on behalf of
Goldman Sachs Mid-Cap Equity Fund and Goldman Sachs Asset
Management.
11(a). Consent of Arthur Anderson LLP
<PAGE>
EXHIBIT 5(a)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
November 27, 1991
Goldman Sachs Funds Management, L.P.
an affiliate of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GS CAPITAL GROWTH FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS Capital Growth
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each Series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
investment adviser of the Fund and to provide certain services, as more fully
set forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Advisory Services.
-----------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the Investment Company Act of 1940, as amended (the "1940
Act"), and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors may from
time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f)
1
<PAGE>
of Rule 31a-1 under the 1940 Act (other than those records
being maintained by the Fund's custodian or transfer agent)
and preserve such records for the periods prescribed therefor
by Rule 31a-2 of the 1940 Act. You will also provide to the
Company's Board of Directors such periodic and special
reports as the Board may reasonably request. You shall for
all purposes herein be deemed to be an independent contractor
and shall, except as otherwise expressly provided or
authorized, have no authority to act for or represent the
Company in any way or otherwise be deemed an agent of the
Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others so long as
your services under this Agreement are not impaired thereby.
3. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties
under paragraph 2. You will pay the compensation and expenses of
all personnel of yours and will make available, without expense to
the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Fund,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of
the Fund other than those specifically allocated to you in this
paragraph 3. In particular, but without limiting the generality of
the foregoing, you will not be required to pay: (i) fees and
expenses of any administrator of the Fund; (ii) organization
expenses of the Fund; (iii) fees and expenses incurred by the Fund
in connection with membership in investment company organizations;
(iv) brokers' commissions; (v) payment for portfolio pricing
services to a pricing agent, if any; (vi) legal, auditing or
accounting expenses (including an allocable portion of the cost of
your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of
preparing stock certificates or any other expenses, including
clerical expenses of issue, redemption or repurchase of Shares of
the Fund; (x) the expenses of and fees for registering or
qualifying Shares for sale and of maintaining the registration of
the Fund and registering the Fund as a broker or a dealer; (xi) the
fees and expenses of Directors of the Fund who are not affiliated
with you; (xii) the cost of preparing and distributing reports and
notices to shareholders, the Securities and Exchange Commission and
other regulatory authorities; (xiii) the fees or disbursements of
custodians of the Fund's assets, including expenses incurred in the
performance of any obligations enumerated by the Articles of
Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business. You shall
not be required to pay expenses of activities which are primarily
intended to result in sales of Shares of the Fund.
2
<PAGE>
4. Compensation of the Adviser.
---------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 2 and 3 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
.75% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 4, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of 3/4 of such excess to the
extent required by such expense limitations, provided that
the amount of such reimbursement shall not exceed the amount
of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
5. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, officers or employees
will act as a principal, except as otherwise permitted by the 1940
Act. You or your agent shall arrange for the placing of all orders
for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers
(including Goldman, Sachs & Co.) and the placing of such orders,
you are directed at all times to seek for the Fund the most
favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to
supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities
for the Fund with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to you in connection with
your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of
the Fund, you will act solely as investment counsel for such
clients and not in any way on behalf of the Fund. You may, on
occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers
(including any other Series or any other investment company or
advisory account for which you or any of your affiliates acts as an
investment adviser), aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain the best net price and the 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 you in the manner you consider to be
the most equitable and consistent with your fiduciary obligations
to the Fund and to such other customers.
3
<PAGE>
6. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of
and paid by the Company or the Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or
agent. The Company shall not be liable for any claims against any
other Series of the Company.
7. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force until June 30, 1993 and shall continue for
periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually (a) by the
vote of a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Company and have no financial
interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a
majority of the Board of Directors of the Company or of a majority
of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Fund, or by
you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement,
the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment"
and "majority of the outstanding voting securities"), as from time
to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
8. Amendment of this Agreement. No provisions of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Board of
Directors of the Company, including a majority of the Directors who
are not interested persons (as defined in the 1940 Act) of the
Company and have no financial interest in this Agreement, cast in
person at a meeting called for the purpose of voting on such
amendment.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
10. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Company, whereupon this letter shall become a binding
contract.
Yours very truly,
4
<PAGE>
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(on behalf of the GS Capital Growth Fund)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
---------------------------- -------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
an affiliate of Goldman, Sachs & Co.
Attest: Michelle S. Lenzmeier By: Michael R. Armellino_
---------------------------- -------------------------------
Michelle S. Lenzmeier Michael R. Armellino
Counsel to the Funds Group Partner
5
<PAGE>
EXHIBIT 5(b)
GOLDMAN SACHS EQUITY PORTFOLIO, INC.
32 Old Slip
New York, New York 10005
April 1, 1992
Goldman Sachs Asset Management,
a division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GS CAPITAL GROWTH FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS Capital Growth
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
administrator of the Fund and to provide certain services, as more fully set
forth below, and you are willing to act as such administrator and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and Goldman Sachs Funds Management,
L.P.; (ii) provide the Fund with personnel to perform such
executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii)
arrange for, at the Company's expense, (a) the preparation for the
Fund of all required tax returns, (b) the preparation and
submission of reports to existing shareholders and (c) the periodic
updating of the Fund's prospectus and statement of additional
information and the preparation of reports filed with the
Securities and Exchange Commission and other regulatory
authorities; (iv) maintain all of the Fund's records; and (v)
provide the Fund with adequate office space and all necessary
office equipment and services including telephone service, heat,
utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have
1
<PAGE>
no authority to act for or represent the Company or the Fund in any
way or otherwise be deemed an agent of the Company or the Fund.
(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund. The
"average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's prospectus or otherwise consistent
with the Investment Company Act of 1940, as amended (the "1940
Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of one-third (1/3)
of such excess to the extent required by such expense limitations,
provided that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
2
<PAGE>
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent. The Fund shall not be liable for
any claims against any other Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1993 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may,
on 60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
3
<PAGE>
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(On behalf of the GS Capital Growth Fund)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
------------------------------ --------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michelle S. Lenzmeier By: Michael R. Armellino
------------------------------ --------------------------------
Michelle S. Lenzmeier Michael R. Armellino
Counsel to the Funds Group Partner
4
<PAGE>
EXHIBIT 5(c)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
November 27, 1991
Goldman Sachs Funds Management, L.P.
an affiliate of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GS SELECT EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS Select Equity Fund
(the "Fund"). Each Series will represent the interests in a separate portfolio
of securities and other assets. Each Series may be terminated, and additional
Series established, from time to time by action of the Board of Directors. The
Company on behalf of the Fund has selected you to act as the investment adviser
of the Fund and to provide certain services, as more fully set forth below, and
you are willing to act as such investment adviser and to perform such services
under the terms and conditions hereinafter set forth. Accordingly, the Company
agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Advisory Services.
-----------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the Investment Company Act of 1940, as amended (the "1940
Act"), and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1
under the 1940 Act (other than those records being maintained
by the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the
<PAGE>
Company's Board of Directors such periodic and special
reports as the Board may reasonably request. You shall for
all purposes herein be deemed to be an independent contractor
and shall, except as otherwise expressly provided or
authorized, have no authority to act for or represent the
Company in any way or otherwise be deemed an agent of the
Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others so long as
your services under this Agreement are not impaired thereby.
3. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties
under paragraph 2. You will pay the compensation and expenses of
all personnel of yours and will make available, without expense to
the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the
Company, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Fund other than those specifically allocated to you
in this paragraph 3. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
fees and expenses of any administrator of the Fund; (ii)
organization expenses of the Fund; (iii) fees and expenses incurred
by the Fund in connection with membership in investment company
organizations; (iv) brokers' commissions; (v) payment for
portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of
the cost of your employees rendering legal and accounting services
to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of
preparing stock certificates or any other expenses, including
clerical expenses of issue, redemption or repurchase of Shares of
the Fund; (x) the expenses of and fees for registering or
qualifying Shares for sale and of maintaining the registration of
the Fund and registering the Company as a broker or a dealer; (xi)
the fees and expenses of Directors of the Company who are not
affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Fund's assets, including
expenses incurred in the performance of any obligations enumerated
by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such custodian; or (xiv)
litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's
business. You shall not be required to pay expenses of activities
which are primarily intended to result in sales of Shares of the
Fund.
2
<PAGE>
4. Compensation of the Adviser.
---------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 2 and 3 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
.50% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 4, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of 2/3 of such excess to the
extent required by such expense limitations, provided that
the amount of such reimbursement shall not exceed the amount
of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
5. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, officers or employees
will act as a principal, except as otherwise permitted by the 1940
Act. You or your agent shall arrange for the placing of all orders
for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers
(including Goldman, Sachs & Co.) and the placing of such orders,
you are directed at all times to seek for the Fund the most
favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to
supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities
for the Fund with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to you in connection with
your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of
the Fund, you will act solely as investment counsel for such
clients and not in any way on behalf of the Fund. You may, on
occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers
(including any other Series or any other investment company or
advisory account for which you or any of your affiliates acts as an
investment adviser), aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain the best net price and the 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 you in the manner you consider to be
the most equitable and consistent with your fiduciary obligations
to the Fund and to such other customers.
3
<PAGE>
6. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of
and paid by the Company or the Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or
agent. The Fund shall not be liable for any claims against any
other Series of the Company.
7. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force until June 30, 1993 and shall continue for
periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually (a) by the
vote of a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Company and have no financial
interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a
majority of the Board of Directors of the Company or of a majority
of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Fund, or by
you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement,
the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment"
and "majority of the outstanding voting securities"), as from time
to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
8. Amendment of this Agreement. No provisions of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Board of
Directors of the Company, including a majority of the Directors who
are not interested persons (as defined in the 1940 Act) of the
Company and have no financial interest in this Agreement, cast in
person at a meeting called for the purpose of voting on such
amendment.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
10. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Company, whereupon this letter shall become a binding
contract.
Yours very truly,
4
<PAGE>
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(on behalf of the GS Select Equity Fund)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
------------------------------- -----------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
an affiliate of Goldman, Sachs & Co.
Attest: Michelle S. Lenzmeier By: Michael R. Armellino
------------------------------- -----------------------------
Michelle S. Lenzmeier Michael R. Armellino
Counsel to the Funds Group Partner
5
<PAGE>
EXHIBIT 5(d)
GOLDMAN SACHS EQUITY PORTFOLIO, INC.
32 Old Slip
New York, New York 10005
April 1, 1992
Goldman Sachs Asset Management,
a division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GS SELECT EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS Select Equity
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
administrator of the Fund and to provide certain services, as more fully set
forth below, and you are willing to act as such administrator and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and Goldman Sachs Funds Management,
L.P.; (ii) provide the Fund with personnel to perform such
executive, administrative and clerical services as are reasonably
necessary to provide effective administration of the Fund; (iii)
arrange for, at the Company's expense, (a) the preparation for the
Fund of all required tax returns, (b) the preparation and
submission of reports to existing shareholders and (c) the periodic
updating of the Fund's prospectus and statement of additional
information and the preparation of reports filed with the
Securities and Exchange Commission and other regulatory
authorities; (iv) maintain all of the Fund's records; and (v)
provide the Fund with adequate office space and all necessary
office equipment and services including telephone service, heat,
utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have
1
<PAGE>
no authority to act for or represent the Company or the Fund in any
way or otherwise be deemed an agent of the Company or the Fund.
(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund. The
"average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's prospectus or otherwise consistent
with the Investment Company Act of 1940, as amended (the "1940
Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of one-third (1/3)
of such excess to the extent required by such expense limitations,
provided that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
2
<PAGE>
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent. The Fund shall not be liable for
any claims against any other Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1993 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may,
on 60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
3
<PAGE>
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(On behalf of the GS Select Equity Fund)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
------------------------------ --------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michelle S. Lenzmeier By: Michael R. Armellino
------------------------------ --------------------------------
Michelle S. Lenzmeier Michael R. Armellino
Counsel to the Funds Group Partner
4
<PAGE>
EXHIBIT 5(e)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
August 10, 1992
Goldman Sachs Asset Management
a separate operating division
of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GS SMALL CAP EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS Small Cap Equity
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each Series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
investment adviser of the Fund and to provide certain services, as more fully
set forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers
-------------
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as sub-advisers
to provide with respect to the Fund certain services set forth in Paragraphs 3
and 6 hereof, all as shall be set forth in a written contract to which the
Company, on behalf of the Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Directors who are not
interested persons of you, the sub-adviser, or of the Company, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as
amended, (the "1940 Act").
1
<PAGE>
3. Advisory Services.
-----------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1
under the 1940 Act (other than those records being maintained
by the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Company's Board
of Directors such periodic and special reports as the Board
may reasonably request. You shall for all purposes herein be
deemed to be an independent contractor and shall, except as
otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way or otherwise
be deemed an agent of the Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties
under paragraph 3. You will pay the compensation and expenses of
all personnel of yours and will make available, without expense to
the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the
Company, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Fund other than those specifically allocated to you
in this paragraph 4. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
fees and expenses of any administrator of the Fund; (ii)
organization expenses of the Fund; (iii) fees and expenses incurred
by the Fund in connection with membership in investment company
organizations; (iv) brokers' commissions; (v) payment for
portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of
the cost of your employees rendering legal and accounting services
to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of
preparing stock certificates or any other expenses, including
clerical expenses of issue, redemption or repurchase of Shares of
the Fund; (x) the expenses of and fees for registering or
qualifying Shares for sale and of maintaining the registration of
the Fund and registering the Company as a broker or a dealer; (xi)
the fees and expenses of Directors of the Company who are not
affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Fund's assets, including
expenses incurred in the performance of any obligations enumerated
by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such custodian; or (xiv)
2
<PAGE>
litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's
business. You shall not be required to pay expenses of activities
which are primarily intended to result in sales of Shares of the
Fund.
5. Compensation of the Adviser.
---------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 3 and 4 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
.75% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 5, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of 3/4% of such excess to
the extent required by such expense limitations, provided
that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
6. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, officers or employees
will act as a principal, except as otherwise permitted by the 1940
Act. You or your agent shall arrange for the placing of all orders
for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers
(including Goldman, Sachs & Co.) and the placing of such orders,
you are directed at all times to seek for the Fund the most
favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to
supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities
for the Fund with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to you in connection with
your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of
the Fund, you will act solely as investment counsel for such
clients and not in any way on behalf of the Fund. You may, on
occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers
(including any other Series or any other investment company or
advisory account for which you or any of your affiliates acts as an
investment adviser), aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain the best net
3
<PAGE>
price and the 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 you in the manner you
consider to be the most equitable and consistent with your
fiduciary obligations to the Fund and to such other customers.
7. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of
and paid by the Company or the Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or
agent. The Fund shall not be liable for any claims against any
other Series of the Company.
8. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force until June 30, 1994 and shall continue for
periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually (a) by the
vote of a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Company and have no financial
interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a
majority of the Board of Directors of the Company or of a majority
of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Fund, or by
you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement,
the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment"
and "majority of the outstanding voting securities"), as from time
to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Board of
Directors of the Company, including a majority of the Directors who
are not interested persons (as defined in the 1940 Act) of the
Company and have no financial interest in this Agreement, cast in
person at a meeting called for the purpose of voting on such
amendment.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
4
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Company, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(on behalf of the GS Small Cap Equity Fund)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
--------------------------------- -------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
a separate operating division of Goldman, Sachs & Co.
Attest: Michelle S. Lenzmeier By: Alan A. Shuch
--------------------------------- -------------------------------
Michelle S. Lenzmeier Alan A. Shuch
Counsel to the Funds Group President and Chief Operating
Officer
5
<PAGE>
EXHIBIT 5(f)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
August 10, 1992
Goldman Sachs Asset Management,
a separate operating division
of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GS SMALL CAP EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS Small Cap Equity
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
administrator of the Fund and to provide certain services, as more fully set
forth below, and you are willing to act as such administrator and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and you; (ii) provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Company's
expense, (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the periodic updating of the Fund's prospectus
and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and
other regulatory authorities; (iv) maintain all of the Fund's
records; and (v) provide the Fund with adequate office space and
all necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have
1
<PAGE>
no authority to act for or represent the Company or the Fund in any
way or otherwise be deemed an agent of the Company or the Fund.
(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund. The
"average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's prospectus or otherwise consistent
with the Investment Company Act of 1940, as amended (the "1940
Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of one-fourth
(1/4) of such excess to the extent required by such expense
limitations, provided that the amount of such reimbursement shall
not exceed the amount of your fee during such fiscal year.
2
<PAGE>
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent. The Fund shall not be liable for
any claims against any other Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1994 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may,
on 60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
3
<PAGE>
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(On behalf of the GS Small Cap Equity Fund)
Attest: Michelle S. Lenzmeier By: Stephen Brent Wells
-------------------------- -------------------------------
Michelle S. Lenzmeier Stephen Brent Wells
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michelle S. Lenzmeier By: Alan A. Shuch
-------------------------- -------------------------------------
Michelle S. Lenzmeier Alan A. Shuch
Counsel to the Funds Group President and Chief Operating Officer
4
<PAGE>
EXHIBIT 5(g)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
September 30, 1992
Goldman Sachs Asset Management
a separate operating division
of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GS INTERNATIONAL EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS International
Equity Fund (the "Fund"). Each Series will represent the interests in a
separate portfolio of securities and other assets. Each Series may be
terminated, and additional Series established, from time to time by action of
the Board of Directors. The Company on behalf of the Fund has selected you to
act as the investment adviser of the Fund and to provide certain services, as
more fully set forth below, and you are willing to act as such investment
adviser and to perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers
-------------
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as sub-advisers
to provide with respect to the Fund certain services set forth in Paragraphs 3
and 6 hereof, all as shall be set forth in a written contract to which the
Company, on behalf of the Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Directors who are not
interested persons of you, the sub-adviser, or of the Company, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as
amended, (the "1940 Act").
1
<PAGE>
3. Advisory Services.
-----------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1
under the 1940 Act (other than those records being maintained
by the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Company's Board
of Directors such periodic and special reports as the Board
may reasonably request. You shall for all purposes herein be
deemed to be an independent contractor and shall, except as
otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way or otherwise
be deemed an agent of the Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties
under paragraph 3. You will pay the compensation and expenses of
all personnel of yours and will make available, without expense to
the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the
Company, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Fund other than those specifically allocated to you
in this paragraph 4. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
fees and expenses of any administrator of the Fund; (ii)
organization expenses of the Fund; (iii) fees and expenses incurred
by the Fund in connection with membership in investment company
organizations; (iv) brokers' commissions; (v) payment for
portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of
the cost of your employees rendering legal and accounting services
to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of
preparing stock certificates or any other expenses, including
clerical expenses of issue, redemption or repurchase of Shares of
the Fund; (x) the expenses of and fees for registering or
qualifying Shares for sale and of maintaining the registration of
the Fund and registering the Company as a broker or a dealer; (xi)
the fees and expenses of Directors of the Company who are not
affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Fund's assets, including
expenses incurred in the performance of any obligations enumerated
by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such custodian; or (xiv)
2
<PAGE>
litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's
business. You shall not be required to pay expenses of activities
which are primarily intended to result in sales of Shares of the
Fund.
5. Compensation of the Adviser.
---------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 3 and 4 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
.25% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 5, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of one-fourth (1/4) of such
excess to the extent required by such expense limitations,
provided that the amount of such reimbursement shall not
exceed the amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
6. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, officers or employees
will act as a principal, except as otherwise permitted by the 1940
Act. You or your agent shall arrange for the placing of all orders
for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers
(including Goldman, Sachs & Co.) and the placing of such orders,
you are directed at all times to seek for the Fund the most
favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to
supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities
for the Fund with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to you in connection with
your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of
the Fund, you will act solely as investment counsel for such
clients and not in any way on behalf of the Fund. You may, on
occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers
(including any other Series or any other investment company or
advisory account for which you or any of your affiliates acts as an
investment adviser), aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain the best net
3
<PAGE>
price and the 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 you in the manner you
consider to be the most equitable and consistent with your
fiduciary obligations to the Fund and to such other customers.
7. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of
and paid by the Company or the Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or
agent. The Fund shall not be liable for any claims against any
other Series of the Company.
8. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force until June 30, 1994 and shall continue for
periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually (a) by the
vote of a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Company and have no financial
interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a
majority of the Board of Directors of the Company or of a majority
of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Fund, or by
you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement,
the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment"
and "majority of the outstanding voting securities"), as from time
to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Board of
Directors of the Company, including a majority of the Directors who
are not interested persons (as defined in the 1940 Act) of the
Company and have no financial interest in this Agreement, cast in
person at a meeting called for the purpose of voting on such
amendment.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
4
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Company, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GS INTERNATIONAL EQUITY FUND)
Attest: Angelique Barrow By: Stephen Brent Wells
----------------------------- -------------------------------
Its: President
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
a separate operating division of Goldman, Sachs & Co.
Attest: Angelique Barrow By: Alan A. Shuch
----------------------------- -------------------------------
Its: President and Chief
Operating Officer
5
<PAGE>
EXHIBIT 5(h)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, NY 10005
September 30, 1992
Goldman Sachs Asset Management International
an affiliate of Goldman, Sachs & Co.
5 Old Bailey
London, England EC4M 7AA
INVESTMENT SUBADVISORY AGREEMENT
--------------------------------
GS INTERNATIONAL EQUITY FUND
Dear Sirs:
Goldman Sachs Asset Management, a separate operating division of Goldman, Sachs
& Co. (the "Adviser"), a New York partnership with its principal offices at 32
Old Slip, New York, New York 10005, is investment adviser to Goldman Sachs
Equity Portfolios, Inc. (the "Company") on behalf of GS International Equity
Fund (the "Fund"). The Company has been organized as a Maryland corporation
under the laws of the State of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") are
divided into multiple series ("Series"), including the Fund. Each Series will
represent the interests in a separate portfolio of securities and other assets.
Pursuant to authority granted the Adviser by the Company's Directors and
pursuant to the provisions of the Investment Advisory Agreement dated September
30, 1992 between the Adviser and the Company, the Adviser has selected you to
act as an investment sub-adviser of the Fund and to provide certain services,
as more fully set forth below, and you are willing to act as such investment
sub-adviser and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Adviser and the Company on behalf of
the Fund agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment sub-adviser. Upon the termination of
this Agreement, the Company (to the extent that it lawfully can) will cause the
Fund to cease to use such a name or any other name indicating that it is
advised by or otherwise connected with you or any organization which shall have
so succeeded to your business.
2. Advisory Services.
-----------------
(a) You will regularly provide the Fund with advice concerning
the investment management of the Fund's portfolio, which
advice shall be consistent with the investment objectives and
policies of the Fund. You will determine from time to time
what securities shall be purchased for the Fund, what
securities shall be held or sold by the Fund, and what
portion of the Fund's assets shall be held uninvested as
cash, subject always to the provisions of the Company's
Articles of Incorporation and By-Laws and of the Investment
Company Act of 1940, as amended (the "1940 Act"), and to the
investment objectives, policies and restrictions of the Fund,
as each of the same shall be from time to time in effect, and
subject, further, to such policies and
1
<PAGE>
instructions as the Board of Directors may from time to time
establish. In accordance with paragraph 5, you or your agent
shall arrange for the placing of all orders for the purchase
and sale of portfolio securities for the Fund's account with
brokers or dealers selected by you.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1
under the 1940 Act (other than those records being maintained
by the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. In the performance of your duties hereunder,
you are and shall be an independent contractor and unless
otherwise expressly provided herein or otherwise authorized
in writing, shall have no authority to act for or represent
the Company in any way or otherwise be deemed to be an agent
of the Company or of the Adviser. You will make your
officers and employees available to meet with the Company's
officers and Directors at least quarterly on due notice to
review the investments and investment program of the Fund in
the light of current and prospective economic and market
conditions.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others.
3. Allocation of Charges and Expenses. You will bear your own
----------------------------------
costs of providing services hereunder. Except as aforesaid, you
will not be required to pay any expenses of the Fund.
4. Compensation of the Sub-adviser.
-------------------------------
(a) For all investment management services to be rendered
hereunder, the Company on behalf of the Fund will pay you on
the last day of each month a fee at an annual rate equal to
.50% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 4, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of one-half of such excess
to the extent required by such expense limitations, provided
that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
2
<PAGE>
5. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, officers or employees
will act as a principal, except as otherwise permitted by the 1940
Act. You or your agent shall arrange for the placing of all orders
for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers
(including Goldman, Sachs & Co.) and the placing of such orders,
you are directed at all times to seek for the Fund the most
favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to
supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities
for the Fund with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to you in connection with
your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of
the Fund, you will act solely as investment counsel for such
clients and not in any way on behalf of the Fund. You may, on
occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers
(including any other Series or any other investment company or
advisory account for which you act as an investment adviser),
aggregate, to the extent permitted by applicable laws and
regulations, the securities to be sold or purchased in order to
obtain the best net price and the 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
you in the manner you consider to be the most equitable and
consistent with your fiduciary obligations to the Fund and to such
other customers.
You will advise the Company's Custodian and the Adviser on a prompt
basis of each purchase and sale of a portfolio security specifying
the name of the issuer, the description and amount or number of
Shares of the security purchased, the market price, commission and
gross or net price, trade date, settlement date and identity of the
effecting broker or dealer. From time to time as the Directors of
the Company or the Adviser may reasonably request, you will furnish
to the Company's officers and to each of its Directors reports on
portfolio transactions and reports on issues of securities held in
the portfolio, all in such detail as the Company or the Adviser may
reasonably request.
6. Limitation of Liability of Sub-Adviser. You shall not be
--------------------------------------
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of
and paid by the Company or the Fund shall be deemed, when acting
within the scope of his employment by the Company, to be acting in
such employment solely for the Company and not as your employee or
agent.
7. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force until June 30, 1994 and shall continue for
periods of one year thereafter, but only so long as such
continuance, and the continuance of the Adviser as investment
adviser of the Fund, is specifically approved at least annually (a)
by the vote of a majority of the Directors who are not interested
persons (as defined in the 1940 Act) of the Company or the Adviser
and have no financial interest in this Agreement, cast in person
at a meeting called for the purpose of voting on such approval and
(b) by a vote of a majority of the Board of Directors or of a
3
<PAGE>
majority of the outstanding voting securities of the Fund. The
aforesaid requirement that continuance of this Agreement be
"specifically approved at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Fund, by the
Adviser, or by you. This Agreement shall automatically terminate
in the event of its assignment. In interpreting the provisions of
this Agreement, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "interested person,"
"assignment" and "majority of the outstanding voting securities"),
as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
8. Amendment of this Agreement. No provisions of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Board of
Directors, including a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of the Company or
the Adviser and have no financial interest in this Agreement, cast
in person at a meeting called for the purpose of voting on such
amendment.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
10. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
4
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Company, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(on behalf GS International Equity Fund)
Attest Angelique Barrow By: Stephen Brent Wells
-------------------------- ---------------------------------
Its: President
-----------------------
The foregoing Agreement is hereby accepted as of the date hereof.
GOLDMAN SACHS ASSET MANAGEMENT
a separate operating division of Goldman, Sachs & Co.
Attest: Angelique Barrow By: Alan A. Shuch
-------------------------- ---------------------------------
Its: President and Chief
Operating Officer
------------------------
The foregoing Agreement is hereby accepted as of the date hereof.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
an affiliate of Goldman, Sachs & Co.
Attest: Linda Melaniphy-White By: Jeffrey M. Weingarten
-------------------------- ---------------------------------
Its: Managing Director and Chief
Operating Officer
---------------------------
5
<PAGE>
EXHIBIT 5(i)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
September 30, 1992
Goldman Sachs Asset Management,
a separate operating division
of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GS INTERNATIONAL EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the GS International
Equity Fund (the "Fund"). Each Series will represent the interests in a
separate portfolio of securities and other assets. Each series may be
terminated, and additional Series established, from time to time by action of
the Board of Directors. The Company on behalf of the Fund has selected you to
act as the administrator of the Fund and to provide certain services, as more
fully set forth below, and you are willing to act as such administrator and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and you; (ii) provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Company's
expense, (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the periodic updating of the Fund's prospectus
and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and
other regulatory authorities; (iv) maintain all of the Fund's
records; and (v) provide the Fund with adequate office space and
all necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have
1
<PAGE>
no authority to act for or represent the Company or the Fund in any
way or otherwise be deemed an agent of the Company or the Fund.
(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund. The
"average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's prospectus or otherwise consistent
with the Investment Company Act of 1940, as amended (the "1940
Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of one-fourth
(1/4) of such excess to the extent required by such expense
limitations, provided that the amount of such reimbursement shall
not exceed the amount of your fee during such fiscal year.
2
<PAGE>
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent. The Fund shall not be liable for
any claims against any other Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1994 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may,
on 60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
3
<PAGE>
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(On behalf of the GS International Equity Fund)
Attest: Angelique Barrow By: Stephen Brent Wells
----------------------------- -----------------------------------
Its: President
--------------------------
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Angelique Barrow By: Alan A. Shuch
----------------------------- -----------------------------------
Its: President and Chief
--------------------
Operating Officer
--------------------
4
<PAGE>
EXHIBIT 5(j)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
February 1, 1993
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GS GROWTH AND INCOME FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may be
divided into multiple series ("Series"), including the GS Growth and Income
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each Series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
investment adviser of the Fund and to provide certain services, as more fully
set forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers
------------
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as sub-advisers
to provide with respect to the Fund certain services set forth in Paragraphs 3
and 6 hereof, all as shall be set forth in a written contract to which the
Company, on behalf of the Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Directors who are not
interested persons of you, the sub-adviser, or of the Company, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as
amended, (the "1940 Act").
1
<PAGE>
3. Advisory Services.
------------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5),(6),(9) and (10) and paragraph (f) of Rule 31a-1 under
the 1940 Act (other than those records being maintained by
the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Company's Board of
Directors such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be
deemed to be an independent contractor and shall, except as
otherwise expressly provide or authorized, have no authority
to act for or represent the Company in any way or otherwise
be deemed an agent of the Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties under
paragraph 3. You will pay the compensation and expenses of all personnel of
yours and will make available, without expense to the Fund, the services of
such of your partners, officers and employees as may duly be elected officers
or Directors of the Company, subject to their individual consent to serve and
to any limitations imposed by law. You will not be required to pay any expenses
of the Fund other than those specifically allocated to you in this paragraph 4.
In particular, but without limiting the generality of the foregoing, you will
not be required to pay: (i) fees and expenses of any administrator of the Fund;
(ii) organization expenses of the Fund; (iii) fees and expenses incurred by the
Fund in connection with membership in investment company organizations; (iv)
brokers' commissions; (v) payment for portfolio pricing services to a pricing
agent, if any; (vi) legal, auditing or accounting expenses (including an
allocable portion of the cost of your employees rendering legal and accounting
services to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and fees
for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a dealer;
(xi) the fees and expenses of Directors of the Company who are not affiliated
with you; (xii) the cost of preparing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other regulatory
authorities; (xiii) the fees or disbursements of custodians of the Fund's
assets, including expenses incurred in the performance of any obligations
enumerated by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business. You shall not be required to pay
expenses of activities which
2
<PAGE>
are primarily intended to result in sales of Shares of the Fund.
5. Compensation of the Adviser.
----------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 3 and 4 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
0.55% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 5, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of 55/70th of such excess to
the extent required by such expense limitations, provided
that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
6. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales or portfolio securities for the account of the Fund, neither
you nor any of your partners, officers or employees will act as a principal,
except as otherwise permitted by the 1940 Act. You or your agent shall arrange
for the placing of all orders for the purchase and sale of portfolio securities
for the Fund's account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers (including
Goldman, Sachs & Co.) and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that you
have access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution.
Therefore, you are authorized to place orders for the purchase and sale
of securities for the Fund with such brokers, subject to review by the
Company's Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful to you in connection with your services to other
clients. If any other occasion should arise in which you give any advice to
your clients concerning the Shares of the Fund, you will act solely as
investment counsel for such clients and not in any way on behalf of the Fund.
You may, on occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers (including any
other Series or any other investment company or advisory account for which you
or any of your affiliates acts as an investment adviser), aggregate, to the
extent permitted by applicable laws and regulations, the securities to be sold
or purchased in order to obtain the best net price and the 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 you in the
manner you consider to be the most equitable and consistent with your fiduciary
obligations to the Fund and to such other customers.
3
<PAGE>
7. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on
your part in the performance of your duties or from reckless disregard by you
of your obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Fund and
not as your employee or agent. The Fund shall not be liable for any claims
against any other Series of the Company.
8. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force June 30, 1994 and shall continue for periods of one year
thereafter but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of the Company and have no
financial interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a majority of the
Board of Directors of the Company or of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at lease annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may, on 60 days' written notice to the other party, be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Company, by vote of a majority of the outstanding voting
securities of the Fund, or by you. This Agreement shall automatically terminate
in the event of its assignment. In interpreting the provisions of this
Agreement, the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment" and
"majority of the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission by an rule, regulation or order.
9. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the
outstanding voting securities of the Fund and by a majority of the Board of
Directors of the Company, including a majority of the Directors who are not
interest persons (as defined in the 1940 Act) of the Company and have no
financial interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such amendment.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
4
<PAGE>
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way defined or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GS GROWTH AND INCOME FUND)
Attest: Michael J. Richman By: Nancy L. Mucker
------------------------------- -----------------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Company Vice President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
------------------------------- -----------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
5
<PAGE>
EXHIBIT 5(k)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
February 1, 1993
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GS GROWTH AND INCOME FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may be
divided into multiple series ("Series"), including the GS Growth and Income
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
administrator of the Fund and to provide certain services, as more fully set
forth below, and you are willing to act as such administrator and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and you; (ii) provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Company's
expense, (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the periodic updating of the Fund's prospectus
and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and other
regulatory authorities; (iv) maintain all of the Fund's records'
and (v) provide the Fund with adequate office space and all
necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have no authority to act for or represent the Company
or the Fund in any way or otherwise be deemed an agent of the
Company or the Fund.
(c) You will notify the Company of any change in your membership within
a reasonable time after
1
<PAGE>
such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to 0.15% per annum of the average daily net assets of the Fund. The
"average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's prospectus or otherwise consistent
with the investment Company Act of 1940, as amended (the '"1940
Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of 15/70ths of
such excess to the extent required by such expense limitations,
provided that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion
2
<PAGE>
of its expenses not otherwise required to be borne or reimbursed by
you. Any such fee reduction or undertaking may be discontinued or
modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on your part in the performance of your
duties or from reckless disregard by you of your obligations and duties
under this Agreement. Any person, even though also employed by you, who
may be or become an employee of and paid by the Company or the Fund shall
be deemed, when acting within the scope of his employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee
or agent. The Fund shall not be liable for any claims against any other
Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1994 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may, on
60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
3
<PAGE>
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GS GROWTH AND INCOME FUND)
Attest: Michael J. Richman By: Nancy L. Mucker
----------------------------- ------------------------------
Michael J. Richman Nancy L. Mucker
Secretary of the Company Vice President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
----------------------------- ------------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
4
<PAGE>
EXHIBIT 5(l)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
June 1, 1994
Goldman Sachs Asset Management International
an affiliate of
Goldman, Sachs & Co.
140 Fleet Street
London EC4A 2BJ England
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GOLDMAN SACHS ASIA GROWTH FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the Goldman Sachs Asia
Growth Fund (the "Fund"). Each Series will represent the interests in a
separate portfolio of securities and other assets. Each Series may be
terminated, and additional Series established, from time to time by action of
the Board of Directors. The Company on behalf of the Fund has selected you to
act as the investment adviser of the Fund and to provide certain services, as
more fully set forth below, and you are willing to act as such investment
adviser and to perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers
-------------
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as sub-advisers
to provide with respect to the Fund certain services set forth in Paragraphs 3
and 6 hereof, all as shall be set forth in a written contract to which the
Company, on behalf of the Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Directors who are not
interested persons of you, the sub-adviser, or of the Company, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as
amended, (the "1940 Act").
1
<PAGE>
3. Advisory Services.
-----------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5), (6), (9) and (10) and paragraph (f) of Rule 31a-1
under the 1940 Act (other than those records being maintained
by the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Company's Board
of Directors such periodic and special reports as the Board
may reasonably request. You shall for all purposes herein be
deemed to be an independent contractor and shall, except as
otherwise expressly provided or authorized, have no authority
to act for or represent the Company in any way or otherwise
be deemed an agent of the Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties
under paragraph 3. You will pay the compensation and expenses of
all personnel of yours and will make available, without expense to
the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the
Company, subject to their individual consent to serve and to any
limitations imposed by law. You will not be required to pay any
expenses of the Fund other than those specifically allocated to you
in this paragraph 4. In particular, but without limiting the
generality of the foregoing, you will not be required to pay: (i)
fees and expenses of any administrator of the Fund; (ii)
organization expenses of the Fund; (iii) fees and expenses incurred
by the Fund in connection with membership in investment company
organizations; (iv) brokers' commissions; (v) payment for
portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of
the cost of your employees rendering legal and accounting services
to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of
preparing stock certificates or any other expenses, including
clerical expenses of issue, redemption or repurchase of Shares of
the Fund; (x) the expenses of and fees for registering or
qualifying Shares for sale and of maintaining the registration of
the Fund and registering the Company as a broker or a dealer; (xi)
the fees and expenses of Directors of the Company who are not
affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Fund's assets, including
expenses incurred in the performance of any obligations enumerated
by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such custodian; or (xiv)
2
<PAGE>
litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's
business. You shall not be required to pay expenses of activities
which are primarily intended to result in sales of Shares of the
Fund.
5. Compensation of the Adviser.
---------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 3 and 4 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
.75% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 5, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of three-fourths (3/4) of
such excess to the extent required by such expense
limitations, provided that the amount of such reimbursement
shall not exceed the amount of your fee during such fiscal
year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
6. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, officers or employees
will act as a principal, except as otherwise permitted by the 1940
Act. You or your agent shall arrange for the placing of all orders
for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers
(including Goldman, Sachs & Co.) and the placing of such orders,
you are directed at all times to seek for the Fund the most
favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to
supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking the
most favorable price and efficient execution. Therefore, you are
authorized to place orders for the purchase and sale of securities
for the Fund with such brokers, subject to review by the Company's
Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to you in connection with
your services to other clients. If any occasion should arise in
which you give any advice to your clients concerning the Shares of
the Fund, you will act solely as investment counsel for such
clients and not in any way on behalf of the Fund. You may, on
occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers
(including any other Series or any other investment company or
advisory account for which you or any of your affiliates acts as an
investment adviser), aggregate, to the extent permitted by
applicable laws and regulations, the securities to be sold or
purchased in order to obtain the best net
3
<PAGE>
price and the 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 you in the manner you
consider to be the most equitable and consistent with your
fiduciary obligations to the Fund and to such other customers.
7. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
though also employed by you, who may be or become an employee of
and paid by the Company or the Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or
agent. The Fund shall not be liable for any claims against any
other Series of the Company.
8. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force until June 30, 1995 and shall continue for
periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually (a) by the
vote of a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of the Company and have no financial
interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a
majority of the Board of Directors of the Company or of a majority
of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically
approved at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations
thereunder. This Agreement may, on 60 days' written notice to the
other party, be terminated at any time without the payment of any
penalty, by the Board of Directors of the Company, by vote of a
majority of the outstanding voting securities of the Fund, or by
you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement,
the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment"
and "majority of the outstanding voting securities"), as from time
to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange
Commission by any rule, regulation or order.
9. Amendment of this Agreement. No provisions of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought. No amendment of this Agreement shall be effective until
approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by a majority of the Board of
Directors of the Company, including a majority of the Directors who
are not interested persons (as defined in the 1940 Act) of the
Company and have no financial interest in this Agreement, cast in
person at a meeting called for the purpose of voting on such
amendment.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
11. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
4
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Company, whereupon this letter shall become a binding
contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GOLDMAN SACHS ASIA GROWTH FUND)
Attest: Michael J. Richman By: Marcia L. Beck
--------------------------- --------------------------------
Marcia L. Beck
Its: President
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
an affiliate of Goldman, Sachs & Co.
Attest: Michael J. Richman By: Jeffrey M. Weingarten
--------------------------- --------------------------------
Jeffrey M. Weingarten
Its: Managing Director and Chief
Executive Officer
5
<PAGE>
EXHIBIT 5(m)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
June 1, 1994
Goldman Sachs Asset Management,
a separate operating division
of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GOLDMAN SACHS ASIA GROWTH FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may
be divided into multiple series ("Series"), including the Goldman Sachs Asia
Growth Fund (the "Fund"). Each Series will represent the interests in a
separate portfolio of securities and other assets. Each series may be
terminated, and additional Series established, from time to time by action of
the Board of Directors. The Company on behalf of the Fund has selected you to
act as the administrator of the Fund and to provide certain services, as more
fully set forth below, and you are willing to act as such administrator and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and you; (ii) provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Company's
expense, (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the periodic updating of the Fund's prospectus
and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and
other regulatory authorities; (iv) maintain all of the Fund's
records; and (v) provide the Fund with adequate office space and
all necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
1
<PAGE>
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have no authority to act for or represent the Company
or the Fund in any way or otherwise be deemed an agent of the
Company or the Fund.
(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund. The
"average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's prospectus or otherwise consistent
with the Investment Company Act of 1940, as amended (the "1940
Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you
2
<PAGE>
shall reimburse the Fund in the amount of one-fourth (1/4) of such
excess to the extent required by such expense limitations, provided
that the amount of such reimbursement shall not exceed the amount
of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent. The Fund shall not be liable for
any claims against any other Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1995 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may,
on 60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
3
<PAGE>
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(On behalf of the Goldman Sachs Asia Growth Fund)
Attest: Michael J. Richman By: Marcia L. Beck
-------------------------- ---------------------------
Marcia L. Beck
Its: President
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
-------------------------- ----------------------------
Alan A. Shuch
Its: General Partner
4
<PAGE>
EXHIBIT 5(n)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
October 10, 1994
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GOLDMAN SACHS BALANCED FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may be
divided into multiple series ("Series"), including the Goldman Sachs Balanced
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each Series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
investment adviser of the Fund and to provide certain services, as more fully
set forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers
------------
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as sub-advisers
to provide with respect to the Fund certain services set forth in Paragraphs 3
and 6 hereof, all as shall be set forth in a written contract to which the
Company, on behalf of the Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Directors who are not
interested persons of you, the sub-adviser, or of the Company, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as
amended, (the "1940 Act").
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3. Advisory Services.
------------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5),(6),(9) and (10) and paragraph (f) of Rule 31a-1 under
the 1940 Act (other than those records being maintained by
the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Company's Board of
Directors such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be
deemed to be an independent contractor and shall, except as
otherwise expressly provide or authorized, have no authority
to act for or represent the Company in any way or otherwise
be deemed an agent of the Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties under
paragraph 3. You will pay the compensation and expenses of all personnel of
yours and will make available, without expense to the Fund, the services of
such of your partners, officers and employees as may duly be elected officers
or Directors of the Company, subject to their individual consent to serve and
to any limitations imposed by law. You will not be required to pay any expenses
of the Fund other than those specifically allocated to you in this paragraph 4.
In particular, but without limiting the generality of the foregoing, you will
not be required to pay: (i) fees and expenses of any administrator of the Fund;
(ii) organization expenses of the Fund; (iii) fees and expenses incurred by the
Fund in connection with membership in investment company organizations; (iv)
brokers' commissions; (v) payment for portfolio pricing services to a pricing
agent, if any; (vi) legal, auditing or accounting expenses (including an
allocable portion of the cost of your employees rendering legal and accounting
services to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and fees
for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a dealer;
(xi) the fees and expenses of Directors of the Company who are not affiliated
with you; (xii) the cost of preparing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other regulatory
authorities; (xiii) the fees or disbursements of custodians of the Fund's
assets, including expenses incurred in the performance of any obligations
enumerated by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such
2
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custodian; or (xiv) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business. You shall not be required to pay expenses of activities which are
primarily intended to result in sales of Shares of the Fund.
5. Compensation of the Adviser.
----------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 3 and 4 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
0.50% per annum of the average daily net assets of the
Fund. The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 5, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of 55/70th of such excess to
the extent required by such expense limitations, provided
that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
6. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales or portfolio securities for the account of the Fund, neither
you nor any of your partners, officers or employees will act as a principal,
except as otherwise permitted by the 1940 Act. You or your agent shall arrange
for the placing of all orders for the purchase and sale of portfolio securities
for the Fund's account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers (including
Goldman, Sachs & Co.) and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that you
have access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution.
Therefore, you are authorized to place orders for the purchase and sale
of securities for the Fund with such brokers, subject to review by the
Company's Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful to you in connection with your services to other
clients. If any other occasion should arise in which you give any advice to
your clients concerning the Shares of the Fund, you will act solely as
investment counsel for such clients and not in any way on behalf of the Fund.
You may, on occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers (including any
other Series or any other investment company or advisory account for which you
or any of your affiliates acts as an investment adviser), aggregate, to the
extent permitted by applicable laws and regulations, the securities to be sold
or purchased in order
3
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to obtain the best net price and the 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 you in the manner you consider to
be the most equitable and consistent with your fiduciary obligations to the
Fund and to such other customers.
7. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on
your part in the performance of your duties or from reckless disregard by you
of your obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Fund and
not as your employee or agent. The Fund shall not be liable for any claims
against any other Series of the Company.
8. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force June 30, 1996 and shall continue for periods of one year
thereafter but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of the Company and have no
financial interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a majority of the
Board of Directors of the Company or of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at lease annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may, on 60 days' written notice to the other party, be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Company, by vote of a majority of the outstanding voting
securities of the Fund, or by you. This Agreement shall automatically terminate
in the event of its assignment. In interpreting the provisions of this
Agreement, the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment" and
"majority of the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission by an rule, regulation or order.
9. Amendment of this Agreement. No provision of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement shall be effective until approved by vote of the holders of a
majority of the outstanding voting securities of the Fund and by a majority of
the Board of Directors of the Company, including a majority of the Directors
who are not interest persons (as defined in the 1940 Act) of the Company and
have no financial interest in this Agreement, cast in person at a meeting
called for the purpose of voting on such amendment.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
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11. Miscellaneous. The captions in this Agreement are included
-------------
for convenience of reference only and in no way defined or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GOLDMAN SACHS BALANCED FUND)
Attest: Michael J. Richman By: Marcia L. Beck
-------------------------------- -------------------------------
Michael J. Richman Marcia L. Beck
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
-------------------------------- -------------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
5
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EXHIBIT 5(o)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
October 10, 1994
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GOLDMAN SACHS BALANCED FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may be
divided into multiple series ("Series"), including the Goldman Sachs Balanced
Fund (the "Fund"). Each Series will represent the interests in a separate
portfolio of securities and other assets. Each series may be terminated, and
additional Series established, from time to time by action of the Board of
Directors. The Company on behalf of the Fund has selected you to act as the
administrator of the Fund and to provide certain services, as more fully set
forth below, and you are willing to act as such administrator and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and you; (ii) provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Company's
expense, (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the periodic updating of the Fund's prospectus
and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and other
regulatory authorities; (iv) maintain all of the Fund's records'
and (v) provide the Fund with adequate office space and all
necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have no authority to act for or represent the Company
or the Fund in any way or otherwise be deemed an agent of the
Company or the Fund.
1
<PAGE>
(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be determined on
the basis set forth in the Fund's prospectus or otherwise
consistent with the investment Company Act of 1940, as amended (the
'"1940 Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of 15/70ths of
such excess to the extent required by such expense limitations,
provided that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
2
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(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on your part in the performance of your
duties or from reckless disregard by you of your obligations and duties
under this Agreement. Any person, even though also employed by you, who
may be or become an employee of and paid by the Company or the Fund shall
be deemed, when acting within the scope of his employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee
or agent. The Fund shall not be liable for any claims against any other
Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 30, 1996 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may, on
60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
3
<PAGE>
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GOLDMAN SACHS BALANCED FUND)
Attest: Michael J. Richman By: Marcia L. Beck
--------------------------- -------------------------------
Michael J. Richman Marcia L. Beck
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: Alan A. Shuch
--------------------------- -------------------------------
Michael J. Richman Alan A. Shuch
Counsel to the Funds Group Partner
4
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EXHIBIT 5(p)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
June 1, 1995
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
32 Old Slip
New York, NY 10005
ADMINISTRATION AGREEMENT
------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may be
divided into multiple series ("Series"), including the Goldman Sachs Mid Cap
Equity Fund (the "Fund"). Each Series will represent the interests in a
separate portfolio of securities and other assets. Each series may be
terminated, and additional Series established, from time to time by action of
the Board of Directors. The Company on behalf of the Fund has selected you to
act as the administrator of the Fund and to provide certain services, as more
fully set forth below, and you are willing to act as such administrator and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Company agrees with you as follows:
1. ADMINISTRATIVE SERVICES
(a) Subject to the general supervision of the Board of Directors of the
Company, you will provide certain administrative services to the
Fund. You will, to the extent such services are not required to be
performed by others pursuant to the custodian agreement (or the
transfer agency agreement to the extent that a person other than
you is serving thereunder as the Company's transfer agent), (i)
provide supervision of all aspects of the Fund's operations not
referred to in paragraph 2(a) of the current Investment Advisory
Agreement between the Company and you; (ii) provide the Fund with
personnel to perform such executive, administrative and clerical
services as are reasonably necessary to provide effective
administration of the Fund; (iii) arrange for, at the Company's
expense, (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the periodic updating of the Fund's prospectus
and statement of additional information and the preparation of
reports filed with the Securities and Exchange Commission and other
regulatory authorities; (iv) maintain all of the Fund's records'
and (v) provide the Fund with adequate office space and all
necessary office equipment and services including telephone
service, heat, utilities, stationery supplies and similar items.
(b) You will also provide to the Company's Board of Directors such
periodic and special reports as the Board may reasonably request.
You shall for all purposes herein be deemed to be an independent
contractor and shall, except as otherwise expressly provided or
authorized, have no authority to act for or represent the Company
or the Fund in any way or otherwise be deemed an agent of the
Company or the Fund.
1
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(c) You will notify the Company of any change in your membership within
a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you shall be
free to render similar services to others so long as your services
under this Agreement are not impaired thereby.
2. ALLOCATION OF CHARGES AND EXPENSES
You will pay all costs incurred by you in connection with the performance
of your duties under paragraph 1. You will pay the compensation and
expenses of all personnel of yours and will make available, without
expense to the Fund, the services of such of your partners, officers and
employees as may duly be elected officers or Directors of the Company,
subject to their individual consent to serve and to any limitations
imposed by law. You will not be required to pay any expenses of the Fund
other than those specifically allocated to you in this paragraph 2. In
particular, but without limiting the generality of the foregoing, you
will not be required to pay: (i) fees and expenses of any investment
adviser of the Fund; (ii) organization expenses of the Fund; (iii) fees
and expenses incurred by the Company in connection with membership in
investment company organizations; (iv) brokers' commissions; (v) payment
for portfolio pricing services to a pricing agent, if any; (vi) legal,
auditing or accounting expenses (including an allocable portion of the
cost of your employees rendering legal and accounting services to the
Fund); (vii) taxes or governmental fees; (viii) the fees and expenses of
the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and
fees for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a
dealer; (xi) the fees and expenses of Directors of the Company who are
not affiliated with you; (xii) the cost of preparing and distributing
reports and notices to shareholders, the Securities and Exchange
Commission and other regulatory authorities; (xiii) the fees or
disbursements of custodians of the Company's assets, including expenses
incurred in the performance of any obligations enumerated by the Articles
of Incorporation or By-Laws of the Company insofar as they govern
agreements with any such custodian; or (xiv) litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Fund's business. You shall not be required to
pay expenses of activities which are primarily intended to result in
sales of Shares of the Fund.
3. COMPENSATION OF THE ADMINISTRATOR
(a) For all services to be rendered and payments made as provided in
paragraphs 1 and 2 hereof, the Company on behalf of the Fund will
pay you on the last day of each month a fee at an annual rate equal
to .25% per annum of the average daily net assets of the Fund.
The "average daily net assets" of the Fund shall be determined on
the basis set forth in the Fund's prospectus or otherwise
consistent with the investment Company Act of 1940, as amended (the
'"1940 Act") and the regulations promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses (including
the fee payable pursuant to this paragraph 3, but excluding taxes,
interest, brokerage commissions relating to the purchase or sale of
portfolio securities, distribution expenses and extraordinary
expenses such as for litigation) exceeds the expense limitations,
if any, applicable to the Fund imposed by state securities
administrators, as such limitations may be modified from time to
time, you shall reimburse the Fund in the amount of 15/70ths of
such excess to the extent required by such expense limitations,
provided that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
2
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(c) In addition to the foregoing, you may from time to time agree not
to impose all or a portion of your fee otherwise payable hereunder
(in advance of the time such fee or portion thereof would otherwise
accrue) and/or undertake to pay or reimburse the Fund for all or a
portion of its expenses not otherwise required to be borne or
reimbursed by you. Any such fee reduction or undertaking may be
discontinued or modified by you at any time.
4. LIMITATION OF LIABILITY OF ADMINISTRATOR AND FUND
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on your part in the performance of your
duties or from reckless disregard by you of your obligations and duties
under this Agreement. Any person, even though also employed by you, who
may be or become an employee of and paid by the Company or the Fund shall
be deemed, when acting within the scope of his employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee
or agent. The Fund shall not be liable for any claims against any other
Series of the Company.
5. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in force until June 1, 1997 and shall
continue for periods of one year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a
majority of the Board of Directors of the Company. This Agreement may, on
60 days' written notice to the other party, be terminated at any time
without the payment of any penalty by the Company or by you.
6. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought.
7. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
8. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
3
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If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GOLDMAN SACHS MID CAP EQUITY FUND)
Attest: Michael J. Richman By: Marcia L. Beck
----------------------------- --------------------------------
Michael J. Richman Marcia L. Beck
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: David B. Ford
----------------------------- --------------------------------
Michael J. Richman David B. Ford
Counsel to the Funds Group Partner
4
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EXHIBIT 5(q)
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
32 Old Slip
New York, New York 10005
June 1, 1995
Goldman Sachs Asset Management
a separate operating division of Goldman, Sachs & Co.
One New York Plaza
New York, NY 10004
INVESTMENT ADVISORY AGREEMENT
-----------------------------
GOLDMAN SACHS MID CAP EQUITY FUND
Dear Sirs:
Goldman Sachs Equity Portfolios, Inc. (the "Company") has been organized as a
corporation under the laws of Maryland to engage in the business of an
investment company. The shares of common stock of the Company ("Shares") may be
divided into multiple series ("Series"), including the Goldman Sachs Mid Cap
Equity Fund (the "Fund"). Each Series will represent the interests in a
separate portfolio of securities and other assets. Each Series may be
terminated, and additional Series established, from time to time by action of
the Board of Directors. The Company on behalf of the Fund has selected you to
act as the investment adviser of the Fund and to provide certain services, as
more fully set forth below, and you are willing to act as such investment
adviser and to perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Company agrees with you as follows:
1. Name of Company. The Company may use any name including or
---------------
derived from the name "Goldman Sachs" in connection with the Fund only for so
long as this Agreement or any extension, renewal or amendment hereof remains in
effect, including any similar agreement with any organization which shall have
succeeded to your business as investment adviser. Upon the termination of this
Agreement, the Company (to the extent that it lawfully can) will cause the Fund
to cease to use such a name or any other name indicating that it is advised by
or otherwise connected with you or any organization which shall have so
succeeded to your business.
2. Sub-Advisers. You may engage one or more investment advisers
------------
which are either registered as such or specifically exempt from registration
under the Investment Advisers Act of 1940, as amended, to act as sub-advisers
to provide with respect to the Fund certain services set forth in Paragraphs 3
and 6 hereof, all as shall be set forth in a written contract to which the
Company, on behalf of the Fund, and you shall be parties, which contract shall
be subject to approval by the vote of a majority of the Directors who are not
interested persons of you, the sub-adviser, or of the Company, cast in person
at a meeting called for the purpose of voting on such approval and by the vote
of a majority of the outstanding voting securities of the Fund and otherwise
consistent with the terms of the Investment Company Act of 1940 Act, as
amended, (the "1940 Act").
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3. Advisory Services.
------------------
(a) You will regularly provide the Fund with investment research,
advice and supervision and will furnish continuously an
investment program for the Fund consistent with the
investment objectives and policies of the Fund. You will
determine from time to time what securities shall be
purchased for the Fund, what securities shall be held or sold
by the Fund, and what portion of the Fund's assets shall be
held uninvested as cash, subject always to the provisions of
the Company's Articles of Incorporation and By-Laws and of
the 1940 Act, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from
time to time in effect, and subject, further, to such
policies and instructions as the Board of Directors of the
Company may from time to time establish.
(b) You will maintain all books and records with respect to the
Fund's securities transactions required by sub-paragraphs
(b)(5),(6),(9) and (10) and paragraph (f) of Rule 31a-1 under
the 1940 Act (other than those records being maintained by
the Fund's custodian or transfer agent) and preserve such
records for the periods prescribed therefor by Rule 31a-2 of
the 1940 Act. You will also provide to the Company's Board of
Directors such periodic and special reports as the Board may
reasonably request. You shall for all purposes herein be
deemed to be an independent contractor and shall, except as
otherwise expressly provide or authorized, have no authority
to act for or represent the Company in any way or otherwise
be deemed an agent of the Company.
(c) You will notify the Company of any change in your membership
within a reasonable time after such change.
(d) Your services hereunder are not deemed exclusive and you
shall be free to render similar services to others.
4. Allocation of Charges and Expenses. You will pay all costs
----------------------------------
incurred by you in connection with the performance of your duties under
paragraph 3. You will pay the compensation and expenses of all personnel of
yours and will make available, without expense to the Fund, the services of
such of your partners, officers and employees as may duly be elected officers
or Directors of the Company, subject to their individual consent to serve and
to any limitations imposed by law. You will not be required to pay any expenses
of the Fund other than those specifically allocated to you in this paragraph 4.
In particular, but without limiting the generality of the foregoing, you will
not be required to pay: (i) fees and expenses of any administrator of the Fund;
(ii) organization expenses of the Fund; (iii) fees and expenses incurred by the
Fund in connection with membership in investment company organizations; (iv)
brokers' commissions; (v) payment for portfolio pricing services to a pricing
agent, if any; (vi) legal, auditing or accounting expenses (including an
allocable portion of the cost of your employees rendering legal and accounting
services to the Fund); (vii) taxes or governmental fees; (viii) the fees and
expenses of the transfer agent of the Company; (ix) the cost of preparing stock
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of Shares of the Fund; (x) the expenses of and fees
for registering or qualifying Shares for sale and of maintaining the
registration of the Fund and registering the Company as a broker or a dealer;
(xi) the fees and expenses of Directors of the Company who are not affiliated
with you; (xii) the cost of preparing and distributing reports and notices to
shareholders, the Securities and Exchange Commission and other regulatory
authorities; (xiii) the fees or disbursements of custodians of the Fund's
assets, including expenses incurred in the performance of any obligations
enumerated by the Articles of Incorporation or By-Laws of the Company insofar
as they govern agreements with any such
2
<PAGE>
custodian; or (xiv) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Fund's
business. You shall not be required to pay expenses of activities which are
primarily intended to result in sales of Shares of the Fund.
5. Compensation of the Adviser.
----------------------------
(a) For all services to be rendered and payments made as provided
in paragraphs 3 and 4 hereof, the Company on behalf of the
Fund will pay you each month a fee at an annual rate equal to
0.50% per annum of the average daily net assets of the
Fund. The "average daily net assets" of the Fund shall be
determined on the basis set forth in the Fund's prospectus or
otherwise consistent with the 1940 Act and the regulations
promulgated thereunder.
(b) If, in any fiscal year, the sum of the Fund's expenses
(including the fee payable pursuant to this paragraph 5, but
excluding taxes, interest, brokerage commissions relating to
the purchase or sale of portfolio securities, distribution
expenses and extraordinary expenses such as for litigation)
exceeds the expense limitations, if any, applicable to the
Fund imposed by state securities administrators, as such
limitations may be modified from time to time, you shall
reimburse the Fund in the amount of 55/70th of such excess to
the extent required by such expense limitations, provided
that the amount of such reimbursement shall not exceed the
amount of your fee during such fiscal year.
(c) In addition to the foregoing, you may from time to time agree
not to impose all or a portion of your fee otherwise payable
hereunder (in advance of the time such fee or portion thereof
would otherwise accrue) and/or undertake to pay or reimburse
the Fund for all or a portion of its expenses not otherwise
required to be borne or reimbursed by you. Any such fee
reduction or undertaking may be discontinued or modified by
you at any time.
6. Avoidance of Inconsistent Position. In connection with
----------------------------------
purchases or sales or portfolio securities for the account of the Fund, neither
you nor any of your partners, officers or employees will act as a principal,
except as otherwise permitted by the 1940 Act. You or your agent shall arrange
for the placing of all orders for the purchase and sale of portfolio securities
for the Fund's account with brokers or dealers (including Goldman, Sachs & Co.)
selected by you. In the selection of such brokers or dealers (including
Goldman, Sachs & Co.) and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that you
have access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution.
Therefore, you are authorized to place orders for the purchase and sale
of securities for the Fund with such brokers, subject to review by the
Company's Board of Directors from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful to you in connection with your services to other
clients. If any other occasion should arise in which you give any advice to
your clients concerning the Shares of the Fund, you will act solely as
investment counsel for such clients and not in any way on behalf of the Fund.
You may, on occasions when you deem the purchase or sale of a security to be in
the best interests of the Fund as well as your other customers (including any
other Series or any other investment company or advisory account for which you
or any of your affiliates acts as an investment adviser), aggregate, to the
extent permitted by applicable laws and regulations, the securities to be sold
or purchased in order
3
<PAGE>
to obtain the best net price and the 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 you in the manner you consider to
be the most equitable and consistent with your fiduciary obligations to the
Fund and to such other customers.
7. Limitation of Liability of Adviser and Fund. You shall not be
-------------------------------------------
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on
your part in the performance of your duties or from reckless disregard by you
of your obligations and duties under this Agreement. Any person, even though
also employed by you, who may be or become an employee of and paid by the
Company or the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the Fund and
not as your employee or agent. The Fund shall not be liable for any claims
against any other Series of the Company.
8. Duration and Termination of this Agreement. This Agreement
------------------------------------------
shall remain in force June 1, 1997 and shall continue for periods of one year
thereafter but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Directors who are not
interested persons (as defined in the 1940 Act) of the Company and have no
financial interest in this Agreement, cast in person at a meeting called for
the purpose of voting on such approval and (b) by a vote of a majority of the
Board of Directors of the Company or of a majority of the outstanding voting
securities of the Fund. The aforesaid requirement that continuance of this
Agreement be "specifically approved at lease annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder.
This Agreement may, on 60 days' written notice to the other party, be
terminated at any time without the payment of any penalty, by the Board of
Directors of the Company, by vote of a majority of the outstanding voting
securities of the Fund, or by you. This Agreement shall automatically terminate
in the event of its assignment. In interpreting the provisions of this
Agreement, the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment" and
"majority of the outstanding voting securities"), as from time to time amended,
shall be applied, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission by an rule, regulation or order.
9. Amendment of this Agreement. No provision of this Agreement
---------------------------
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement shall be effective until approved by vote of the holders of a
majority of the outstanding voting securities of the Fund and by a majority of
the Board of Directors of the Company, including a majority of the Directors
who are not interest persons (as defined in the 1940 Act) of the Company and
have no financial interest in this Agreement, cast in person at a meeting
called for the purpose of voting on such amendment.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
4
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11. Miscellaneous. The captions in this Agreement are included
-------------
for convenience of reference only and in no way defined or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Company, whereupon this letter shall become a binding contract.
Yours very truly,
GOLDMAN SACHS EQUITY PORTFOLIOS, INC.
(ON BEHALF OF THE GOLDMAN SACHS MID CAP EQUITY FUND)
Attest: Michael J. Richman By: Marcia L. Beck
---------------------------- ---------------------------
Michael J. Richman Marcia L. Beck
Secretary of the Company President of the Company
The foregoing Agreement is hereby accepted as of the date thereof.
GOLDMAN SACHS ASSET MANAGEMENT
A SEPARATE OPERATING DIVISION OF GOLDMAN, SACHS & CO.
Attest: Michael J. Richman By: David B. Ford
---------------------------- ---------------------------
Michael J. Richman David B. Ford
Counsel to the Funds Group Partner
5
<PAGE>
EXHIBIT 11(a)
To Goldman Sachs Equity Portfolios, Inc.:
As independent public accountant, we hereby consent to all references to our
firm included in or made a part of Post-Effective Amendment No. 20 to
Registration Statement File No. 33-33316 and Amendment No. 22 to Registration
No. 811-6036.
/s/ Anderson Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
February 28, 1996
